OTS Capital Gains Tax Review Published 20 May 2021

On 20 May 2021 the OTS, the Office for Tax Simplification,  published its second report into capital gains tax (CGT) after being requested by the Chancellor  to review the law in 2020.

Fourteen recommendations have been made by the OTS which has highlighted low levels of public awareness when it comes to this tax.

The highlights include:

Property Disposals

A key point is the proposed change for the 150,000 individuals every year who dispose of UK residential properties. Over 85,000 of these have a taxable gain and will need to file a UK property tax return within 30 days. The OTS is now recommending extending this to 60 days or mandating estate agents and conveyancers to distribute HMRC information about this requirement.

For many taxpayers, getting all of the required paperwork ready within 30 days, as well as the cash on hand to pay the tax bill, is just too ambitious.  As a result, extending the deadline for paying any CGT on a property sale would give homeowners some breathing room to ensure that they have the funds necessary to cover the tax and make any reinvestment arrangements.

Paying CGT

Another of the OTS’s recommendations, proposed to simplify how this tax is paid, is to integrate CGT into a single customer account to ease the administrative burden for the 500,000 people who pay this a year.

Capital Gains Tax is one of those taxes that everyone has heard of but astonishingly, many know very little about.  The online portal for submitting property gains works very well although there have been issues with computer illiterate taxpayers. Having a single point to report all CGT would make life a lot simpler. Although there is still the need to ‘educate’ the wider public on the fact that they must be proactive and report the gains to HMRC it is always worth remembering that ignorance of the law does not amount to a ‘reasonable excuse’.  If it did there would be a burgeoning market for ignorant advisers!!!

Divorce

Another of the OTS’s recommendations that should be welcomed is how it proposes divorcing couples’ CGT is treated. Currently, divorcing or separating couples can continue to benefit from transferring assets to one another (without triggering CGT liabilities) in the tax year in which they separate. The OTS is recommending extending the operation of this rule to the end of the tax year at least two years after the separation.

Why? Divorce is a difficult time and it’s unhelpful that the current CGT regime can create further stress with having to complete transfers of assets before a tax year-end deadline.  An extension of this period to two years would enable parting couples to achieve a more orderly distribution of assets without the additional pressure of having to meet a deadline, which could be just a few days, as the tax year-end approaches.

Advisers would still have to contend with the upcoming “no fault” divorce law for separating clients. A no-fault divorce is a divorce procedure that does not apportion blame to either party. Due this autumn, the law will change the timings of divorces and therefore impact the window for tax planning. Few divorcees are aware of the loss of tax exemptions, the legal right to inheritance and pension benefits which becoming divorced entails and CGT is only one of these.

From the autumn, divorces will be accelerated into a six-month timeframe when the new ‘no fault’ divorce becomes law. This means that couples will need to plan the financial split ahead of the legal process or risk losing exemptions from CGT, IHT and pension rights. Once divorced the exemption will no longer apply, notwithstanding any extension which arises from the OTS proposals.

Have a Look!!!

All these recommendations are moot if the government decides to disregard the OTS’s findings. Previously, the Chancellor has chosen not to act on earlier recommendations.

A link to the report, can be found at:

 https://www.gov.uk/government/publications/ots-capital-gains-tax-review-simplifying-practical-technical-and-administrative-issues.