OTS review of Capital Gains Tax
The Office of Tax Simplification (OTS) has published an online survey (closing 10 August) and a call for evidence (closing 12 October) to seek views about capital gains tax.
The OTS wants to hear directly from individuals and businesses as well as professional advisers and representative bodies about which aspects of capital gains tax are particularly complex and hard to get right, and to hear any suggestions for improvements. The survey will enable the OTS to hear directly from individuals with experience of dealing with capital gains tax.
The call for evidence comes in two sections: the first seeks high-level comments on the principles of capital gains tax by 10 August 2020, while the second and primary section of the document invites more detailed comments on the technical detail and practical operation of capital gains tax by 12 October 2020. Responses to the call for evidence can be sent to ots@ots.gov.uk
The questions on the call for evidence, are as follows:
- Is the scope and boundary of CGT clear? Is it always obvious when an event is chargeable?
- How generally aware are taxpayers of their (potential) CGT liabilities following a disposal? Could/should they be made more aware, and if so how?
- To what extent do the current CGT rules influence decisions around whether, how or when taxpayers acquire or dispose of assets? And to what extent and how do taxpayers adjust their activity to reflect this?
- Are there any specific practical challenges for taxpayers in dealing with the CGT aspects of acquiring and disposing of assets?
- Is it always clear and easy to understand which expenses (including capital improvement, acquisition or disposal expenses) qualify for CGT purposes? Are the rules on qualifying enhancement expenditure clear and reasonably straightforward to operate in practice?
- Are there particular practical challenges or issues arising from the CGT rules about acquiring, disposing of or transferring assets on marriage (or civil partnership), separation or divorce?
- Are there particular issues around the boundary with income tax e.g. shares or share rights received by employees or the boundary between trading and investment?
- In your experience, to what extent do individuals or their agents arrange to time disposals of assets in such a way as to maximise use of their AEA to manage down their tax liabilities?
- Could there be a simpler or more targeted way of taking small gains out of tax?
- To what extent do the different rates of CGT cause complexity? Is it always clear which tax rate should apply? Which situations present specific problems? Does the dependence on the income tax higher rate threshold make this inevitable? Do you think the rates position could be made simpler, and if so how?
- Are you aware of situations where the current rules are not easy to operate perhaps because of changes in society or patterns of work (such as home‐working, taking in a lodger, letting out a bedroom to tourists, or the use of gardens or grounds)?
- Are the ancillary reliefs and occupation rules consistent with what you consider PPR is aiming to achieve? If not, what would make them simpler to apply or better achieve these aims?
- How do you find the principle and practice of making a nomination? Are there better ways of achieving the same ends?
- Are there any aspects of the taxation of gains arising from the disposal of chattels that you consider would benefit from being simplified?
- Is it clear to taxpayers that gains on significant chattels are potentially taxable? Or is there a general lack of awareness?
- Are there features of CGT that present barriers or distortions at any of these stages? Are the rules simple to understand and apply correctly? Please provide examples along with any suggestions on how the rules could be made simpler.
- Do you know of occasions when CGT rules have affected business decision making more generally, including decisions regarding the structure of a business or the choice of business vehicle (for example a corporate entity, partnership, unincorporated business)?
- Please tell us about any complications or rules which unduly affect the way businesses operate if payment for the sale of a business is not made in cash but in some other way (such as qualifying and non-qualifying corporate bonds, deferred consideration and earn outs). To what extent is there a business tension between claiming a tax relief at the point of sale as opposed to deferring the tax charge until cash is received?
- Is the scope of each of these reliefs intuitive or are there unexpected differences between them that create practical problems for businesses? Are there aspects of any of these reliefs that you consider are unclear or particularly difficult to utilise in practice?
- Are there aspects of these reliefs which distort business decision making (for example in respect of such areas as the timing of the disposal of an asset, or how much cash to accumulate on a company balance sheet) or are inconsistent with your understanding of what the relief is aiming to achieve? Are there any ways in which they could be made less distortive?
