The future of capital gains tax takes shape
A recently released report on capital gains tax (CGT) by the Office of Tax Simplification (OTS) has made several recommendations on the future of a tax, about which it says many people have limited awareness or understanding. The 30-day reporting and payment deadline for residential property disposals comes in for particular criticism.
Although around half a million people need to report disposals each tax year, the majority will only be affected on a one-off basis. Reporting may be via self-assessment, 30-day reporting or the real time CGT service, so the OTS has suggested integration into a single customer account.
The OTS considers 30 days to be a challenging requirement and has therefore recommended the reporting deadline is increased to 60 days. An alternative proposal suggests estate agents and conveyancers could be more involved.
However, HMRC may well resist extending the deadline given that over £1.3 million was raised in late filing penalties for the last six months of 2020.
Private residence relief nominations
The OTS found a lack of awareness of the nomination procedure for second homes, and recommends:
- A review of the practical operation of nominations;
- Raising the level of awareness of how the rules operate; and
- Using a new, single customer account for nominations.
Some 1.5 to 2 million homeowners are estimated to benefit from private residence relief annually, although a common misunderstanding is to assume all private homes are exempt.
Divorce and separation
Divorced and separated couples do not incur any CGT on transfers between themselves for the tax year of separation, but very few are able to come to an agreement and transfer assets during this timeframe unless separation occurs near the start of the year.
The OTS therefore suggests relief be extended until the later of:
- At least two years after separation, and
- Any reasonable time set for the transfer of assets in accordance with a financial agreement.
Whether the government takes on board any of these suggestions may be unveiled in the anticipated autumn Budget.Talk to Barnes Roffe today