• The OTS has issued a second report on Capital Gains Tax
• This report makes recommendations to simplify CGT reporting
• The OTS previously recommended increasing the rate of CGT and cutting the CGT allowance, but these proposals remain unheeded by the Chancellor.
Laith Khalaf, financial analyst at AJ Bell, comments:
“These new recommendations will broadly make things simpler for some investors and business owners if adopted. Probably the most meaningful proposal is to allow divorcing couples more time to pass assets between them without incurring any Capital Cains Tax, thereby giving them breathing space to restructure their financial affairs after separation. The OTS also wants to explore including Capital Gains Tax calculations in HMRC’s Personal Tax Account for taxpayers, which reflects an increasing drive to digitalise tax reporting. The OTS proposal to formalise the ‘real time’ Capital Gains Tax service as a standalone tax return would make things simpler for some consumers, but its popularity may be hampered by the fact that it means paying tax earlier, which isn’t on the priority list for too many taxpayers.
“It’s good that the OTS is trying to raise awareness, iron out wrinkles, and simplify capital gains calculations for investors, but it remains a fiendishly complex tax. The saving grace is really the limited number of people who pay it, thanks to a relatively generous annual allowance, and the availability of tax shelters like ISAs and SIPPs. The OTS actually thinks the annual allowance should be cut drastically, which would leave many more taxpayers on the hook for Capital Gains Tax, and having to get their heads round all the complexities involved. So far the government hasn’t adopted that recommendation, much to the relief of investors up and down the country.
“The OTS may well feel the Chancellor has left them hanging after failing to enact their previous recommendations to increase Capital Gains Tax. However, these latest proposals are more technical than ideological, so will not be as controversial to enact. Investors shouldn’t entirely discount the potential for changes to Capital Gains Tax further down the road though, and so should still make use of their annual ISA allowance to shelter as much as possible from the taxman. Current CGT rates do look low compared to income tax rates, and if the Chancellor’s plans to balance the books get blown off course, he’ll start to look for new ways to increase the tax take.”