- Should gift relief be extended to cover a greater range of business and investment assets as it was until 1989? What would the effect of this be? And would any extension open up unintended avoidance opportunities?
- Are there any aspects of the rules relating to the taxation of gains or losses realised on the disposal of shares and securities that are particularly complex to understand or apply? Are you aware of any difficulties in ascertaining the base cost of such assets, such as the share matching rules?
- Are there any aspects of the taxation of gains arising from the disposal of investment properties, leases, land or buildings that you feel would benefit from being simplified?
- Are there other asset classes (such as for example crypto assets) which present challenges or complexity for individuals on disposal?
- Are there particular areas of complexity that relate exclusively to companies? And if so, should these be simplified or made more consistent?
- Please describe any problems you have had (or anticipate having) in navigating the online systems or forms and provide any suggestions you have on how the forms or related guidance could usefully be simplified, made clearer or made easier to complete. Please specify which method(s) of reporting your experience relates to.
- Do you have any suggestions about how HMRC could use information it currently has or has access to, in order to reduce administrative burdens, improve customer experience and ensure compliance in respect of individuals’ and businesses’ CGT obligations? Does HMRC get the balance right between asking for information to avoid unnecessary enquiries and streamlining the experience for those with simple affairs?
- Please comment on any complexities or practical problems that you have experienced (or anticipate) in relation to the process of paying CGT. Please specify which reporting system(s) your payment(s) relate to
- Are you aware of any particular practical or technical issues (relating to for example record keeping, awareness, use of ringfencing rules, timing deadlines or other challenges) for losses, other claims, or clearances that you feel should be highlighted as part of this CGT review?
- What, if anything, could be done to help taxpayers to more easily fulfil their record keeping obligations and calculate any tax payable in relation to their capital gains?
- Have you encountered any difficulty with valuing assets either at acquisition or disposal? What, if anything, could HMRC do to simplify the valuation requirements or processes without opening up unintended avoidance opportunities?
- Would changing to a more recent rebasing date than 1982 make finding the base cost of a disposal easier or would any such benefit be outweighed by an increase in the number of valuations that would then be required?
- Are there particular aspects of the taxation of capital gains made by those administering an estate that could be simplified?
- To what extent does the absence of a CGT charge on death and transferring those assets at market value on death distort and complicate the decision‐making process around passing on assets to the next generation?
- Are there any aspects of the taxation of gifts or other disposals that are not made at market value, that you feel would benefit from being simplified? Should the range of assets eligible for a tax deferral when they are gifted be broadened to include a greater range of assets? And would any extension open up unintended avoidance opportunities?
- Are there instances where you feel the interaction of CGT with other areas of tax results in particular complexity or difficulty in applying the rules correctly? Are there definitions within CGT that would benefit from closer alignment with the definitions found in other taxes? Please provide examples, as well as any suggestions for ways to simplify the system.
- Are there instances where you feel the interaction of CGT and capital allowances (in respect to income or corporation tax) results in particular complexity, difficulty in applying the rules correctly, or unexpected tax outcomes?
- Are there any particular areas of complexity that are unique to partnerships?
- Please tell us about any other areas of complexity not covered above in applying any CGT reliefs, thresholds, or administration not already mentioned in your response, along with any suggested improvements to the CGT rules or legislation.
- Are there any areas of complexity that are specific to England, Scotland, Wales or Northern Ireland?
- Do you think that there are ways in which the taxation of capital gains should be reformed more widely to simplify the regime for the benefit of taxpayers? If so, how?
- Do you think it would be reasonable for some reliefs or exemptions to be removed if they fail to meet what you regard as their policy objective or are infrequently used? If so, which ones?
- Are there any useful lessons that can be learned from the UK’s historic CGT regime or other countries that would be relevant to the UK today? If so what, and from which countries?