Government ignores recommendation to align CGT with income tax

The Treasury ignored proposals to raise capital gains tax rates to bring them into line with income tax and reduce the annual deduction from the levy.

In a letter to the President and Director of the Office of Tax Simplification, Kathryn Cearns and Bill Dodwell, published yesterday (November 30), the Treasury accepted five of the 14 recommendations, and five more are under consideration.

But there was no mention of the recommendation to change the CGT rate.

In its two reports on the CGT, at the request of the Chancellor, the Office for Tax Simplification had concluded the necessary tax reform in a number of areas.

He found that the disparity between CGT and income tax rates was one of the main sources of complexity, often skewing “business and family decision-making” and creating a tax incentive for taxpayers to pay. “Requalify” income and capital gains.

He said a greater alignment of rates would reduce complexity and bring in around £ 14 billion to the Treasury.

But the Treasury only agreed to implement five of the OTS’s recommendations in its second report, which were more technical.

These include extending the ‘no gain or loss’ window on separation and divorce and considering extending the reporting and payment deadline for UK property declaration to 60 days.

In her letter, Lucy Frazer, Financial Secretary to the Treasury, wrote: “As you rightly point out in your first report, these reforms would involve a number of broader political compromises and so careful consideration needs to be given to the impact that will be taken. ‘they would have on taxpayers, as well as any additional administrative burden on HMRC.

“The government will continue to constantly review the tax system to ensure that it is simple and effective. Your report is a valuable contribution to this process.

Julia Rosenbloom, Tax Partner at Smith & Williamson, said: “Overall, it is important to note that these government responses only very largely relate to acceptances or rejections on technical and administrative aspects of CGT.

“Importantly, this update gives no real indication that we may see an increase in CGT or other changes in the CGT regime. “

Inheritance taxes suffer the same fate

In the same letter, the government rejected the 11 recommendations of the July 2019 OTS report on how to simplify the technical design of inheritance tax.

In its second report, the OTS recommended that the HMRC provide more detailed guidance on the circumstances under which a free benefit may arise with certain pension transfers, for example from a defined benefit plan to a personal pension plan. shortly before the death. .

Frazer wrote: “You […] be aware that the March budget announced that the zero-rate band and the zero-rate residential band will be maintained at their 2020-2021 levels through 2025-2026 inclusive to help rebuild public finances and fund public services .

“Any potential changes to the reliefs and the lifetime donation regime must be seen in this larger context. As you have acknowledged, the report also raised broader questions on policy issues.

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