In July 2020, the Chancellor asked the Office of Tax Simplification (OTS) to carry out a review of Capital Gains Tax (CGT). The stated purpose was to ‘identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent’.
The First Report, published on 11 November 2020 has recommended material and wide-ranging changes to CGT, more significant than many had expected based on the July request for evidence. The First Report notes that a second report will follow early next year exploring key technical and administrative issues.
Importantly, the First Report is not a proposal from the Chancellor or the Treasury. The Chancellor will review the recommendation of the OTS and consider what, if any, policy changes should be made. There is no fixed timetable for introduction of any of these recommendations, should Government accept them. The earliest likely point for their introduction would be in the Spring Budget 2021.
The First Report contains a historical and economic analysis of CGT. Controversially, it cites with approval research findings which question the very basis on which business owners are taxed, for example “…Several respondents argued that it was difficult from an economic point of view to see why the capital return on investment should general bear a lower tax burden than an income return on investment. The OTS has also been told that it can incentivise companies to maximise short term profit and cut back on larger term investment in order to boost their immediate value in the run up to a sale…”.