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Capital Gains Tax: Will it recover from the Covid-19 financial fallout?

Lynne Rowland, tax partner, Moore Kingston Smith, 12/08/2020

Coronavirus has significantly affected not only world health but world wealth too. The UK government has provided unprecedented levels of financial support but balancing the books will eventually become inevitable. 

Where does the government start? Traditionally it would have considered three options: spending cuts, tax rises or accept a deficit. 

The Chancellor’s request for the Office of Tax Simplification (OTS) to review Capital Gains Tax (CGT) with a view to ‘simplification’, has led to speculation of CGT rises. But as CGT receipts are relatively low, any increases would have to be dramatic to make a significant difference. Perhaps a fundamental change to the way capital is taxed is the answer to simplifying the tax system and making it fairer.

Which reliefs are most at risk?

The OTS will review many of the reliefs and exemptions currently available and consider whether certain reliefs promote unintended behaviours.

Business asset disposal relief

Does this relief achieve the objective of encouraging entrepreneurial activity through development and growth? Is paying 10 percent tax on the sale of a business fair? There was a recent increase in the qualifying period, and the lifetime allowance was reduced from £10m to £1m - but could the government go further?

Uplift to death

While there is no CGT on death, there is an uplift in the value of assets as at the date of death for CGT purposes, and which many believe to be perverse. The OTS has previously suggested removing this uplift in value where an inheritance tax (IHT) relief or exemption applies, to encourage business succession at an earlier time - with original cost flowing through to the successor.

Residence

With the notable exception of UK land and property, CGT is based on UK residence. Some countries retain the right to tax their citizens regardless of their country of residen...


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