The Treasury has responded to the Office of Tax Simplification's (OTS) reports on Inheritance Tax (IHT) and Capital Gains Tax (CGT). Some of the OTS's recommendations will be implemented while others have been rejected.
The OTS published its report on the Simplification of the technical design of IHT in July 2019. This outlined eleven recommendations including:
- Reforming the Normal expenditure out of income exemption.
- Changing the scope of reliefs such as Business Property Relief (BPR) and Agricultural Property Relief (APR).
Government acknowledges that there are a wide range of views on reforming IHT. It notes that changes to reliefs and the lifetime gifts regime must be considered in their wider context along with policy issues.
At present, the government has decided not to proceed with any changes.
Capital Gains Tax
In the OTS’s second report on CGT, ‘Simplifying practical, technical and administrative issues’, published in May 2021, fourteen recommendations were made.
Five of these recommendations have been accepted by government as they are seen to offer practical simplifications for taxpayers. These are:
- Extending the No-gain-no-loss window on separation.
- The detail of this will be consulted on over the next year.
- Improving guidance in a number of areas, including: Irrecoverable loans to businesses, Business Asset Disposal Relief in phased retirements and flat management companies.
- Expanded guidance on the UK property return will be published shortly, with other areas reviewed in due course.
- Extending the Rollover Relief rules where land is acquired under compulsory purchase orders.
- Reinvestment in enhancing land already owned will be included within the scope of the relief. The detail of this will be consulted on over the next year.
- Integration of the different ways of reporting and paying CGT into a Single Customer Account (SCA).
- This development forms part of HMRC’s long term strategy.
- Extending the reporting and payment deadline for the UK property return to 60 days.
- This was implemented in the Autumn Budget.
The Treasury's letter indicates that the detail of a further five OTS recommendations will be kept under review:
- Formalising the ‘Real time’ CGT service so that it is a separate CGT return usable by agents.
- Treating the same shares or units held in more than one portfolio as being in separate share pools.
- The practical operation of Private Residence Relief (PRR) nominations and enabling nominations to be captured through an SCA.
- Introducing an irrevocable provision in Corporate bond documentation to determine CGT treatment.
- Amending Enterprise Investment Scheme (EIS) rules to ensure that procedural or administrative issues do not prevent their operation.
The four remaining recommendations by the OTS were rejected by the Treasury:
- Adjusting PRR to cover developments in a taxpayer’s garden which the taxpayer subsequently occupies.
- Collecting CGT when cash is received in situations where Sales proceeds are deferred.
- Calculating gains and losses on foreign assets in the relevant foreign currency before converting into sterling.
- Removing CGT or Corporation Tax charges where a freeholder is in effect only extending their own lease.
Useful guides on this topic
OTS publishes second report on Simplifying Inheritance Tax
Following a request from the Chancellor the Office for Tax Simplification (OTS) have completed their review into ways to simplify Inheritance Tax and have now published the second part of their report.
OTS review of CGT: Simplifying practical, technical and administrative issues
The Office for Tax Simplification (OTS) has published ‘Simplifying practical, technical and administrative issues’, its second report on Capital Gains Tax (CGT). It recommends extensions to certain reliefs and a new 60-day deadline for paying and reporting CGT on residential property sales.