OTS Suggest Extended Deadlines for CGT Returns & Divorcing Couples
The Office of Tax Simplification (OTS) has published its second report on Capital Gains Tax and has provided recommendations to simplify practical, technical, and administrative issues faced by taxpayers and their agents. This is following the circulation of the first report in November 2020 which focussed on policy design and principles.
Some of the key recommendations made by the OTS include:
- An extension of the ‘no gain no loss’ window on separation. Under the current rules, taxpayers have until the end of the tax year of separation to make all relevant transfers (e.g. properties) on a CGT neutral basis. The OTS suggests that this period should be extended to the later of a) the end of the tax year at least 2 years after the separation; or b) any reasonable time set from the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland.
- Introducing an election for the CGT treatment of corporate bonds, rather than relying on specific terms in the loan documentation (usually whether the loan is expressed in sterling and can be converted into or redeemed in any other currency) which generally have no other commercial significance.
- Extending the deadline for submitting a UK Property return and paying the tax to 60 days. Under the current rules, there is a 30-day deadline for submitting the return to HMRC, however data shows that a third of the initial returns took longer than 30 days to arrive, signalling that this deadline is challenging for many taxpayers. Alternatively, it should be mandated that estate agents or conveyancers distribute HMRC provided information to clients about the UK Property return requirements to ensure that taxpayers are aware of their liabilities.
- Consider whether CGT should be paid at the time cash is received on the sale of land or a business, whilst preserving eligibility to existing reliefs (such as Business Asset Disposal Relief (BADR)). At the moment, CGT is payable in the year that the asset is sold, even if consideration is received over more than one tax year.
- Reviewing the criteria for qualifying for Enterprise Investment Schemes (EIS) and Seed EIS (SEIS) as these are currently thought to be too restrictive, such as the short deadlines for issuing shares and a cumbersome application process.
- The practical application of Private Residence Relief (PRR) nominations should be reviewed and further awareness raised on how the rules operate, e.g. allowing nominations to be made on disposal. This is to create more parity between individuals who have a tax advisor who can advise on nominations and those who do not receive professional advice.
- To consider whether individuals holding the same share or unit in more than one portfolio should be treated as holding them in separate pools. Under the current rules, shares of a particular type are grouped together, however this can cause complexity where an individual has more than one investment manager.
- Adjust the PRR rules to cover developments in a taxpayer’s garden which the taxpayer subsequently occupies, to ensure PRR is available on the new home in relation to the period before the house was built.
- To consider if gains or losses arising on the sale of foreign assets can be calculated in the relevant foreign currency and then concerted into sterling. Under the current rules, the costs and proceeds must be converted into sterling when they are incurred or received in order to calculate the gain. This can cause complexity when historical records and exchange rates are not available, especially with regards to enhancement expenditure.
As with the suggestions made in the first OTS report, these are merely recommendations to the Government and therefore may not be introduced as law.
If you are unsure as to what these changes might mean to you, or if you require advice on the disposal of a chargeable asset, please contact a member of our team.