The Office of Tax Simplification (OTS) has proposed further changes to Capital Gains Tax (CGT)

The OTS has now published their second report reviewing CGT which was commissioned by Chancellor Rishi Sunak last year.  This second report considers a range of key practical, technical and administrative issues relating to CGT.  Our blog covering the OTS’s previous CGT report of November 2020 can be found here.

Upon its release Bill Dodwell, OTS Tax Director said:

“Many people have limited awareness or understanding of Capital Gains Tax. As the tax tends to affect taxpayers on a one-off basis (over 70% of those paying it in the eleven tax years to 2017-18 did so only once in that period), they do not so readily pick up the knowledge and experience that comes from dealing with something regularly.

This means it is particularly important that the rules, and HMRC’s guidance and processes, are intuitive and fit with the practicalities of life, so far as possible.”

One of the main recommendations was relevant for individuals who dispose of UK residential properties. Over 85,000 of these disposals give rise to a taxable gain and currently the taxpayer must file a UK property tax return within 30 days as well as pay the CGT.  The OTS is now recommending extending this to 60 days and also the OTS suggest that estate agents, conveyancers and auctioneers pass sellers an HMRC-approved standard information pack to raise awareness.

The report also recommended simplifying how CGT is paid by integrating CGT into a single customer account to ease the administrative burden.

Another of the OTS’s recommendations is the proposed change to divorcing couples’ CGT treatment. Currently, divorcing or separating couples can continue to benefit from transferring assets to one another on a ‘no gain, no loss’ basis (without triggering CGT liabilities) in the tax year in which they separate.  This is particularly problematic in scenarios where couples separate towards the end of a tax year (i.e. in the run up to 5 April). The OTS recommends extending this rule to the end of the tax year at least two years after the separation.

In total fourteen recommendations were made in the report which also included the following additional recommendations:

• Removing inappropriate corporation tax or CGT charges where a freeholder is in effect only extending their own lease.
• Improving HMRC’s published guidance (the OTS highlighted key areas of concern).
• Deferring the payment of CGT where the disposal proceeds are deferred on the sale of a business or land, whilst preserving eligibility to existing reliefs.
• Consider whether individuals holding the same share or unit in more than one portfolio should be treated as holding them in separate share pools.
• Review the rules for enterprise investment schemes to ensuring that administrative issues do not prevent their use in practice.
• Look at whether gains or losses on foreign assets should be calculated in the relevant foreign currency and then converted into sterling.
• Adjusting Private Residence Relief to cover developments in a taxpayer’s garden which the taxpayer subsequently occupies.

However it is worth mentioning that all of these recommendations may be moot if the Government decides to disregard the OTS’s findings. The Chancellor has previously chosen not to act on earlier OTS recommendations to raise the rate of CGT.  We will continue to watch for any developments in this area, the political arguments for raising or reforming CGT do not appear to be going away any time soon.

If you have any concerns about this topic, please contact Sean Bannister or any member of the Tax team or Private Client team.

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