The Office for Tax Simplification released the second report on its review of capital gains tax (CGT) last month. The report is a follow up to the first review of CGT which was published in November 2020 and suggested far reaching changes to the taxation of capital gains, including the potential alignment of CGT and income tax rates. The second report focuses on ironing out some of the complexities and technical issues in the CGT regime.
The second report covers a range of areas from moving home to getting divorced, running or investing in a business, and particular issues relating to land transactions.
We have outlined some of the key recommendations below.
Awareness and Administration
- HMRC should integrate the different ways of reporting and paying CGT into the Single Customer Account, making it a central hub for reporting and storing CGT data. The ‘real time’ CGT service should be reformed to be usable by Agents.
- The government should consider extending the reporting and payment deadline for the UK Property tax return to 60 days, or mandate estate agents or conveyancers to distribute HMRC provided information to clients about these requirements.
- The government should consider adjusting Private Residence Relief to cover developments in a taxpayer’s garden which the taxpayer subsequently occupies.
- The government should review the practical operation of Private Residence Relief nominations, raise awareness of how the rules operate, and in time enable nominations to be captured through the Single Customer Account.
Divorce and separation
- Under the current rules, separating couples can only transfer assets on a ‘no gain no loss’ basis up until the end of the tax year of separation which the OTS agrees is inadequate. The report recommends that the ‘no gain no loss’ window should be extended to the later of:
- the end of the tax year at least two years after the separation event
- any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland.
- The government should consider whether CGT should be paid at the time the cash is received in situations where proceeds are deferred such as on the sale of a business or land, while preserving eligibility to existing reliefs.
- The government should consider enabling an irrevocable provision in the documentation for a corporate bond to specify that it is subject to CGT, and for the absence of such a provision to mean that it is exempt.
- The Enterprise Investment Schemes are full of potential pitfalls and the government should review the rules, with a view to ensuring that procedural or administrative issues do not prevent their practical operation.
- The government should consider whether gains or losses on foreign assets should be calculated in the relevant foreign currency and then converted into sterling.
Land and property issues
- The government should expand the specific Rollover Relief rules which apply where land and buildings are acquired under Compulsory Purchase Orders.
- The government should consider exploring ways of removing inappropriate Corporation Tax or CGT charges where a freeholder is in effect only extending their own lease.
In our view the report provides sensible recommendations to address some of the administrative complexities in the current administration of CGT.
There is also a clear recognition in the report that current deadlines for reporting and paying over CGT are not well understood by individuals outside the accountancy profession. This is particularly evident for example in light of the £1.3M of late filing penalties issued in the last six months of 2020 to individuals failing to file a 30 day CGT return by the deadline.
However, whilst the Government commissioned this review, it should be noted that these are not Government proposals. They will though be considered by the Government as part of its overall review of capital taxes.
The above information only provides a brief overview of the detailed report. Please speak to a member of our Tax Team or your regular contact at Ryecroft Glenton if you have any queries.