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Government urged to overhaul CGT

Landlords could be in line for another tax blow as a new report recommends doubling the rate of capital gains tax (CGT) and cutting exemptions.

The Office of Tax Simplification (OTS) has published a review of the tax, commissioned by Chancellor Rishi Sunak, which revealed £14 billion could be raised by making these changes.

Currently, CGT is charged at a basic rate of 10% or a higher rate of 20% on the disposal of assets, with rates of 18% or 28% applying to residential property.

The OTS said to prevent distortions to taxpayer behaviour, the Government should consider bringing CGT rates approximately in line with income tax, which is charged at a basic rate of 20%, a higher rate of 40%, and an additional rate of 45%.

People who own second homes and assets protected from tax would be the most likely to be affected if the recommended changes took place.

The report said:

“The disparity in rates between capital gains tax and income tax can distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains.”

Bill Dodwell, tax director at the OTS, added:

“If the Government considers the simplification priority is to reduce distortions to behaviour, it should consider either more closely aligning capital gains tax rates with income tax rates, or addressing boundary issues as between capital gains tax and income tax.”

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