In July 2020, Rishi Sunak asked the Office of Tax Simplification (OTS) to carry out a Capital Gains Tax (CGT) Review. The scope of the review was so broad that the OTS split it into two reports. The first report was published in November 2020 and looked at the policy design and principles underpinning CGT. The second report, published in May 2021 looks at practical, technical and administrative issues associated with the current CGT system.
This second report also highlights the broader issue concerning the low level of public awareness of Capital Gains Tax.
To recap, the options the OTS recommended to the government from the first report were:
- Consider more closely aligning Capital Gains Tax rates with Income Tax rates by
- reintroducing a form of relief for inflationary gains,
- considering the interactions with the tax position of companies, and
- allowing a more flexible use of capital losses
- Consider addressing boundary issues between Capital Gains Tax and Income Tax looking at
- whether employees and owner-managers’ rewards from personal labour (as distinct from capital investment) are treated consistently and, in particular
- consider taxing more of the share-based rewards arising from employment, and of the accumulated retained earnings in smaller companies, at Income Tax rates
- To make tax liabilities easier to understand and predict, the government should consider reducing the number of Capital Gains Tax rates and the extent to which liabilities depend on the level of a taxpayer’s income
The second OTS report makes the following recommendations:
- To address awareness and administration issues
- Integrate the different ways of reporting and paying CGT into the Single Customer Account, making it a central hub for reporting and storing CGT data
- Formalise administrative arrangements for the “real time” CGT service, making it a standalone CGT return usable by agents
- Extend the reporting and payment deadline for the UK Property tax return from 30 to 60 days, or mandate estate agents of conveyancers to distribute HMRC provided information to clients about these requirements
- Consider whether individuals holding the same share or unit in more than one portfolio should be treated as holding them in separate share pools
- To address CGT and main homes
- Consider adjusting Private Residence Relief to cover developments in a taxpayer’s garden which the tax payer subsequently occupies
- Review the practical operation of Private Residence Relief nominations, raise awareness of how the rules operate and enable nominations to be captured through the Single Customer Account
- To address divorce and separation
- Extend the “no gains no loss” window on separation to the later of 2 years in England
- Business issues
- Consider whether CGT should be paid at the time the cash is received where proceeds are deferred (such as sale of business or land), while preserving eligibility to existing reliefs
- Consider an irrevocable provision in the documentation for a corporate bond, specifying that it is subject to CGT, and that the absence of such a provision to mean that it is exempt
- Investor issues
- Review the rules for enterprise investment schemes, making them more practical
- Consider whether gains or losses on foreign assets should be calculated in the foreign currency and then converted into sterling
- Land and Property issues
- Expand Rollover Relief rules which apply when land and buildings are acquired under Compulsory Purchase Orders
- Explore ways of removing inappropriate Corporation Tax or CGT charges where a freeholder is in effect only extending their own lease
“Broadly we welcome the proposals made in the second OTS report, they do seek to iron out some areas of the legislation which can lead to unreasonable tax consequences. The idea of matching Capital Gains Tax on a sale of shares in a company, where proceeds are received over a period of time to the actual receipt of proceeds, but still maintaining the tax reliefs would be welcome.
It is clear from this review there is much room for improvement in the legislation as it stands and we hope the Chancellor can in time correct and improve the position in a balanced way.”
“There is still the risk of a considerable hike in CGT rates hanging in the air and business owners who are considering exiting may still want to accelerate their plans to sell before the Autumn Statement”
If you are considering any transaction that may trigger CGT, please do get in touch with our tax team.
This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.