On 20 May 2021 the Office of Tax Simplification published the second part of its review of Capital Gains Tax (CGT).
Whilst most taxpayers encounter income tax, National Insurance Contributions (NICs) and VAT every day, the report is concerned that many taxpayers are strikingly unaware of their obligations to report and pay Capital Gains Tax (CGT). This is even more startling as CGT impacts major life events such as the sale of one’s business, sale of one’s home, separation and divorce.
The report recommends numerous measures to ease the tax burden for taxpayers which include:
- Sale of Business
Many company sales comprise initial payments followed by deferred payments which depend upon the future performance of the company. Under the current rules CGT is payable immediately, regardless of whether the individual receives the proceeds at the date of completion or in three or four years’ time!
The OTS’s report suggests that CGT should be paid when proceeds are received.
- Sale of Home/Residential Property
The OTS is concerned when taxpayers own multiple homes they are not sufficiently aware of the importance of Principal Private Residence (PPR) relief nominations. The report proposes that the administration of this may be eased by allowing taxpayers to make these elections through their Single Customer Account.
New rules were introduced in April 2020 which requires taxpayers to report and pay CGT on the sale of UK residential properties within 30 days of disposal. The administration of this new rule has been problematic to say the least and there is very low awareness amongst the general public of this rule! We at Robson Laidler have been actively promoting the new rules with our clients s well as local solicitors and estate agents but agree with the OTS’ concerns about lack of knowledge on this issue.
The OTS report suggests the 30 day deadline should be extended to 60 days to allow taxpayers leeway to meet their obligations. It also suggests mandating solicitors and estate agents to distribute HMRC provided information to notify taxpayers at the date of sale.
- Divorce and Separation
Most people are aware married couples may transfer assets tax-free. When married couples/civil partners decide to separate this beneficial tax treatment only lasts until the end of the tax year of separation. From the next tax year onwards transfers of assets between separated couples are disposals at market value for CGT purposes and tax may be payable on the transfer of assets. Again, we are about to issue a blog on this very topic, as it is such an important issue for our clients.
The OTS suggests that this is unfair and proposes the government extends to at least two years after separation and/or any reasonable timeframe set out by the courts.
Whilst the recommendations contained within the OTS report will be welcomed by many it is important to remember that they are just that – recommendations – and there is no guarantee the government will implement them. If you would like to read the full report please see the link below:
The issues above are not only complex but are often emotionally charged and we welcome any measures which allow our clients to plan effectively and meet their tax commitments within reasonable timeframes.
If you are affected by any of the issues above and would like our advice please do not hesitate to get in touch with our Tax Advisory Team.