Chartered Institute of Taxation – CGT simplification – divorce changes welcome but plenty still to do
The Chartered Institute of Taxation (CIOT) has welcomed the Government’s publication of draft legislation making it less likely that separating couples will be hit by capital gains tax (CGT) charges but has drawn attention to other CGT simplifications which it says are also much needed.
These include integrating the different ways of reporting and paying CGT into HMRC’s Single Customer Account, relieving deferred sale proceeds and reviewing how Private Residence Relief nominations work.
Danny Clifford, Chair of CIOT’s Private Client (UK) Committee, commented:
“Extending the ‘no-gain/no-loss’ rule to separating married couples and civil partners is a sensible reform, which CIOT and the Office of Tax Simplification (OTS) have been calling for.
“The current rules state that when a couple cease to live together as a married couple (in circumstances likely to be permanent), they only have the rest of the tax year to transfer assets to each other without incurring an immediate CGT bill. A couple separating on 31 March have less than a week to do this before the tax year expires.
“In practice those with professional advice are more likely to be able to navigate the rules and avoid the CGT charge while those without professional advisers frequently fall foul of it.”
The new rule applies to inter-spousal transfers made after 6 April 2023. CIOT has suggested that it might have been better had the transfer date come into effect immediately or been backdated to allow those currently separated for more than a year to benefit immediately from the change too. For example, those who separated in 2020-21 will now be within the separation window, but will have to refrain from exchanging assets until the 2023-24 tax year to take advantage of the extension.
This easement for separating couples was one of 14 recommendations made by the OTS in its May 2021 report on simplifying the technical and administrative aspects of CGT.
Danny Clifford commented:
“This will be the second recommendation from the OTS report to be legislated for, following the extension of the UK property CGT return window. Both are significant practical improvements to the CGT rules, and show the value of the OTS. But there is a lot more that still needs to be done.”
In addition to the two recommendations mentioned above, the Government accepted OTS’s recommendations that:
- HMRC should integrate the different ways of reporting and paying CGT into the Single Customer Account, making it a central hub for reporting and storing CGT data
- The government should expand the specific Rollover Relief rules which apply where land and buildings are acquired under Compulsory Purchase Orders
- HMRC should improve their guidance in eight specified areas
And the Government agreed to give further consideration to another five recommendations:
- Formalise the administrative arrangements for the ‘real time’ CGT service, effectively making it a standalone CGT return that is usable by agents
- Review the practical operation of Private Residence Relief nominations, raise awareness of how the rules operate, and in time enable nominations to be captured through the Single Customer Account
- Review the rules for enterprise investment schemes
- Being able to revoke a Qualifying Corporate Bond’s CGT-free status
- Treating multiple share portfolios accordingly for cost pooling purposes
Additionally, CIOT has highlighted that an OTS report published in November 2020 suggested changes to the design of CGT, but these were not taken up by the Government.
Danny Clifford commented:
“The 2020 report drew on the practical experiences of tax professionals and others to explore how CGT distorts taxpayers’ behaviour, and set out some possible reforms.
“Given the public and media reaction to some of the proposals the Government’s decision not to take them all forward is understandable, but failing to pursue any of them, alongside the decision not to take up the OTS’s suggestions relating to the design of inheritance tax, is indicative of the Government’s cautious approach to simplification.
“We encourage the Government not to discard these ideas entirely but rather to continue a consultative approach in weighing up the issues the reports raise, which go beyond simplification, to questions of fairness between different types of taxpayer and how to most effectively encourage enterprise, as well as, more pragmatically, what raises the most revenue.
“If the Government truly wants a simple tax system it will eventually need to look beyond technical and administrative adjustments to the underlying design of taxes.”
