Office of Tax Simplification CGT review put on ice by the Treasury

Chancellor, Rishi Sunak, commissioned a report from the Office of Tax Simplification (OTS) to look at ways of simplifying the collection of Capital Gains Tax and IHT.

The OTS had recommended in the report that CGT be increased in line with income tax rates to 20% at the basic rate and 40% at the higher rate. At the same time also decreasing the annual exemption amount to only £2,000.

However, the treasury has declined to take the CGT proposal forward or make any changes to IHT.

The Financial Secretary to the Treasury write to the OTS regarding the Treasury’s first five-year review and respond to its reports on Capital Gains Tax and Inheritance Tax as below:

Office of Tax Simplification Capital Gains Tax Review

I want to also thank you for your reports on CGT. The reports provide a thorough analysis of the design and operation of CGT, and I am grateful to you and your team for your work.

As you rightly highlight in your first report, these reforms would involve a number of wider policy trade-offs and so careful thought must be given to the impact that they would have on taxpayers, as well as any additional administrative burden on HMRC. The Government will continue to keep the tax system under constant review to ensure it is simple and efficient. Your report is a valuable contribution to that process.

I am pleased to announce the Government has accepted five recommendations from the second report on the technical and administrative issues with CGT, which we agree will offer some practical simplifications for taxpayers. I have also asked officials to consider the details of five more of the recommendations that you have set out and to keep these issues under review. The table attached (annex) sets out the Government’s response to each of the recommendations and officials will continue to update you on our progress.

Thank you again for your work and that of your team in these areas. I look forward to your further contributions to the simplification of the UK tax system.

Office of Tax Simplification Inheritance Tax review:

Simplifying the design of the tax The review of IHT was commissioned by the then Chancellor in January 2018. As you recognise, the combination of nil-rate bands, exemptions and reliefs means around 94 per cent of estates are forecast to have no liability over the coming years. However, IHT still makes an important contribution to the public finances and it is forecast to raise £6 billion in 2021-22 to help fund public services.

My predecessor provided a response in March 2021 to your report on the administration of IHT. HMRC continues to make progress on your recommendations, including by ensuring

that from 1 January 2022 over 90 per cent of non-taxpaying estates each year will no longer have to complete IHT forms for deaths when probate or confirmation is required.

The OTS also published a second report in July 2019 on how to simplify the technical design of IHT. The OTS outlined 11 recommendations for consideration, including those which it suggested could simplify lifetime gift exemptions and change the scope of reliefs such as those for business property and agricultural property. You acknowledged that some of these recommendations would have impacts on the Exchequer.

I apologise for the delay in providing the Government’s response. It is clear from recent reports on this subject, such as those by the Organisation for Economic Co-operation and Development and the All-Party Parliamentary Group on Inheritance and Intergenerational Fairness, that there are a wide range of views about how to reform IHT. You will also be aware that the Budget in March announced that the nil-rate band and residence nil-rate band will be maintained at their 2020-21 levels up to and including 2025-26 to help rebuild the public finances and fund public services.

Any potential changes to reliefs and the regime for lifetime gifts must be considered in this wider context. As you acknowledged, the report also raised wider questions about policy issues. As a result, after careful consideration of your recommendations, the Government has decided not to proceed with any changes at the moment, but will bear your very valuable work in mind if the Government considers reform of IHT in the future.

ANNEX: GOVERNMENT’S RESPONSE TO THE OFFICE OF TAX SIMPLIFICATION’S CAPITAL
GAINS TAX REVIEW: SIMPLIFYING PRACTICAL, TECHNICAL AND ADMINISTRATIVE ISSUES

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