As we reported last year, the Office of Tax Simplification (OTS) was asked by the government to review capital gains tax (CGT) and identify opportunities to make changes. The OTS’s response to this was in the form of two reports.
The first, published in November 2020, considered simplifying rates and boundaries, the annual exempt amount, capital transfers and business reliefs.
The second report was recently published and considers a number of practical, technical and administrative CGT issues, covering a range of events where CGT might be due – such as moving home, getting divorced, investing in a business, and land transactions. The report highlights that, unlike other taxes, most taxpayers have to deal with CGT only rarely. This contributes to a lack of awareness of the rules, and so its recommendations are largely themed around measures HM Revenue & Customs (HMRC) can implement to support taxpayers, including:
- Incorporating CGT into the new Single Customer Account. Rather than reporting CGT via self-assessment, via the UK property tax return for UK residential property disposals and the ‘real time’ CGT service, the OTS recommends HMRC integrate them into a Single Customer Account to ease administrative burden.
- Extending the reporting and payment deadline for the UK property tax return to 60 days. The current deadline is 30 days, which most agree is ambitious. The OTS has recommended that the government to extend this to 60 days, or at least mandate estate agents or conveyancers to inform their clients about their filing obligations.
- Reviewing the practical implications of Private Residence Relief (PRR) nominations. PRR takes main homes outside the scope of CGT and those with multiple homes can nominate which home should benefit from the relief. The OTS has recommended the rules should be publicised more widely and enable such nominations to be made via the Single Customer Account mentioned above.
- Extending the period in which divorcing or separating couples can transfer assets between them at no gain/no loss. Married couples can transfer assets between them without triggering a CGT charge and the same benefit is afforded to divorcing couples in the tax year they separate. On the basis that, on average, it takes a year to secure a divorce in England and Wales, the OTS commented that this is insufficient time for separating couples to reorder their affairs and instead recommended the benefit is extended to the later of:
- The end of the tax year at least two years after separation; or
- A reasonable time for the transfer of assets in accordance with a financial agreement, as approved by a court (or the equivalent process in Scotland).
- Considering the CGT payment date where proceeds are deferred when a business is sold. Some more complex business and land sales create practical tax issues, in that CGT may need to be paid before any cash has actually been received. The OTS recommends the government consider whether CGT should instead be paid at the time cash is received in such circumstances.
Bill Dodwell, OTS’ Tax Director, commented:
“Together these two reports make up the most comprehensive review ever conducted of the tax and the practical experience of those who report or pay it.
“Many people have limited awareness or understanding of CGT. As the tax tends to affect taxpayers on a one-off basis, 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.”
As with all OTS reports, the government is not bound to accept any of these recommendations. However, as they would provide practical assistance to many taxpayers, it is to be hoped that the government considers bringing some of them forward legislatively.
If you would like advice on any aspect of capital gains tax, please contact your usual Saffery partner.