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OTS proposes making capital gains tax calculations simpler

The OTS suggests treating the same share or unit in more than one portfolio as being held in separate pools
OTS proposes making capital gains tax calculations simpler

 

  • The OTS proposes making capital gains calculations simpler for investors who use more than one platform
  • It proposes extending the timeframe for reporting property gains from 30 days to 60 days
  •   And it wants the government to review EIS rules

The Office of Tax Simplification (OTS) has recommended making capital gains tax (CGT) calculations simpler for investors who hold shares on more than one platform outside of pensions or individual savings accounts (Isas). The proposal is one of 14 recommendations on CGT and follows a report published in November 2020 on how CGT rules could be simplified.

Share holdings are normally grouped together as a whole for CGT purposes when they are sold so that taxpayers do not have to keep track of which of their identical assets they have sold. But it can result in greater complexity if an investor holds assets with different service providers such as investment managers or platforms. This is because all holdings of the same shares in a particular company have to be aggregated and pooled even though they are held by separate parties.

The OTS suggests considering whether individuals holding the same share or unit in more than one portfolio should be treated as holding them in separate pools. “This will relieve 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,” it says.

The OTS also proposes extending the timeframe in which you have to submit a CGT return on gains from selling a UK residential property from 30 days, "a challenging deadline", to 60 days. 

The OTS has also recommended that the government reviews rules on enterprise investment schemes (EIS) to ensure that procedural or administrative issues don’t prevent their practical operation.

EIS have restrictive eligibility criteria which requires specific clearance from HMRC but can provide upfront income tax relief and a complete exemption from CGT. But several respondents to the OTS’s call for evidence said that the rules are overly limiting or cause practical problems for genuine applicants.

“We have also identified a number of specific areas that regularly cause practical concern which if addressed could better enable the relief to achieve its policy objectives,” added the OTS. For example, shares in companies that qualify for EIS have to be issued when, or shortly after, any funds are received. If payment for the shares is even one day late the whole investment is ineligible for tax relief.

“This can collapse deals and deter people from using the schemes, perhaps simply because of a timing delay within the banking system which is beyond investors’ control,” says the OTS. “Requiring everything to happen on the very same day is commercially unreasonable. [We have] heard of several instances where investors have been denied tax relief on this basis and it is a particular problem for those without access to expensive specialist tax advice - for example early-stage start-up companies using the Seed Enterprise Investment Scheme.”

The OTS suggests considering whether CGT should be paid at the time cash is received in situations where proceeds are deferred, such as the sale of a business or land, while preserving eligibility to existing reliefs. This is because proceeds from the sale of a business or land are sometimes paid over a number of years, or are a combination of cash and other assets such as shares. Businesses can also be sold for an uncertain price that depends on future events. But these more complex business and land sales can create issues which are difficult to understand, result in tax having to be paid before any cash is received and distort commercial decision making.

The OTS adds that the government should consider ensuring that future proceeds payable in forms other than cash, such as corporate bonds, can qualify for Business Asset Disposal Relief.

The OTS suggests extending the timeframe within which divorcing couples are able to claim spousal exemption on CGT when dividing their assets. Spouses and civil partners can transfer assets between them without triggering an immediate CGT charge, and divorcing or separating couples continue to be able to do this in the tax year in which they separate. But from the following tax year transfers take place at market value in accordance with normal CGT rules.

The OTS recommends extending the operation of this rule to the later of the end of the tax year at least two years after the separation event, or any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland. “It is unrealistic to expect separating couples to have resolved their affairs by the end of the tax year of their separation, in part because financial agreements are relevant for a third of divorces, and it is unfair to those without tax advisers,” it explains.

In 2020, for example, it took an average of a year to secure a divorce in England and Wales.