05 August 2021
Services:
Personal Tax Planning
Back in summer 2020, the Chancellor commissioned two reports to conduct thorough review of Capital Gains Tax (CGT). Both reports have now been published by the Office of Tax Simplification (OTS), the latest of which focuses on the administrative processes and practicalities of the CGT system.
Whilst we can’t say for certain if the Government will act on the recommendations, here’s what we could potentially expect to see if changes do come into play…
Potential for rising rates
There was a lot of speculation about CGT rates rising after the first report was released in November, having suggested that rates should be brought in line with income tax.
Since then the Chancellor has introduced a five year freeze on tax rates, which resulted in a collective sigh of relief from owner managers who were considering selling their businesses and/or assets in a rush.
However, we could possibly still see CGT rates rise on the other side of the five year freeze. So if you are considering selling your business or any assets which might be liable to CGT in the near future, it’s worth keeping this in mind, as forward planning can place you in a much stronger position when it comes to CGT.
A central hub for tax payers on the horizon
Currently around 19 million tax payers have registered their Personal Tax Account, which will be replaced by the Single Customer Account in years to come.
The Single Customer Account is a huge step towards modernising the UK’s tax system - offering a safe and accessible central hub, where tax payers (and their agents) can receive all of their information and pay their bills.
The OTS has recommended that CGT should be added to this central hub too. Not only would this make the process of paying CGT tax bills far more simple, but it would also make it much easier for tax payers to understand their liabilities, which could go a long way in helping to reduce the number of people getting caught out by the rules.
Increasing awareness
General awareness and understanding of CGT is still low and over the years we have seen many business owners and individuals being penalised purely because they don’t realise they are liable.
On the whole, those who have access to professional advice are much more likely to be aware their CGT liabilities and deadlines. To address this imbalance and the low awareness rates, the report has recommended that the Government should require estate agents and conveyancers to disseminate information about CGT to property buyers.
Whilst this is a reasonable recommendation it doesn’t stretch far enough and we still have a long way to go to increase awareness of CGT and penalties that could potentially ensue across the board.
And increasing time frames
The proposed alternative option would be to increase the turnaround period for reporting taxable gains on a property disposal to 60 days (rather than 30).
A similar scenario has been suggested for divorcing/separating couples, who can currently only transfer assets to one another without having to consider CGT, within the first tax year of separation. After this first year, assets will be liable to CGT.
Given that most divorce proceedings take longer than a year, the report recommends that this time period is extended to the later of:
• Two tax years after the separation; or
• A reasonable time set for the transfer of assets within a financial agreement
Although these measures would come at a costly price for exchequer when they’re first implemented, a longer turnaround period will give taxpayers more time to get their affairs in order.
Deferred CGT on business sales
If you’re selling your business, you can receive proceeds from the sale in a number of different ways and over a number of years.
Therefore, more complex sales can often lead to practicality issues around CGT. And in some cases it can lead to tax being paid on proceeds before the business owner has even received them.
By questioning whether CGT should be paid at time cash is received, when proceeds are deferred on business sale, the report will hopefully bring about change which will ease the CGT process for business owners who are looking to sell.
Knowing where you stand when it comes to CGT
The second and final report was only released last month, so at this stage it’s unconfirmed whether or not these suggestions will come into affect.
However, we welcome the proposed measures which would make it much easier for tax payers to pay their bills and understand their current CGT stance.
In the meantime, our team of tax experts are here to support you with all of your CGT matters, whether it’s clarifying your stance or helping to position you in the most efficient and compliant position possible.
