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The Treasury has rejected proposals to raise capital gains tax (CGT) rates to align them with income tax and reduce the levy’s annual allowance.

The Office of Tax Simplification (OTS) recently made proposals to simplify capital gains tax following on from its review into CGT requested by the chancellor Rishi Sunak last year.

As a reminder, CGT is a tax on the profit when you sell an asset that has increased in value. For those who pay a higher rate of income tax, or a trustee or unincorporated business, the rate is currently 28 per cent on gains from residential property and 20 per cent on gains from other chargeable assets. For those on basic rate income tax the rate will depend on the size of the gain, taxable income and whether the gain is from residential property or other assets.

In response to the proposals, Lucy Frazer, financial secretary to the Treasury, sent a letter to the Officer of Tax Simplification which said: “As you rightly highlight in your first report, these reforms would involve a number of wider policy trade-offs and so careful thought must be given to the impact that they would have on taxpayers, as well as any additional administrative burden on HMRC. The Government will continue to keep the tax system under constant review to ensure it is simple and efficient.”

However, she did go on to say that the government had accepted five recommendations from the report on technical and administrative issues with CGT, as they offer “some practical simplifications for taxpayers”.

In the same letter, the Treasury also rejected making any changes to inheritance tax – as was suggested by the OTS in reports in 2018 and 2019.

You can view the full letter by following this link.