Capital gains tax could be increased to help pay back the billions of pounds borrowed to support the economy during the COVID-19 pandemic.
A report commissioned by Chancellor Rishi Sunak has said that the Treasury could raise £14bn by increasing capital gains tax rates to bring them in line with income tax.
Capital gains tax is applied on profits from the sale or disposal of shares and other property, such as a second home, with an annual allowance of £12,300.
The Office of Tax Simplification report recommended the government should consider reducing the £12,300 allowance to between £2,000 and £4,000.
But doing this and doubling the rates (currently 10% for basic-rate taxpayers and 20% for higher-rate taxpayers) could encourage people to change their financial behaviour, the report said.
Bill Dodwell, tax director at the OTS, said: “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.”
Only 0.5% of the population paid capital gains tax in 2017-18. Some 265,000 people gave £8.3bn to the Treasury, while 60%, (31.2 million people), paid £180bn in income tax.
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