Rishi Sunak is mulling an overhaul of capital gains tax as he explores whether the current system is fit for purpose.
The chancellor has today (July 14) commissioned a review of CGT in relation to individuals and smaller businesses, asking the Office of Tax Simplification to consider the overall scope of the tax and the rates which apply.
It will also look at the reliefs, exemptions and allowances which apply to the gains tax.
Mr Sunak has already slashed entrepreneurs' relief, limiting the allowance to £1m at his debut Budget in March, but other benefits — such as the principal private residence relief, which means consumers are not taxed on their main home, and the Isa exemption — fall into the scope of this review.
The chancellor was also keen to ascertain the relationship between CGT and other parts of the tax system, in particular how gains are taxed compared to other types of income.
He wrote: “I would like this review to identify and offer advice about opportunities to simplify the taxation of chargeable gains, to ensure the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.
“In particular, 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.”
The move comes after Mr Sunak put forward £30bn worth of policies and tax cuts, including a stamp duty holiday and VAT reductions, in his summer statement last week (July 8).
It is likely the chancellor is looking at ways to raise cash in order to balance the books as hundreds of billions of pounds is spent on keeping businesses and households afloat amid the virus crisis.
CGT is a modest source of revenue for the exchequer, bringing in just £8.8bn in 2017-18 which the OTS said was equivalent to an average 15 per cent tax rate.
Scoping documents, also published today, showed the OTS would also look at the position of estates in administration, the selling or winding up of unincorporated businesses and distortions to taxpayers’ investment decisions.
The OTS said the review did not extend to corporate groups, so issues surrounding CGT in relation to things such as demergers and substantial shareholding exemptions would not be probed.
In its call for evidence, the OTS said there had been “several changes to CGT” over the last 10 years and that it “may be helpful to consider the tax again in the current climate”.
It has invited two rounds of evidence. The first will look at the principles of CGT and whether its scope and reach are appropriate, while the latter will explore structural issues such as rates, exemptions and how it interacts with other parts of the tax system.