Call for Comprehensive Reform of Capital Gains Tax

The call for a comprehensive reform of the Capital Gains Tax (CGT) echoes through the British financial discourse, triggered by the recent report of an influential think tank. The Institute for Fiscal Studies (IFS) has called for significant reforms in its latest report to make the CGT fairer and more growth-oriented. Consideration is being given to an increase in tax rates in the upcoming budget announcement on October 30. The IFS recommends, among other things, ending the CGT inheritance tax exemption, as this provides a significant incentive to hold assets longer than necessary. Aligning tax rates between capital gains and other income is seen as a necessary measure to minimize economic distortions and promote productivity. According to Helen Miller, Deputy Director of the IFS and co-author of the report, the government should focus on a fundamental reform and not just on changes in tax rates. She emphasizes that minimal tax rate increases would fail to generate the desired revenue as they could trigger behavioral changes, prompting people to retain their assets to avoid the tax. Another reform proposal involves abolishing the Business Asset Disposal Relief, a reduced CGT rate for business owners. Instead, the think tank advocates for more generous investment allowances to stimulate entrepreneurship. An additional aspect of the report addresses tax avoidance through emigration. To counter this, the IFS proposes taxing those who leave the UK before realizing their gains. Conversely, individuals moving to the country could be exempt from UK CGT on gains earned during their time abroad. Against the backdrop of rising taxes and record debt, the government faces the challenge of fostering economic growth, a core promise of the Labour party’s election manifesto.