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Summary
- Office for Tax Simplification report suggests that the Treasury could raise £14 billion by doubling the amount of Capital Gain Tax
- The amount could be garnered by making CGT rates at par to income tax rates of 28 per cent
- OTS suggest that government can bring down the existing allowance on CGT from £12,300 to a range of £2,000 and £4,000
In an attempt to replenish the British government’s battered finances, the Office for Tax Simplification (OTS) has said that the Treasury could raise up to £14 billion by doubling the amount of Capital Gain Tax (CGT).
The report of OTS further elaborated that the amount could be achieved by making the CGT rates at par to those of income tax rates of 28 per cent.
The new report prepared by OTS, as per Chancellor Sunak’s request in July 2020 after the government spent more than £200 billion to tackle the coronavirus pandemic and was looking to claw back the revenue. It was for identifying prospects related to administrative and technical matters. It was also supposed to touch upon areas where the present rules can change behaviour or were not in conformity with their policy intent.
The report suggested that Chancellor should increase the capital gain tax rate and cut exemptions. CGT is charged on the profit when someone sells a property whose price shot up in its valuation, like an additional home. At present, the rate is set at 10 per cent for those who fall under the lower-income slab, and 20 per cent for those who come under the high-income category. There is no CGT on selling the primary residence.
In addition, the report made suggestions about the existing allowance on CGT, which currently stands at £12,300. The report suggested that the government could bring this allowance down in the range of £2,000 and £4,000.
However, at the same time, the report admitted that these recommendations could impact the people's approach to their money matters. It added that the gap between the income tax and the capital gain tax could hamper businesses and household decision-making. It can further create an inducement for taxpayers to organise their matters in ways that efficiently re-describe income as capital gains.
Also read: Are buy-to-let investors fleeing the UK property market?
Meanwhile, OTS Tax Director, Bill Dodwell commented that government should either consider aligning Capital Gains Tax rates with Income Tax rates or should tackle the issues of a margin between Capital Gains Tax and Income Tax if it really considering the simplification to reduce distortions.
Interestingly, the OTS suggestions are on the similar lines of those drafted by the Labour party under Jeremy Corbyn before the 2019 election, which was aimed at bridging the gap between the wealth disparity in the UK.
In tax year 2017-18, nearly £8.3 billion CGT was paid, in comparison with the income tax worth of £180 billion paid by 31.2 million individual taxpayers. And the most striking thing was that around 50,000 people reported net gains just below the limit.
