In this note, I suggest that the annual exempt amount not subject to capital gains tax that a person might enjoy in a year should be reduced to £1,000. The logic is strongly influenced by the exemption for that sum (and no more) for income tax purposes with regard to trading and rental income.
The summary of this report says:
This note suggests that:
- The capital gains tax annual exempt amount should be reduced from £6,000 per annum to £1,000 per annum.
- Since the exempt amounts that might be earned from trading and property activity within income tax law are now £1,000 per annum it makes sense that the same limit be used for capital gains tax purposes.
- The administrative burden on a person making capital gains exceeding £1,000 a year can be no higher than those on the person making trading or property income exceeding £1,000 a year when it comes to preparing a tax return and as such this request is administratively reasonable.
- It is likely that this proposal will not only promote horizontal and vertical tax equity but that it will also reduce the incentive to avoid tax and increase tax revenues by £0.4 billion per annum, and potentially somewhat more.
The provision of a substantial additional exempt amount for capital gains tax over and above the annual personal allowance made available for income tax purposes has never made any sense when issues relating to horizontal and vertical tax equity are taken into account. A welcome reduction in the annual exempt amount for capital gains tax was made last year. This move suggests a logical alignment with income taxation.
Cumulative value of recommendations made
The recommendations now made as part of the Taxing Wealth Report 2024 would, taking this latest proposal into account, raise total additional tax revenues of approximately £83.7 billion per annum.