Stand by for Capital Gains Tax changes later this year - experts

Tax experts suggest the widely expected reform of Capital Gains Tax is unlikely to be announced in tomorrow’s Budget - at least partly because Chancellor Rishi Sunak wants the spotlight on ‘good news’ to support his political ambitions.

Nimesh Shah, chief executive of tax advisory firm Blick Rothenberg - in a contribution to Knight Frank’s Budget preview - says controversial changes are likely to be ducked by Sunak tomorrow, as he wants the Budget statement to focus on support for the economy while the Coronavirus pandemic continues.

Instead Shah, and other tax experts contributing to the Knight Frank preview, say a newly-created ‘Tax Day’ on March 23 may unveil consultation documents on the idea of reform, with the autumn likely to see flesh on the bones of the changes.

The Office for Tax Simplification last year issued a report calling for CGT to be levied roughly in line with income tax, which would be bad news for many owners of buy to lets or holiday homes who would have much higher tax liability in the majority of cases.

Shah believes it is too soon for the Chancellor to align rates with income tax, as proposed by the OTS: “It wouldn’t fit with a Budget that will primarily be about the extension of support. What he says will be more important than what he does because it will signal what may come later in the year.”

Another contributor to the Knight Frank preview - Matthew Braithwaite, a partner at law firm Wedlake Bell - agrees. He suggests that any sense of urgency among his clients to dispose of property has receded in recent weeks as speculation around an imminent change has died down.

“Along with a wealth tax and inheritance tax I suspect that will be put in the ‘too difficult’ box at this Budget” he says. “More subtle tax changes are likely. For example, it’s not beyond the bounds of possibility that ATED will be increased.”

The fact that CGT rules are tied so closely to inheritance tax means a more extensive reform of both was possible in future, Braithwaite adds.

“There is actually a case for a wealth tax to replace inheritance tax and capital gains tax” comments Shah. “It would mean an inflow of tax at a reasonable rate over a lifetime rather than on death or the disposal of an asset.”

Sean Randall, a partner at Blick Rothenberg and chair of the Stamp Taxes Practitioners Group says there may be confirmation of the widely-expected extension to the stamp duty holiday but he warns: “Wherever you draw the line you will have people who will be caught out.” 

“The main concern of this government will be to present its finances in good order before the next election” concludes Shah. “To undertake bigger changes you need a big majority and a clear five-year run. We almost had that with Rishi Sunak but then the pandemic hit.”