Rishi Sunak, the Chancellor of the Exchequer, has written to the OTS to request a review of capital gains tax (CGT) in relation to individuals and smaller businesses. The review aims to establish whether the current CGT rules are fit for purpose, and to look for opportunities to simplify them.
Zena Hanks, a partner in the Private Wealth Team at Saffery Champness, comments:
“While the amount of CGT collected each year is relatively modest when compared to the overall amounts collected annually by the Exchequer, the £9.3 billion collected in 2018-19 is certainly not to be sneezed at. Forecasts made by the OBR last year indicate that tax receipts for CGT are due to increase in the coming years to £11.6 billion in 2023-24, but whether these forecasts will be reviewed in light of the current Covid-19 crisis remains to be seen.
“The UK tax regime is notoriously complex, with various reliefs for CGT being available, including for the sale of business assets and for the sale of your main home. In the March 2020 Budget we saw changes to Business Asset Disposal Relief (previously Entrepreneurs’ Relief) where the £10 million limit was drastically reduced to £1 million, although Investors Relief remains available with a lifetime limit of £10 million. We’ve also seen changes to main residence relief that take affect from April 2020.
“The Chancellor has asked the OTS to review the CGT regime, and these recent changes may indicate a certain direction of travel away from time-honoured exemptions and potentially towards greater equivalence with the income tax regime.
“As part of that review, one of the areas that will be focused on is the “31 March 1982” value. For assets that have been held since 31 March 1982, when calculating any CGT due, instead of the original cost from pre-31 March 1982 being used in the calculation, a March 1982 value is substituted. As time marches on and we move further away from March 1982, this value becomes less and less valuable.
“Since April 2020, CGT due on the sale of residential properties, not otherwise protected by main residence relief need to be reported to HMRC and the tax paid within 30 days of completion. Previously, any CGT was collected via the self-assessment system and potentially 22 months after a sale had taken place. Now the 30-day CGT system is operational, and taxpayers must calculate their CGT bill, file it with HMRC and pay it off, all within a very narrow window of time, we’re starting to see inconsistencies in how that information is reported.
“The structure of the way CGT is applied to the sale and transfer of assets is complex and notoriously tricky. The tax gap figures released annually show that errors and complexity in the tax system contribute to the tax gap. The review by the OTS must have at front and centre a CGT regime that collects CGT fairly, accurately and incentivises investment.”
The OTS has launched an online survey and a call for evidence to seek the views of advisers, individuals and businesses on CGT and its complexities.
You can complete the survey here: https://www.smartsurvey.co.uk/s/3HRSVY/