The Office for Tax Simplification (OTS) has issued a second report on Capital Gains Tax (CGT). This latest paper follows last November’s and makes a number of recommendations to simplify CGT reporting.
The first report had suggested increasing the rate of CGT and cutting the Annual Exempt Allowance which caused waves of concern throughout the tax community.
Organisations such as the Low Income Tax Reform Group argued that, among other things, the number of taxpayers paying CGT could be doubled under the original OTS proposals, with many of the additional cases resulting from the sale of residential properties by unrepresented taxpayers.
By contrast, the second OTS report on CGT has led to gentle ripples of approval amongst those in the know.
Tellingly, perhaps, the OTS has now highlighted the low level of public awareness of the CGT tax regime and the need to modernise the guidance, much of which is over 50 years old. It makes 14 recommendations including the following:
- extending the period during which divorcing couples can transfer assets without triggering a charge to CGT to at least two years after separation. This proposal to give divorcing couples some breathing space to restructure their financial affairs after separation has been universally welcomed;
- bringing together the three main ways of reporting a capital gain (through Self Assessment, the UK Property tax return, and the ‘real time’ Capital Gains Tax service) in the Single Customer Account. It is hoped that this might go some way towards easing the administrative burden for the 500,000 or so people who file CGT returns each year;
- undertaking a review of Private Residence Relief (PRR). The OTS recommends that the government should consider extending PRR to cover developments in a taxpayer’s garden which they subsequently occupy. They also highlight the need for clarity around the tax implications of non-residential use such as taking in lodgers and working from home, particularly important given the number who are now doing so;
- considering the CGT payment date where proceeds are deferred following the sale of a business.
However, it is the recommendations on the UK residential property CGT service that have grabbed the headlines. Since 6 April 2020, taxpayers have had 30 days following the sale of a UK residential property to report and pay any CGT due. Many taxpayers have struggled to collate the required information within this timeframe and in the last 6 months of 2020, HMRC issued over £1.3m in late filing penalties. It is perhaps unsurprising, therefore, that the OTS has recommended extending this deadline from 30 to 60 days.
Samantha Stent, Tax Advisory Manager comments that: “After the issue of the first report in November it was extremely pleasing to see the OTS take the time to listen to taxpayers’ concerns at events such as the one hosted by Scrutton Bland on 12 January. This second OTS report will do much to reassure taxpayers and investors but given the wider economic picture, an increase in the rate of CGT cannot not be ruled out.”