Chancellor Rishi Sunak

Earlier this month, Scottish Financial News reported that Chancellor Rishi Sunak is considering proposals by the Office of Tax Simplification (OTS) to reform capital gains tax to help pay for the COVID-19 pandemic.

A review commissioned by the chancellor has recommended aligning rates with much higher income tax levels and lowering the threshold for paying the tax, as well as making it payable when inherited items are sold, and abolishing tax breaks for investors.

As a result of the speculation, City of London brokers and accountants said they had been inundated with calls from senior executives with long term shareholdings as well as company bosses that have retained large stakes in their businesses and who fear being hit by higher taxes.

One senior City financier, told The Financial Times: “Quite a few companies are asking us to find them a window to sell before March.”

They added that some were worried about being tied by closed periods running up to results in the spring. 

The financier said: “Another founder-owner has asked to complete the sale of his business before March. It makes a difference in the price.”

Raising capital gains tax to match income tax bands could generate £14 billion a year, according to the OTS. However, such a move would be a financial blow to business owners, investors and second-home owners.

It would mean higher taxes on share sales for business owners and senior executives — many of whom receive remuneration in shares.

CGT is charged on gains at 10% for basic rate taxpayers and 20 %for higher and additional rate taxpayers. Income tax is charged at a basic rate of 20%, rising to 40% and 45% for higher and additional taxpayers.

The Office for Tax Simplification (OTS) has justified aligning the rates on simplicity grounds, saying that the present disparity “can distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains”.

Other proposals suggested taxing some employee share schemes as income rather than as capital gains, and also taxing earnings retained in companies by owner-managers as income.

The review also questioned the effectiveness of business asset disposal relief. This allows entrepreneurs selling their company to pay CGT at a lower rate of 10% up to a lifetime limit of £1m — which was reduced from £10m in March.

London bankers also told the Financial Times that the potential changes would mean that IPOs in which founders intend to sell some of their stake were also more likely to happen before April.

Colin McLean, managing director of Edinburgh-based SVM Asset Management, said: “We’re seeing more placing activity for directors than we usually would at this time of year.

“Share prices have been very strong for smaller companies through this year and people suddenly have a huge amount of value wrapped up in their companies and there’s more to lose on the tax.”