The UK government will make five reforms to the current capital gains tax (CGT) framework.
This comes after the Office for Tax Simplification (OTS) published two reports with recommendations on how to change CGT. The first included aligning capital gains tax rates to income tax, which meant a significant increase in the sum investors would need to pay.
The second report, however, focused on 14 changes that should be implemented in several areas of CGT.
Lucy Frazer, financial secretary to the Treasury, said in a letter to Kathryn Cearns and Bill Dodwell of the OTS on 30 November 2021, that the UK government has accepted five recommendations from the second report, which it believes will “offer some practical simplifications for taxpayers”.
“I have also asked officials to consider the details of five more of the recommendations that you have set out and to keep these issues under review,” Frazer added.
Reforms
The recommendations accepted include:
- Improve CGT reporting by creating a single customer account;
- Extend time limit for making a CGT return and associated payments on account when disposing of UK land and property to 60 days from 30 days;
- Extend ‘no gain no loss’ window on separation and divorce;
- Expand rollover relief to cover reinvestment in the form of enhancing land already owned; and,
- Improve HM Revenue and Customs (HMRC) guidance on CGT around several areas including UK property tax returns.
The government also said that the Treasury should consider reviewing CGT rules around investment schemes, corporate bonds, private residence relief nominations, as well as improving CGT returns process and assess whether individuals holding the same share or unit in more than one portfolio should be treated as holding them in separate share pools.
Julia Rosenbloom, tax partner at Smith & Williamson, said: “Some of the agreed changes should be particularly welcomed, not least the confirmation from government that ‘the no gain no loss window’ on separation and divorce should be extended.
“At the moment, transfers between spouses are only tax neutral in the tax year of separation. While the government has agreed that this should be extended, we will have to wait for the outcome of a consultation to know to what extent people will be given extra time. This will, for many, reduce the CGT cost of getting divorced and give people a bit more time to sort out their financial affairs in such circumstances.
“However, overall, it is important to note that these responses from the government only largely concern acceptances or rejections on technical and administrative aspects of CGT. Crucially, this update gives no real steer on whether we might see an increase in CGT or other changes to the CGT regime.”
IHT
Additionally, the UK government decided not to proceed with any changes to inheritance tax (IHT) “at the moment”, Frazer said in the letter.
The combination of nil-rate bands, exemptions and reliefs, means around 94% of estates are forecast to have no liability over the coming years, however in the 2021/22 financial year, IHT will still raise £6bn ($8bn, €7.1bn) for the Treasury coffers.
The OTS review of IHT was commissioned by the then chancellor Phillip Hammond in January 2018. The OTS provided two reports on how to simplify the technical design of IHT, which included 11 recommendations.
Frazer added: “My predecessor provided a response in March 2021 to your report on the administration of IHT. HMRC continues to make progress on your recommendations, including by ensuring that from 1 January 2022 over 90% of non-taxpaying estates each year will no longer have to complete IHT forms for deaths when probate or confirmation is required.
“It is clear from recent reports on this subject, such as those by the Organisation for Economic Co-operation and Development and the All-Party Parliamentary Group on Inheritance and Intergenerational Fairness, that there are a wide range of views about how to reform IHT.
“You will also be aware that the budget in March announced that the nil-rate band and residence nil-rate band will be maintained at their 2020-21 levels up to and including 2025-26 to help rebuild the public finances and fund public services.
“The OTS outlined 11 recommendations for consideration, including those which it suggested could simplify lifetime gift exemptions and change the scope of reliefs such as those for business property and agricultural property. You acknowledged that some of these recommendations would have impacts on the exchequer.
“Any potential changes to reliefs and the regime for lifetime gifts must be considered in this wider context. As you acknowledged, the report also raised wider questions about policy issues.
“As a result, after careful consideration of your recommendations, the government has decided not to proceed with any changes at the moment, but will bear your very valuable work in mind if the government considers reform of IHT in the future.”
‘Foolish’
Smith & Williamson’s Rosenbloom added: “Given the acknowledgement that IHT makes an important contribution to the public finances and is forecast to raise £6bn in 2021-22 to help fund public services, it would be foolish to rule out any changes to IHT in the future.
“As we saw earlier this year, the government announced a surprise 1.25% increase in national insurance contributions and income tax on dividends from 6 April 2022, demonstrating it is not afraid of tax rises.
“This reinforces the potential for changes to personal taxes so individuals should continue to carefully consider their tax planning and make the most of current allowances before any further possible changes are introduced.”
