The Office of Tax Simplification recently released the second report of the Capital Gains Tax (CGT) review.
The Chancellor asked the OTS to identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.
The first report included a lot of possible changes with the most radical suggestion being the alignment of Income Tax and CGT rates. The second report covers a range of areas from moving home to getting divorced, running or investing in business, or in relation to particular issues affecting land transactions. It also highlights a broader concern about the low level of public awareness of CGT, and the extent to which the administration system could do much more to support taxpayers.
The main recommendations in the report are outlined below.
Awareness and administration
HMRC should 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. The ‘real time’ CGT service should be reformed to be usable by agents.
A welcome suggestion of extending the current 30 day reporting limit for residential property sales to 60 days, or mandate property agents or conveyancers to distribute HMRC provided information to clients.
Main homes
The practical operation Principal Private Residence relief (PPR) nominations should be reviewed, and awareness raised of how the rules operate. In time the Single Customer Account could be used to capture nominations.
PPR could be adjusted to cover developments in a taxpayer’s garden which they subsequently occupy.
Divorce and separation
Currently, married couples transferring assets to each other do so at a ‘no gain no loss’ and no CGT is payable. If they separate, they receive the same CGT treatment up until the end of the tax year of separation. A suggestion of extending this period to up to two years from separation has been made.
Business issues
Where proceeds are deferred the government should consider whether CGT should be paid at the time the cash is received whilst preserving eligibility of certain reliefs.
Investor issues
The enterprise investment scheme rules should be reviewed with a view to ensuring the procedural or administrative issues do not prevent the operation.
Land and property issues
Where land and buildings are acquired under Compulsory Purchase Orders, the government should expand the specific Rollover Relief rules.
A recommendation was also made that the government should explore ways of removing inappropriate Corporation Tax or CGT charges where a freeholder is in effect only extending their own lease.
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