Chancellor Rishi Sunak has asked the Office of Tax Simplification to review Capital Gains Tax (CGT) rules, specifically asking for a review of its use in "the acquisition and disposal of property" and "the practical operation of principal private residence relief". In the 2016 Budget there was a drop in CGT, apart from on property, where the 18% rate dropped to 10% and the 28% rate dropped to 20%.
Blick Rothenberg described the review as an "inevitable tax raid" to recoup some of the money spent during the Covid-19 lockdown period, describing the potential changes as "bad news for investors". Private residence relief means that nobody pays CGT if they sell their home for more than they bought it. Landlords and second home owners are still subject to CGT on the money they make selling a property, and the exemption for people’s main home is worth around £26.7bn, according to the National Audit Office.
In terms of what assets would be affected, the Government has specifically asked to look at principal private residence relief. However, CGT on homes seems "more difficult to implement and ultimately counterproductive to the stamp duty holiday announced on 8th July".
The stamp duty holiday is to encourage a kick-start in the housing market, whereas CGT on first homes could counter that, particularly as some are sitting on very large gains in their main homes. Given previous moves on second homes and buy-to-lets, where it is already required to pay CGT, it is possible that these types of properties will remain a focal point for Sunak.
Tax rates have been low for many years, and therefore it seems to be an obvious source of income for the Government to consider when looking at how to recuperate the cost of Covid-19. Capital gains tax rates have lately been much lower than income tax, whereas there has been a time in the past when the tax rates were more aligned.
Although the overall take from CGT is small, the Government must start somewhere, and wealthy individuals would have benefited even in these difficult times from good market performance. It seems like an easy solution for now, however this is likely to be just the start of measures introduced in the future to start to repay the Coronavirus debt.