Capital Gains Tax and the end of Entrepreneurs’ Relief?
On the 14th of July this year, in the midst of the Coronavirus Pandemic, with Her Majesty’s Government helicoptering money throughout the United Kingdom, the Chancellor of the Exchequer decided that now was the time to order a review of Capital Gains Tax [CGT], to consider how gains are taxed compared with other types of income as it applies to individuals and small businesses. A burning issue, I think you will agree, in these unprecedented times.
And who is to undertake this review? Why, the Office of Tax Simplification. And what is the OTS? Well, it terms itself as an “independent office of HM Treasury” [I think my old English Teacher would have referred to that as an oxymoron] which according to its website gives “independent advice to the government on simplifying the UK tax system, to make thing easier for taxpayers”. To make things easier for taxpayers, right, yes, so nothing to do with supplying ammunition to Mr Sunak to hammer those individuals who use their capital, ingenuity and hard work ethic to create wealth, to generate capital profit.
Quiz Time- answers at the bottom of the page.
And here is a not very generous clue- in the fiscal year 2018/2019, HMRC’s total tax receipts were £623bn. There are many tax streams, such as fuel, tobacco and alcohol duties that make up this figure and do not feature below, so no point in trying to work out what numbers in the quiz would add up to £623bn.
Question 1 – how much tax revenue did CGT generate in 2018/2019? Was it:
Question 2 – how much tax revenue did Income Tax generate in 2018/2019? Was it:
Question 3 – how much tax revenue did Corporation Tax generate in 2018/2019? Was it:
Question 4 – how much tax revenue did VAT generate in 2018/2019? Was it:
Question 5 – what is the estimated Covid19 bill to the British economy? Is it
By checking the answers below, you will have established that CGT generated a fairly feeble £9.5bn of tax revenue in the year in question. What is even more remarkable is that it was generated from less than 276,000 taxpayers [a drop of 5,000 from 2017/2018].
So as can be seen, the tax base for CGT is currently very small indeed, so simply increasing the rate of tax, or indeed removing Entrepreneur Relief entirely will not significantly expand the tax base. But what will significantly increase the tax take will be a combination of the following, leading to a widening of the tax base, thus increasing CGT revenue:
- Increase rate of CGT-to achieve equivalence with income tax rates
- Removal Entrepreneur Relief
- Remove or reduce the Annual CGT exemption limit [currently running at £12,300 per annum per taxpayer]
- Reduce ISA limits on gains
- CGT on family home – one of the questions in the OTS survey asks if there are such occasions when it may arise-why ask the question if it is not under consideration?
Some commentators are taking solace in the fact that the OTS review/investigation is not due to be completed until 12 October 2020 meaning any changes to the current CGT system are unlikely to come into force until the 2021/2022 tax year commencing 6 April 2021. The writer of this piece takes no such comfort. The next Budget is expected to take place this Autumn. The Chancellor will be looking for soft tax targets and CGT and Entrepreneur’s Relief will feature high on his list of easy tax generators.
On March 11 2020, the Chancellor reduced, at a stroke, the lifetime Entrepreneur’s Relief limit from £10m to £1m. There was no waiting until the start of the following tax year for that to take effect. It took effect at 1 minute past midnight on the day of the budget. So, do not be surprised if he takes equally precipitous action on CGT and Entrepreneur Relief this Autumn.
Question 1 – (a) £9.5bn
Question 2 – (h) £191bn
Question 3 – (k) £59.1bn
Question 4 – (n) £132.2bn
Question 5 – (s) £188bn and rising