OTS – Second capital gains tax report published
The Office of Tax Simplification (OTS) published its second report on capital gains tax (CGT) reform on 20 May 2021.
The first report (November 2020) addressed whether fundamental policy reform was required and suggested more closely aligning income tax and CGT rates and removing the CGT uplift on death. In contrast, this report focuses on practical administrative issues and has made 14 recommendations, most notably concerning the following:
- Raising awareness about when and how taxpayers pay CGT and improving digital reporting processes. The OTS recommended that HMRC should integrate the different ways of reporting and paying CGT into the Single Customer Account, making it a central hub for CGT data.
- Increasing the 30 day window to file a return after disposing of a UK residential property to 60 days, or requiring estate agents or conveyancers to distribute HMRC provided information to clients about these requirements.
- Reviewing the practical operation of main residence (PPR) relief nominations and raising awareness of how the rules operate. Interestingly the OTS did not advocate a fundamental overhaul of the PPR system. However, the report recommended that short term rentals should not be capable of being regarded as a main residence; PPR absences reliefs should be reviewed; and that PPR be adjusted to cover developments in a taxpayer’s garden which they subsequently occupy.
- Extending the ‘no gains no loss’ window for couples who separate to the later of: the end of the tax year at least two years after separation, and any reasonable time set for the transfer of assets under a court approved financial agreement. At present separating couples have just the tax year in which they separate to complete CGT-free asset transfers.
- Delaying payment of CGT where proceeds are deferred such as on the sale of a business or land, to the time the cash is received, while preserving eligibility to existing reliefs.
- Calculating gains or losses on foreign assets in the relevant foreign currency and then converting into sterling, rather than requiring exchange rate conversions on the cost and proceeds of forgein assets.
- Removing inappropriate tax charges when someone with a share of a freehold is effectively only extending their own lease.
- Addressing various technical problems with roll over relief in compulsory purchase situations and expanding the relief away from reinvestments on a ‘like for like’ basis.
- Improving guidance in several areas.
These recommendations, whilst welcome, are of course only suggestions. There is no indication yet how the Government will respond to this report or, perhaps more importantly, to the more radical suggestions of the first OTS report. Given the current economic situation, it still seems likely that the Chancellor will need to collect more from taxes sooner or later, and raising the CGT rate may be a relatively straightforward way of doing that.
This article first appeared in our Spring 2021 edition of our Private Client & Tax Newsletter.