The Office of Tax Simplification (OTS) will undertake the review of CGT and how the chargeable gains of individuals and smaller businesses are treated.
In a letter to the OTS, chancellor Rishi Sunak wrote: “This review should identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.”
He added: “I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.”
The chancellor’s request for a review comes as the Office for Budget Responsibility (OBR) said the UK faced “an unprecedented peacetime rise in borrowing this year to between 13 and 21 per cent of GDP (Gross Domestic Product)”.
The OBR added that the outlook would have been much worse without the measures the government has taken.
Declining CGT revenues
In its July report, the OBR also forecast that there would be sharp declines in CGT receipts from 2021-22 onwards, averaging £4.6bn a year.
It said this was largely down to the steep fall in share prices at the beginning of the pandemic which have only partially recovered.
According to a report in The Times, the CGT review could mean the treasury collects billions of pounds in tax to pay for the pandemic.
But health secretary Matt Hancock denied that was the case. Speaking to Sky News he said: “As far as I understand, there is no proposal and the chancellor is not looking at tax changes now.
“We’ve just had the summer economic statement and apparently reviews like this are normal all of the time and not connected to any decision one way or the other.”
A Treasury spokesperson said: “It is standard practice to keep taxes under review. Over the last few years the OTS has reviewed most of the major tax regimes apart from CGT, and a review of CGT will now complete its review of all the major taxes.”