Suggested improvements to make CGT simpler

06 August 2021

In its second report on Capital Gains Tax (CGT) the Office for Tax Simplification (OTS) has highlighted fourteen areas where the tax could easily be made simpler, fairer, and easier to understand. Whereas the previous report looked at fundamental changes to the structure of the tax (none of which have yet been implemented, but may well be under active consideration), the latest report suggests relatively minor changes to remove anomalies. Key suggestions include:

  • Integrating the reporting and payment of CGT into the existing “single taxpayer account”, and reviewing the new system for reporting and paying tax on residential property disposals which many regard as barely fit for purpose)
  • Simplifying share pooling calculations where an individual has assets managed by different investment managers.
  • Improving the private residence nomination rules for those owning more than one residence
  • Reviewing the rules for paying CGT where an asset is sold on deferred payment terms and clarifying the treatment of corporate bonds which ae sometimes issued in these circumstances.
  • Reviewing an anomaly which can arise where a taxpayer is disadvantaged after builds a new private residence in the garden.
  • Extending the duration of reliefs on the transfer of assets on divorce
  • Reviewing the cumbersome rules for Enterprise Investment Schemes which can restrict practical operation.
  • Reviewing the rules for the currency issues arising where foreign assets are sold.
  • Expanding the rollover provisions which apply where land is acquired by compulsory purchase.
  • Removing a tax anomaly which arise where a freeholder extends their own lease.

The report contains a substantial section on land and property issues and recognises the existing concerns about the possible CGT implications of diversification, and the new worries about the treatment of environmental schemes (although it comes to no strong conclusions). It also highlights the pitfalls in development land pooling arrangements and suggest new legislation to make such arrangements tax neutral. Finally, it recommends HMRC provide improved guidance in several areas including, specifically, clarity on where Business Asset Disposal Relief is available to a farmer who sells land but needs to carry on trading to remove the existing crop.

Commenting on the report, MHA agricultural partner Joe Spencer remarked:

“This report contains many good points. Although one would think each provision would only effect relatively few taxpayers, it is surprising how often they come up, and how perverse some of the existing rules can be”.

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