The government has accepted five recommendations from the Office for Tax Simplification on issues relating to capital gains tax in a bid to “provide some practical simplifications for taxpayers”.
In its official response to the OTS reports into the operation of capital gains tax and inheritance tax, MP Lucy Frazer said officials were also considering the details of five more of the recommendations set out and would keep them under review.
It is important to note the government response really only concerned acceptances or rejections on technical and administrative aspects of capital gains tax. The update offers no clues at all as to whether we may see other changes to the capital gains tax regime.
Inheritance tax has, so far, avoided any major changes. The government said it would not make any alterations “at the moment”.
However, given the acknowledgement that inheritance tax 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 that tax in the future and particularly towards the end of the current governments term of office or early in the next.
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.
The OTS published its report on the inheritance tax in July 2019. This outlined eleven recommendations including:
- Reforming the normal expenditure out of income exemption.
- Changing the scope of reliefs such as Business Property Relief and Agricultural Property Relief.
Government acknowledges that there are a wide range of views on reforming inheritance tax. It notes that changes to reliefs and the lifetime gifts regime must be considered in their wider context along with policy issues.
At present, the government has decided not to proceed with any changes.
Capital Gains Tax
In the OTS’s second report on capital gains tax, published in May 2021, fourteen recommendations were made.
Five of these recommendations have been accepted by government as they are seen to offer practical simplifications for taxpayers. These are:
- Extending the No-Gain-No-Loss window on separation. The detail of this will be consulted on over the next year.
- Improving guidance in a number of areas, including irrecoverable loans to businesses, business asset disposal relief in phased retirements and flat management companies. Expanded guidance on the UK property return will be published shortly, with other areas reviewed in due course.
- Extending the Rollover Relief rules where land is acquired under compulsory purchase orders. Reinvestment in enhancing land already owned will be included within the scope of the relief. The detail of this will be consulted on over the next year.
- Integration of the different ways of reporting and paying capital gains tax into a Single Customer Account (SCA).This development forms part of HMRC’s long term strategy.
- Extending the reporting and payment deadline for the UK property return to 60 days. This was implemented in the Autumn Budget.
The Treasury’s letter indicates that the detail of a further five OTS recommendations will be kept under review:
- Formalising the ‘Real Time’ capital gains tax service so that it is a separate capital gains tax return usable by agents.
- Treating the same shares or units held in more than one portfolio as being in separate share pools.
- The practical operation of private Residence Relief nominations and enabling nominations to be captured through an SCA.
- Introducing an irrevocable provision in Corporate bond documentation to determine capital gains tax treatment.
- Amending Enterprise Investment Scheme rules to ensure that procedural or administrative issues do not prevent their operation.
The four remaining recommendations by the OTS were rejected by the Treasury:
- Adjusting PRR to cover developments in a taxpayer’s garden which the taxpayer subsequently occupies.
- Collecting capital gains tax when cash is received in situations where sales proceeds are deferred.
- Calculating gains and losses on foreign assets in the relevant foreign currency before converting into sterling.
- Removing capital gains tax or Corporation Tax charges where a freeholder is in effect only extending their own lease.