Further changes to Capital Gains Tax suggested

The Chancellor Rishi Sunak last year commissioned the Office for Tax Simplification (‘OTS’) to produce reports into Capital Gains Tax (‘CGT’). The first report was produced in November 2020 and the second report has just been released.

There are two notable proposals in this second report:

The first recommendation is that the time limit for payment of CGT following the sale of property should be extended from 30 days to 60 days. The OTS acknowledges that for many individuals, getting the paperwork ready within 30 days, as well as organising the cash to pay the tax bill, is just too difficult.

Extending the CGT payment deadline on property sales would give landlords, investors and homeowners some breathing space to enable them to get the funds ready to cover the tax and also allow to make arrangements for reinvesting the remaining proceeds. The report also recommended simplifying how CGT is paid by integrating CGT into a single customer account to ease the administrative burden.

The second OTS recommendation is that the way in which the assets of divorcing couples are treated for CGT should be changed. Currently, divorcing or separating couples can continue to benefit from transferring assets to one another without triggering CGT liabilities in the tax year in which they separate.

However, this current rule is particularly problematic in scenarios where couples separate towards the end of a tax year (i.e. in the run up to 5 April). The OTS recommends extending this rule so that no gain/no loss transfers can continue to the end of the tax year at least two years after the separation.

The OTS made a total of 14 recommendations in the report, a selection of which follow:

  • Adjusting Private Residence Relief to cover developments in a taxpayer’s garden that the taxpayer subsequently occupies.
  • Consider whether gains or losses on foreign assets should be calculated in the relevant foreign currency and then converted into sterling.
  • Deferring the payment of CGT where the disposal proceeds are deferred on the sale of a business or land, whilst preserving eligibility to existing reliefs.
  • Removing CGT charges where a freeholder is in effect only extending their own lease.
  • Consider whether individuals holding the same share or unit in more than one portfolio should be treated as holding them in separate share pools.
  • Review the rules for enterprise investment schemes ensuring that administrative issues do not prevent their use in tax planning.

Of course, these are only recommendations and to date the Chancellor has chosen not to act on earlier suggestions, for example, that the rate of CGT be raised.

Nevertheless, although these OTS recommendations may not be put into law, they do represent an interesting trend in thinking towards a regime that is generally more practically minded.

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