The middle-class capital gains raid

Middle-class savers and entrepreneurs face being hammered by a multi-billion-pound tax raid under plans being considered by the Chancellor to repair the public finances.

The Treasury’s independent tax watchdog has recommended a major overhaul of the capital gains tax (CGT) regime on the sale of assets, which could triple the number of people hit by the duty.

In a report published on Wednesday, the Office of Tax Simplification (OTS) recommended increasing CGT rates by aligning them more closely with income tax bands, as well as cutting annual tax-free allowances. T

The controversial recommendations will be examined by Chancellor Rishi Sunak, who is under pressure to repair the battered public finances.

Tonight experts warned investors and entrepreneurs to be on ‘high alert for a tax raid’ on their finances. They also fear a big hike in CGT would be a blow to the City, putting people off buying and selling shares in listed companies.

As well as wealthier savers, those who inherit property, second-home owners, buy-to-let landlords and entrepreneurs who sell their businesses could be among the hardest hit by the proposed tax grab. Responding to the OTS report, the Treasury stressed its focus was on ‘jobs and the recovery’, having already cancelled the Autumn Budget due later this month.

Former Brexit minister David Davis said: ‘The total focus of the Treasury should be on driving the economic recovery. In such circumstances, tax increases like these amount to economic self-harm.

‘The Treasury would have to be pathologically stupid to implement such nonsense. What we need now is more saving, more investment, more wealth creation and more job creation. This deeply un-Conservative policy would undermine all of these things.’

The Institute for Public Policy Research estimates the Government could raise an extra £90 billion over five years if CGT and income tax are aligned. Mr Sunak, pictured, commissioned the review into CGT over the summer to establish whether it is ‘fit for purpose’.

Capital gains tax is levied on the profits generated from selling assets, from shares and valuable personal possessions to second homes, including inherited property. The tax is also levied on the profits generated by entrepreneurs and sole traders who sell their businesses. More than 275,000 people paid a total of £9.5 billion in CGT in 2018/19, with two fifths coming from wealthy individuals making gains of £5 million or more. Most savers do not have to pay capital gains tax because they can invest £20,000 a year in a tax-free ISA.

But the OTS has recommended revamping the system so potentially hundreds of thousands more people are hit. As part of this, it has proposed cutting the £12,300 annual tax-free allowance. The number of taxpayers hit could almost triple if the personal allowance is reduced to £1,000, and double if it is reduced to £5,000.

The OTS also concluded that the current rates of CGT were too complex and should be aligned more closely with income tax bands.

Laith Khalaf, financial analyst at A J Bell, said: ‘Investors, entrepreneurs and buy-to-let landlords should all now be on high alert. The OTS has teed the Chancellor up to boost Treasury revenues by raising capital gains tax.’