Cormac Marum, Harwood Hutton’s Head of Tax, offers his thoughts on the capital gains tax stories doing the rounds
There has been a lot of chatter in the media these past few days concerning capital gains tax (CGT) and the potential for a cash-strapped Chancellor to see it as a soft target for raising revenue.
The speculation surrounding CGT was aroused by plans put forward by the Office for Tax Simplification (OTS), which suggested bringing it into line with income tax, meaning higher rate taxpayers would face a flat rate of 40% or 45%.
I have to say I put little store in the value of OTS reports. The thoughts of an official think-tank, which is what the OTS is, may be of passing interest but I am far from convinced it has much impact on the politically-driven financial and tax policies of the Government of the day.
The latest OTS report is especially unlikely to have much impact on current policies since, until yesterday (Thursday, Nov 12), we were not even clear there would be a Budget in 2020-21.
Now the Government has woken up to the fact that a Budget is required for the basis of a Finance Bill which will need to be passed to allow it to continue raising taxes.
The ‘Budget’, which may feel more like a series of emergency measures, is going to be in March 2021 by which time the country, unfortunately, is unlikely to be through the current pandemic. I would suggest that is not the time to be remodelling our tax system, even if it is already one of the most convoluted in the world.
Such a move can only come after the end of the pandemic, which is the earliest time it will be possible to predict the cost the new tax system will have to address. Even then, the new tax system will have to be introduced carefully so as not to choke off the recovery which will be required.
When the remodelling of the tax system does come, it is fairly certain it will involve a ‘modernisation’ of CGT. The easiest way to remodel will be to simplify and increase the rates of CGT. This could involve aligning them to income tax rates, as the OTS is suggesting and which is what Nigel Lawson did in 1988.
A more politically skilful way to remodel may be to ‘re-base’ CGT to after the current date of March 1982 and choose (again) a date when values were low, for example March 2008 after the financial crisis or perhaps even to March 2020 and the start of the pandemic.
There is clearly a lot of nervousness out there and the best advice we can offer right now is not to over-react to ‘scare stories’ about tax.
What is certain is that we will be dealing with the fallout from Covid-19 for a long time ahead. More than ever, it is important to look at things strategically and have contingencies in place.
I would invite any client who is concerned about their tax situation to get in contact. There is a huge amount of expertise at your disposal – as well as an abundance of grey-haired experience of dealing with previous shocks to the system.
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