Alarm raised over £18bn cost of ‘exploited’ capital gains tax

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The National Audit Office is flagging up “exploited” capital gains tax that is set to cost the Treasury £18bn a year in 2015/16.

The NAO’s latest report says that HM Revenue & Customs does not monitor tax relief proportionately.

It says: “Given the scale of principal private residence relief, complexity of the rules and lack of reporting requirements, there is scope for wide-scale misuse to go undetected.”

It adds: “We consider HMRC’s monitoring of tax reliefs is not yet systematic or proportionate to their value or the risks they carry.

“Reliefs reduce tax bills and may be exploited or used in ways which Parliament did not intend.

“We found that HMRC closely manages some low-value reliefs for businesses. It does not always do so for higher-value personal tax reliefs, such as principal private residence relief [capital gains tax], worth £18bn in 2015-16.”

The NAO says that HMRC could have reasons for doing this.

But it adds: “But HMRC could not show us that it had a consistent approach to assessing the degree of risk that each relief carries.”