The Office of Tax Simplification (OTS) has published its report on simplifying the design of capital gains tax and reforming how it works.
The report is the first of two, and focuses on where the current rules on CGT are distorting behaviour or aren't working as intended.
Here, Tony Wickenden takes us through the options for reform across four main areas:
1) Rates and boundaries
2) The annual exempt amount
3) Interaction with inheritance tax
4) Business reliefs
On rates and boundaries, the OTS has proposed either aligning capital gains tax with income tax, or new rules to address the discrepancies between the two.
The annual exempt amount is currently set at £12,300, which the OTS suggests is too high. It has put forward a reduced amount of £5,000, though it accepts if implemented this will create an additional administration burden for HM Revenue & Customs.
This latest report also builds on the OTS' earlier work on inheritance tax, and also proposes holdover relief applied to all gifts made during a person's lifetime.
Entrepreneurs' relief (now rebranded as business asset disposal relief) also comes in for challenge by the OTS, and whether this relief does the job it's supposed to.
The OTS suggest if this is kept, there are some changes that should be made.
While these are proposals at this stage, it's worth noting this was a review originally requested by the chancellor, so action may be likely as a result.
We don't know yet what form this will take, but if enacted as proposed these recommendations could end up having a material impact on the financial planning strategies advisers use.
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