Last year the Office of Tax Simplification (OTS) proposed that Capital Gains Tax (CGT) rates should mirror Income Tax rates which would have seen the top rate of CGT rise to 45% from 28%, in order to help ‘close the gap’ on the financial burden which has arisen due a direct result of the COVID 19 pandemic.
Chancellor, Rishi Sunak, has disregarded this recommendation and as such is abandoning the chance to raise as much as £14bn a year by reforming CGT and instead reassuring investors and entrepreneurs alike that CGT tax rates won’t rise for at the least the lifetime of this parliament.
Although the government have refrained from making any changes to the rates of CGT, they have accepted these five recommendations from the OTS:
- Reporting and payment of CGT to be incorporated into the Single Customer Account ‘SCA’. At present there are three ways of reporting a capital gain to HMRC,
- through the self-assessment tax return,
- the UK property return and,
- the ‘real time’ capital gains tax service.
- Extending the reporting and payment deadline for the reporting the disposal of UK property via the CGT Property returns from 30 days to 60 days (this extension was already announced in the Chancellor’s Autumn Budget).
- Extension of the ‘no gain – no loss’ window for asset transfers resulting from separation and divorce. The OTS recommended that the government should extend the no gain / no loss window on separation to the later of
- the end of the tax year in 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 or equivalent processed in Scotland.
- Expanding rollover relief to cover re-investment in the form of enhancing land already owned. Expanding relief may free up owners of agricultural land to reinvest in more economically efficient improvements. Again, there will be a consultation on the detail to take place next year.
- Improvement of HMRC guidance available to taxpayers and tax agents on the UK Property Return; Business Asset Disposal Relief “BADR” for farmers or others looking to retire; land assembly arrangements; and several other areas to allow for further clarity and simplification in these areas.
There are a further five recommendations from the OTS which are under consideration and the government will continue to keep the tax system under constant review to ensure it is simple and efficient.
- Formalise the administrative arrangements for the ‘real time’ Capital Gains Tax service, effectively making it a standalone Capital Gains Tax return that is usable by agents. This will follow as part of the delivery of the Single Customer Service account. The development of this is a long-term strategy for HMRC.
- Consideration as to whether individuals holding the same share or unit in more than one investment portfolio should be treated as holding them in separate share pools. Currently where the same share or unit is held is separate investment portfolios and disposal occurs the acquisition and disposal history of the units across all portfolios must be brought together to create one share pool to ascertain the correctly allowable base cost for CGT purposes. By treating holdings separately, it would ease the burden on taxpayers and allow simpler methods of calculation of gains and losses arising. The Government needs to consider this further to determine the implications of this on all securities.
- To undertake a review of the practical operation of Private Residence Relief nominations and to raise awareness of how the rules operate so that in time nominations can be captured through the Single Customer Account. The government will consider this as part of the delivery of the Single Customer Account development.
- Enable irrevocable provisions in the documentation for a corporate bond to specify that it is subject to Capital Gains Tax, and for the absence of such a provision to mean that it is exempt. Thus, to remove the need for confusing and complex clauses to be included in loan documentation, purely for tax purposes.
- The OTS have been told that the requirements of Enterprise Investment Schemes ‘EIS’ can be so strict that many modern commercial practices can cause the schemes to fail and therefore the OTS are asking that the government undertake a review of the rules with a view to ensuring that procedural or administrative issues do not prevent the practical operation of the schemes by way of flexibility in relation to non-substantive technical issues which risk invalidating claims.
Whilst the above measures will be welcomed by many it’s not all good news. Announced in the recent budget was an increase in National Insurance and dividend tax rates from April 2022 of 1.25%. From April 2023 this increase will become a separate Health and Social Care Levy which means employees who do not pay National Insurance on account of their age will be subject to the 1.25% charge.
For more information on any of the above, please don’t hesitate to contact Carol Edwards or your usual AAB advisor.