Further possible changes to CGT
Jul 08, 2021
Following its initial review into the simplification of Capital Gains Tax (CGT) in November 2020, the Office of Tax Simplification (OTS) has published a second report in which it details further proposed changes to simplify the current laws on CGT.
The first report focused on increasing tax rates and removing business asset relief, largely policy and design considerations. This second report, which was published in May 2021, takes a look at the more practical and administrative improvements which could be made. There is widespread acknowledgment that the legislation for CGT needs to be modernised to better reflect the way people live today.
The report makes 14 recommendations, covering a broad spectrum including the UK residential property return, moving home, divorce and separation. The recommendations fall under the following headings and include these key highlights:
Awareness and administration
- HMRC should create a single customer account which will act as a central hub, in order to integrate all the different ways that CGT data is stored and CGT payments are made.
- The deadline for reporting capital gains on UK residential property should be extended from 30 days to 60 days, or estate agents and conveyancers should be obliged to provide information and guidance to vendors on this requirement.
- The OTS recommends that the rules should be changed so that Private Residence Relief is made available to a taxpayer who occupies a property which they have developed in their own garden.
- It also suggests that there is a review of Private Residence Relief nominations, and that these are captured via the single customer account.
Divorce and separation
- It is widely agreed that separating couples should be given longer to make no gain/no loss transfers. The OTS suggests extending the period 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
- HMRC 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 OTS recommends that the rules for enterprise investment schemes be reviewed, so that their practical operation isn’t hindered by procedural or administrative issues.
- Gains or losses on foreign assets should ideally be calculated in the relevant foreign currency and then converted into sterling.
Land and property issues
- If land and buildings are acquired under Compulsory Purchase Orders, the government should expand the specific Rollover Relief rules which apply in these circumstances.
- If a freeholder is in effect extending their own lease, the government should consider ways of removing inappropriate CGT or corporation tax charges.
- The OTS recommends that HMRC improves their guidance on CGT in a variety of areas, including the UK property tax return, enterprise investment schemes, flat management companies, lodgers and those working from home.