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Capital Gains Tax - A second set of recommendations to HM Government

The Office of Tax Simplification (OTS) has published the second part of its report to “simplify by design” the UK Capital Gains Tax (CGT) system. The report considers a range of key practical, technical and administrative CGT issues to be aware of - from moving home to getting divorced, running or investing in a business and issues affecting land transactions.

It also highlights a broader concern about the low level of public awareness of the tax and the extent to which the administrative systems could do much more to support taxpayers.

The OTS also offers recommendations covering a broad area of the tax, from how the CGT rules in relation to the main residence should be updated, to improvements in HMRC’s guidance.

Reporting and payment deadlines

The OTS makes a welcome recommendation that the government considers extending the reporting and payment deadline from 30 to 60 days, or mandate estate agents or conveyancers to distribute HMRC-provided information to clients about these requirements.

Integrating CGT into the Single Customer Account

The OTS also recommends that CGT should be integrated into the single customer account, to ease the administrative burden for the 500,000 or so people who file returns of disposals in a typical year.

Private Residence Relief nominations

The OTS considers there is not enough awareness of the nomination procedure among the 1.4 million people who own second homes. It recommends that the government review the practical operation of nominations, raise awareness of how the rules operate and, in time, enable nominations to be captured through the single customer account.

Divorce and separation

This is another area for concern. The report states that, whilst married couples or civil partners can transfer assets between themselves without triggering an immediate CGT charge, However, divorcing or separating couples continue to benefit from this rule only in the tax year in which they separate.

Bill Dowell, OTS Tax Director said:

‘’In 2020 it took an average of a year to secure a divorce in England and Wales. Everyone who commented on this issue considered that limiting the tax rule about these transfers to the tax year of separation gives couples inadequate time to reorder their affairs.’’

The OTS recommends that the government extend the operation of this rule to the later of:

  • the end of the tax year at least two years after the separation event; or
  • any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland.

Treatment of deferred proceeds when a business is sold

The report also discusses the treatment of deferred proceeds when a business is sold, noting these can be received in several different ways, causing confusion for tax payers. For example, the proceeds might be paid over several years, or they could be a combination of cash and other assets such as shares. The OTS recommends that the government consider whether CGT should be paid at the time the cash is received in situations where proceeds are deferred.

This report feels much more like familiar OTS territory than the last report. The themes it promotes are mostly welcomed and it seems to seek to achieve the scope which was set for it.

We have provided our insights and perspective on the report below.

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