The Chancellor has asked the Office of Tax Simplification (‘OTS’) to review the Capital Gains Tax (‘CGT’) rules, but simplification in this instance could spell bad news for investors as the Chancellor starts to prepare his inevitable tax raid.

The role of the OTS is to offer proposals to simplify certain areas of UK tax – however, they have occasionally strayed into making policy recommendations, which is not strictly within their remit.  A good example of this was the last review of Inheritance Tax (‘IHT’).

After all the good news at last week’s Summer Statement, this is probably an early indication from the Chancellor that CGT is the first tax set to rise.  There has been significant recent speculation that the main rate of CGT of 20% is set too low, and some have suggested that it should be aligned to the income tax rates, up to 45%.

There is a very compelling case for tax reform and simplification generally.  There are five different CGT rates which could apply for an individual realising a capital gain – 0%/10%/18%/20%/28%.  There is a good argument to say that there should be a single flat rate of CGT.

There is also an argument to abolish CGT (and inheritance tax) completely – the taxes combined raise less than 1% of total tax revenue for the Treasury, but there is significant cost of administration for HMRC to manage the collection of the tax.

Certain assets have drawn attention to the fact they do not attract CGT, such as winnings from gambling (including lottery winnings), vintage wine and classic cars.  The OTS could well make the case to remove these exemptions from the CGT law and simply state that any asset sold for a capital gain should be subject to taxation.

After the good news for homebuyers and property investors that SDLT would be cut for transactions below £500,000, the biggest axe could fall on main residence relief – this is a very generous CGT relief which can effectively provide tax exemption for when someone sells their main residence.

There has been previous speculation that the relief could become subject to a per transaction or lifetime cap or abolished completely.  Property, and residential property, has become one of the most heavily taxed asset classes in the UK – the main residence is one of the few remaining tax reliefs associated with property, and so it’s logical to suggest that the Government may be looking at how additional tax revenue could be generated from this area.