Magee Gammon News Government body urges capital gains tax overhaul 

Government body urges capital gains tax overhaul 

Current capital gains tax rates are too complex and should be aligned with income tax rates, according to the Office for Tax Simplification (OTS). 

Capital gains tax in the UK is charged at 10% and 20% for most taxable assets, or 18% and 28% for residential property that is not a main home.

Income tax in England, Northern Ireland and Wales is charged at rates of 20%, 40% and 45%, with different rates and bands applying in Scotland.

The OTS said harmonising capital gains tax rates with income tax rates could raise an extra £14 billion a year for the Treasury, equating to £70bn over five years.

Should the Treasury more closely align the two taxes, wealthy people who own second homes or assets not held in tax-free wrappers would pick up most of the bill. 

In July 2020, Chancellor Rishi Sunak commissioned the OTS to recommend ways to simplify the levy and the first of two reports was published last month.

Other proposals include slashing the £12,300 annual capital gains tax-free allowance and replacing it so that it only covers asset price increases that are equivalent to inflation. 

The OTS said lowering this allowance to £5,000 would double the amount of people who pay capital gains tax, while reducing it to £1,000 would almost triple the number. 

Should the annual allowance be lowered, many more people would have to file annual tax returns through self-assessment.

More than 275,000 people paid a total of £9.5bn in capital gains tax in 2018/19. 

Of that, 40% came from wealthy individuals who made gains of £5 million or more. By contrast, more than 31m people pay income tax, raising close to £200bn a year.

Sunak does not have to accept the report’s findings, but the Chancellor is looking for ways to recoup some of the £210bn spent on COVID-19 support.

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