Here we go round the roundabout

Capital gains tax reform

Photo by Christian Chen on Unsplash

Round and round we go. Just as we’ve got used to the new way let’s go back to the old way.

The report published today is on policy design and principles underpinning capital gains tax and sets the stage for second report will be coming out next year we should explore the technical and administrative issues underneath this. The reports have been produced quite quickly which suggests that there is going to be a change on this in the short to medium term.

The report covers only individuals and does not cover trusts or attribution of offshore gains to UK resident individuals nor does it look at the position as regards arrival and departure from the UK. It is therefore fairly narrow in its scope, but arguably seeking to cover most capital gains in reality.

The main recommendations are as follows

  • More closely aligning capital gains tax rates with income tax and addressing boundary issues between capital and income
  • Reduction of the annual exempt amount so it becomes simply an administrative de minimis
  • Back to a formal relief for inflationary gains
  • More flexible use of losses
  • Simplify the large number of capital gains tax rates
  • Looking again at share based rewards arising from employment

Interaction with Inheritance Tax

In addition to the above specific recommendations, the report looks at making the interaction between capital gains tax and inheritance tax more coherent. In particular they discuss the inconsistency whereby on death a business asset can be entitled to a free capital gains tax uplift which is also exempt from inheritance tax.

This widely idea here is that where there is an exemption from Inheritance tax the government would remove the capital gains tax uplift so the beneficiary would receive the asset at original capital gains tax cost. A problem with this is that the original purchase date of many assets is sometimes going to become very historic and records will probably not exist. At the moment on death, the wiping of the slate clean enables capital gains tax to be accurately calculated for the beneficiary.

Back to retirement relief

Interestingly the government seem to have gone full circle on business disposal relief which gives a 10% rate for business assets (which we used to call entrepreneurs relief) and which replaced a retirement based relief 2008. They appear to be going back to the idea of a retirement based relief. Round and round we go . . .


This report shows quite clearly the pressures on income tax and capital gains tax. Capital gains tax is needed to cover gains made on assets but also to prevent income from wealthy people being converted into capital gains and therefore avoiding taxation.

A de minimis is useful for most people who will never have any significant capital gains other than on small amounts of investments and sometimes some chattels. There is a bewildering a way of reliefs in this area and this could all be swept away by having a small day minimus band.


Capital Gains Tax review