Tax Simplification – Capital Gains Tax (CGT) reform

The Office of Tax Simplification (OTS) published two reviews of the CGT reform in 2020 and 2021, outlining key recommendations for the government to consider.

The Chancellor asked the OTS to identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour, or do not meet policy intent.

The first report made lots of suggestions such as aligning CGT rates with income tax rates, withdrawing the annual exemption and changing business reliefs. The second report focussed on administration and technical issues with recommendations including introducing a single CGT account for taxpayers and extending the property disposal return deadline of 30 days to 60 days. Please see our previous blog on the reports.

The financial Secretary to the Treasury has written to the OTS regarding the Treasury’s first five-year review of the OTS, and to respond to its reports on Inheritance Tax (IHT) and CGT.  The government has accepted five of the recommendations made in the second report and will consider a further five at a future date.  The good news to taxpayers is that none of the recommendations made in the first report have been accepted so the CGT rate will not be changing and the annual exemption will remain.

The accepted changes

OTS recommendationGovernment response
HMRC should integrate the different ways of reporting and paying Capital Gains Tax into the Single Customer Account, making it a central hub for reporting and storing Capital Gains Tax data.Accept – The Government understands the case made to improve CGT and related services for customers and will consider this recommendation as part of the delivery of the Single Customer Account (SCA). SCA service development is a long term strategy for HMRC.
The government should consider extending the reporting and payment deadline for the UK Property return to 60 days, or mandate estate agents or conveyancers to distribute HMRC provide information to clients about these requirements.The Government announced at the Autumn Budget that the time limit for making a CGT return and associated payments on account when disposing of UK land and property has been extended from 30 to 60 days.
The government should extend the ‘no gain no loss’ window on separation to the later of: i) the end of the tax year at least two years after the separation event; or (ii) 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 agrees that the ‘no gain no loss’ window on separation and divorce should be extended and will consult on the detail over the course of the next year.
The government should expand the specific Rollover Relief rules which apply where land and buildings are acquired under Compulsory Purchase Orders (CPO).The Government agrees that expanding Rollover Relief to cover reinvestment in the form of enhancing land already owned meets the spirit of the initial rationale of the relief and will consult on the detail in due course.
HMRC should improve their guidance in the following specific areas:

• The UK Property Tax Return.
• Lodgers and people working from home.
• When a debt is a debt on a security.
• When a loan to a business becomes irrecoverable.
• When Business Asset Disposal Relief could apply to farmers or others looking to retire over a period of time.
• Enterprise investment schemes.
• Land assembly arrangements.
• Flat management companies.
The Government agrees with this recommendation. HMRC has already completed review and expansion of the guidance on the UK Property Tax Return which will be published shortly and will proceed to the other areas of guidance listed in due course.

The accepted recommendations are sensible and much less radical and disruptive than some of the other suggestions could have been.  The extension to the CGT property return deadline is particularly good news for clients disposing of UK property, as the previous deadline of 30 days made the process more stressful than it needed to be for some clients where the information wasn’t easily available.

For more information on the response, and the other recommendations that will be considered at a later date, please see the full response.

As always, if you are concerned about your reporting requirements or the changes being implemented, please do not hesitate to contact us.

IHT reform

The government has decided not to proceed with any changes at the moment having already confirmed in the Budget in March 2021 that the nil-rate band and residence nil-rate band will be maintained at their 2020-21 levels, up to and including 2025-26, to help rebuild the public finances and fund public services.

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