More people may have to pay Capital Gains Tax if the recommendations of a government-commissioned report are adopted.

Capital Gains Tax (CGT) is a tax on gains realised when an asset is 'disposed of' - this can be by selling the asset or giving it away.

It is currently charged at different rates:

• for basic rate income tax payers, 18 per cent on gains from residential property and 10 per cent on gains from other assets

• for higher or additional rate taxpayers, 28 per cent on gains from residential property and 20 per cent on gains from other assets

Individuals have an annual personal allowance of £12,300 and if gains are within the allowance, no CGT is payable.

An important relief is the Principal Private Residence relief, which may apply when you sell your home. Another important consideration is that beneficiaries of an estate normally inherit assets at the date-of-death value (probate value).

What might the changes be?

Proposals include:

• reducing the annual personal allowance

• raising rates in alignment with income tax rates

• changing the rules for inherited assets

Reducing the annual personal allowance to £5,000 would double the number of people who would pay CGT.

Aligning the CGT rates with income tax would remove the distinction (in tax terms) between income and capital receipts.

At present, when someone dies there is usually a 'rebasing' of the value of their assets and no CGT is payable on death. The report recommends a 'no gain, no loss' approach, with the beneficiary treated as acquiring the assets at the original base cost of the person who has died. It also recommends an extension of the availability of holdover relief, so that CGT is only payable when an asset is sold, and not when it is given away.

  • Michael Knowles is a partner at award-winning law firm VWV, with offices in Clarendon Road, Watford. Get in touch on 07500 601 063 or