The Office of Tax Simplification (OTS) have published a second report on Capital Gains Tax covering practical, administrative and technical issues. They give a number of recommendations to the Government and I cover those that may affect individual investors below (at least the few who actually pay capital gains tax) and add a few comments:
- HMRC should integrate the different ways of reporting and paying Capital Gains Tax into the Single Customer Account, making it a central hub for reporting and storing Capital Gains Tax data (recommendation 1).
- The government should consider whether Capital Gains Tax should be paid at the time the cash is received in situations where proceeds are deferred, such as on the sale of a business or land, while preserving eligibility to existing reliefs (recommendation 8). This is a sensible change.
- The government should consider whether individuals holding the same share or unit in more than one portfolio should be treated as holding them in separate pools (recommendation 4). They say “This will relieve the relatively small number of individuals with more than one investment manager from having to perform calculations based on the interpretation of a complex range of financial statements and help to facilitate better use of third-party data”. But it could mean that losses in one portfolio could not be used to offset profits in another. This writer would not be in favour of such a change (I have multiple portfolios with different brokers for good reasons). Any such change should be made optional, although it might not make a lot of difference for most people in practice. However, with other recommendations included it might enable tax to be collected much sooner than at present. Is there a hidden agenda here? One can envisage that Pay as You Earn might become Pay as You Trade.
- There are currently several different ways UK resident individuals report Capital Gains Tax transactions to HMRC. In some cases, this involves disposals being reported more than once. The most common way to report a disposal is through Self Assessment. The next most common way to report a gain is via the UK Property tax return. A very small minority of people choose to report gains early through the ‘real time’ Capital Gains Tax service. The proposed change is that the government should formalise the administrative arrangements for the ‘real time’ Capital Gains Tax service, effectively making it into a standalone Capital Gains Tax return that is usable by agents (recommendation 2).
- The government should review the rules for enterprise investment schemes, with a view to ensuring that procedural or administrative issues do not prevent their practical operation (recommendation 10).
- The government should consider whether gains or losses on foreign assets should be calculated in the relevant foreign currency and then converted into sterling (recommendation 11).
- HMRC should improve their guidance in the following specific areas (recommendation 14) – A persistent theme running through many of the responses the OTS has received to the Call for Evidence is that many people have limited awareness or understanding of Capital Gains Tax, of when it may arise, or of their reporting and paying obligations where it does.
The report is 121 pages long, but simplification is complex is it not? There are some proposed changes that are certainly advantageous (such as the extension of time for divorcing couples to transfer assets), and no doubt there are others that are rational, but this is not a wholesale simplification of the system of Capital Gains Tax that is preferably required. It’s just tinkering with the complexity to removal a few anomalies.
The OTS report is available from here: https://www.gov.uk/government/publications/ots-capital-gains-tax-review-simplifying-practical-technical-and-administrative-issues . If you think you might be affected by these proposals it’s best to read the whole report.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )