The government has ditched plans to reform and possibly hike Capital Gains Tax (CGT) and Inheritance Tax (IHT), in a move that would have likely hit wealthier households.

In its update on the function of the Office of Tax Simplification (OTS), published at the end of November, the Treasury appears to have quietly scrapped mooted changes to both CGT and IHT.

The OTS initially proposed changes to IHT that would have seen the tax radically simplified. Currently, the system for taxing inheritance relies on a series of exceptions, allowances and other rules that make it difficult for families to negotiate.

It has also been criticised for the increasing number of families liable to the duty every year since its creation. Of CGT, the OTS suggested aligning the allowances with income tax, making it less attractive a way for many to take earnings.

Current rates of 10% for basic rate and 20% for higher and additional rates would have been moved to align with 20%, 40% and 45% rates of income tax respectively. The first £12,300 of capital gains earnings each year is currently tax-free.

Instead, the government accepted some minor changes to CGT rules, including the amount of time divorcing couples are allowed to transfer assets between each other before becoming liable for CGT.

Married couples and civil partners are able to transfer assets between each other without incurring any CGT liability. But for divorced couples this perk expires at the end of the tax year in which they divorce. This time limit is set to be extended.

What now for CGT and IHT?

The decision by the Treasury suggests the reform of CGT and IHT is dead in the water – for now at least. But that is not to say that the taxes might not come in line for reform in the future.

In the Treasury’s response to the OTS, financial secretary to the Treasury Lucy Frazer wrote: “These reforms would involve a number of wider policy trade-offs and so careful thought must be given to the impact that they would have on taxpayers, as well as any additional administrative burden on HMRC.

“The government will continue to keep the tax system under constant review to ensure it is simple and efficient. Your report is a valuable contribution to that process.”

Indeed, according to an article  in The Times newspaper, Rishi Sunak is planning to make sweeping changes to taxes ahead of the next General Election.

According to the report, part of his plans include increasing the threshold for IHT. This would have the impact of making many less families liable to the tax and would likely be a popular measure among Conservative voters.