Rishi Sunak should double capital gains tax rates in order to reel in an extra £14bn, according to the government’s tax advisory body.
The Office for Tax Simplification today released its findings on a review ordered by Sunak, telling the chancellor he should increase the rate of capital gains tax and slash exemptions to take away the “odd incentives” of the current system.
Sunak ordered a review of the tax, which is charged when someone sells an asset for profit, in July as a potential way to claw back revenues after spending more than £200bn on the pandemic.
Capital gains tax, which is not charged when someone sells their primary residence, is currently levied at 10 per cent for people in lower income tax brackets and 20 per cent for those in higher income tax brackets.
The Office for Tax Simplification has suggested that Sunak double both of these rates to bring them in line with income tax rates.
The first £12,300 of capital gains earned on a sale is also non-taxable, however the advisory body has also suggested lifting this to a higher level.
“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,” the report said.
The report is non-binding for the chancellor and his Treasury allies have already distanced Sunak from the report.
One told the Financial Times: “It’s their job to review theses taxes, but essentially these are a bunch of wonks doing this work.”
Sunak also played down the significance of the review in July, telling a Westminster committee it was “reasonably business as usual practice for the Treasury to ask the Tax Simplification Office to examine various parts of our tax system”.
A spokesperson for the Treasury said: “The government’s priority right now is supporting jobs and the economy.
“We thank the OTS for their independent report which will be considered in due course.”