The second part of a sweeping review of Capital Gains Tax (CGT) has been published with 14 key recommendations.
In July 2020, the Chancellor asked the Office of Tax Simplification (OTS) to carry out a review, to “identify the opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent”.
Given the wide scope of the review, the OTS has produced two reports. The first, ‘Simplifying by Design’, was published last November and considered the policy design and principles underpinning the tax.
This second report addresses a wider range of issues – from moving home, to getting divorced, running or investing in a business and land transactions.
It also shines a light on concerns that public awareness of the tax is lacking and that administrative systems are not currently set up to properly support taxpayers.
In this article, we round up a number of the key recommendations made by the OTS.
Integrating Capital Gains Tax into the Single Customer Account
A Capital Gain can be reported in three ways; via the Self-Assessment system, the UK Property Tax Return for disposal of UK residential property, and the ‘real time’ Capital Gains Tax service.
The OTS has recommended that HM Revenue & Customs (HMRC) integrate these into the new ‘Single Customer Account’. In effect, this would create a ‘central hub’ for CGT data, to ease the administrative burden for the thousands required to report a disposal each year.
UK Property disposal reporting and payment deadline
Currently, those individuals needing to file a UK Property tax return must do so, and make payment, within 30 days of completion of the transaction.
The OTS considers that this is a challenging deadline, as so far over a third of taxpayers have been fined and suggests an extension to 60 days. Alternatively, estate agents or conveyancers would be required to distribute information, provided by HMRC, to clients about the requirements.
Private Residence Relief nominations
Principal Private Residence Relief (PPR) takes main homes outside of the scope of CGT. Taxpayers with more than one eligible home can choose which home they wish to apply the relief to by making a nomination to HMRC, but this has to be made within two years of acquiring the second property.
Despite the fact that no gain can arise on a rented second home, a nomination is still required, and many second home-owners are not aware of the procedure.
The OTS recommends that the Government review the procedure, raise awareness of the rules and, again, consider integration with the Single Customer Account.
Treatment of deferred proceeds when a business is sold
Some of the more complex business and land transactions can give rise to practical tax issues; for example, the need to settle liabilities before any cash is actually received. These issues can often be difficult for taxpayers to wrap their heads around.
The OTS proposes that CGT could be paid at the time the cash is received in situations where proceeds are deferred, whilst preserving the eligibility to existing reliefs.
How can George Hay help?
At present, the OTS’s recommendations are only proposals for the Government to take into account when amending existing tax legislation or creating new policies. Should any of the proposals in the OTS report come to fruition, we will be sure to update you as soon as any detail is published.
There is no doubt that, considering the historical background associated with CGT, we are in a benign period for this tax and now may be a good time for action.
If your concerned or have questions about gains arising on a disposal you intend to make, whether in relation to property or other chargeable assets, contact our team of expert tax advisers on 01480 426500, or by filling in our online enquiry form.