Rishi Sunak leaving 11 Downing Street on July 8
Rishi Sunak is looking to investigate how capital gains are taxed for individuals and smaller businesses, to improve simplification and ‘ensure the system is fit for purpose’ © Tolga Akmen/AFP

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The chancellor has commissioned a review of the UK’s capital gains tax regime in a move that wealth managers said is a forerunner to increases in the levy.

Rishi Sunak asked the Office of Tax Simplification in a letter made public on Tuesday to investigate how capital gains are taxed for both individuals and smaller businesses, to improve simplification and “ensure the system is fit for purpose”.

“This review should 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 chancellor said.

“I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.”

Some wealth managers said the move suggests CGT would be used to help fill the hole in the public finances.

“With UK borrowing set to hit its highest level in peacetime history, chancellor Rishi Sunak’s request for a review of CGT feels like the starting pistol for a tax grab ahead of the Autumn Budget later this year,” said Tom Selby, senior analyst at platform AJ Bell.

Mr Sunak could be contemplating aligning CGT rates with income tax rates as doing so would both simplify the tax system and raise additional funds, especially, if the annual CGT exemption of £12,300 is cut or abolished, Mr Selby said.

Above this allowance, CGT is currently charged on gains at 10 per cent for basic-rate taxpayers and 20 per cent for higher and additional rate taxpayers, or 18 per cent and 28 per cent respectively where the gains relate to residential property. In contrast, income tax is charged at a basic rate of 20 per cent, rising to 40 per cent and 45 per cent for higher and additional taxpayers.

The scope of the OTS investigation includes principal private residence relief, a tax break that allows individuals selling their main home not to pay CGT.

Mike Hayes, a tax partner at accountancy firm Moore Kingston Smith, said: “The chancellor has not shown much enthusiasm for a wealth tax so far, but given that much of the population’s wealth is tied up in their homes, restricting the CGT exemption on a person’s home would enable him to tap into this vast source of wealth.”

As part of the review, the OTS has published a dual call for evidence.

The first part seeks comment on the principles of CGT by August 10. The second part asks for responses on technical detail and practical operation of CGT by October 12. Individuals can also take part in an OTS survey on CGT.

Letters in response to this article:

Homeworking employees could be subject to CGT / From John Marsh, Bourne End, Buckinghamshire, UK

Tax reform is the way to win over entrepreneurs / From Stephen Porter, ArtHistorical, London W1, UK

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