ATT concern at potential increase to scope of capital gains tax

The Association of Taxation Technicians (ATT) welcomes the latest policy paper1 published (today) by the Office of Tax Simplification (OTS) as part of its ongoing review into capital gains tax (CGT). But the ATT has concerns about the OTS' recommendations on reducing the Annual Exempt Amount. The ATT is worried that any moves to reduce this allowance could result in more individuals with smaller gains coming into the scope of CGT. Unless the OTS’ recommendations in this area are adopted in full, these individuals may struggle with the necessary tax administration.

The Annual Exempt Amount allows an individual to make gains of up to a certain amount (currently £12,300 for the 2020/21 tax year) without paying CGT. As part of a range of policy measures suggested for the Government to consider, the OTS recommends that if the Annual Exempt Amount is intended mainly to operate as an administrative de minimis – i.e. to keep only those making the smallest gains out of the scope of CGT - it should consider reducing its level.

Jeremy Coker, President of the ATT, said:

“The Annual Exempt Amount has its limitations but it has a number of practical advantages. It is simple, straightforward and widely understood. Having an initial tax-free allowance is also consistent with the personal allowance in income tax.”

The ATT would rather that this valuable relief was not reduced. If changes are made, it is important that the OTS’ further recommendations suggesting that any reduction in the allowance should be accompanied by administrative simplification are taken into account – and that such simplification should occur before the threshold is reduced.

Jeremy Coker continued:

“The OTS acknowledges that any reduction could result in bringing more people in the tax system. It is helpful to see that the OTS’ recommendations in this area extend to a package of recommendations where any reduction might be compensated for by changes to simplify administration for those who would be required to report their gains.

“Our concern is that the proposal to lower the Annual Exempt Amount could be taken up in isolation and we would strongly oppose this. We think that if the Government is to adopt any of the recommendations in this area, administrative simplification must be carried out and publicity given to this before this valuable allowance is reduced.”

Notes for editors

  1. The OTS’s policy paper OTS Capital Gains Tax Review: Simplifying by design was published on 11 November 2020.
  2. The ATT’s initial submission to the OTS can be found here.
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