Capital Gains Tax Review: call for evidence and survey

It wants to hear from taxpayers and their advisers about which areas of CGT are complex and hard to get right and suggestions for improvements.

The upcoming call for evidence, with a October 12 deadline, invites detailed comments on the technical detail and practical operation of CGT. This deadline should give the government time to include any changes it wishes to make to CGT in their Autumn/Winter 2020 budget.

The aim of the review is to explore ways to simplify both the technical aspects and the administration of CGT. It will focus on the following areas:

The overall scope of the tax, the various rates which apply, reliefs, exemptions and allowances and their interaction with other reliefs.

The treatment of losses.

The position of individuals, partnerships and estates in administration.

The position of unincorporated businesses, including set-up, disposal or windingup.

The position of stand-alone owner-managed trading or investment companies.

How the CGT rules affect taxpayers’ investment decisions.

Interactions with other taxes such as Income Tax, Capital Allowances, Stamp Duty Land (SDLT) Inheritance Tax (IHT).

CGT is the tax payable on the increase in the value of a business asset, from April 1982 until is sold or gifted. Enhancement expenditure since the date of acquisition and disposal costs are allowable, as is an allowance for inflation up to 1998.

There are various rates of CGT, dependent on the particular circumstances giving rise to the gain: 10; 20 and 28 per cent. Each individual has an exemption of £12,300 of a gain but if the vendor is a trust the exemption is only £6,150. A limited company has no exemption. There is no Capital Gains Tax payable on transfers arising at death.

There are many and varied reliefs against CGT.

Firstly, the gain on the sale or gifting a principal, private, residence is exempt.

The gain on the transfer to the next generation of agricultural land and business property from which a trade is carried on is eligible for ‘hold-over’ relief. This means that no CGT is payable at the time of gifting the agricultural land and business property provided that bothparties jointly sign an election stating that the amount of the gain arising on the transfer is ‘held-over’ until the agricultural land or business property is eventually sold.”

When a farmer sells all or a major part of the business but does not reinvest the proceeds in new business property then Entrepreneurs’ Relief may apply, resulting in a CGT rate of 10 per cent.

Where land is let on conacre, it must be occupied for the purposes of husbandry and there must be evidence of recurring activity and risk taking annually.

Commenting specifically on the upcoming CGT review, Omagh-based accountant Seamus McCaffrey said: “This review, along with recent press speculation about possible changes to CGT will give cause for concern

“The scope of the review requires the OTS to consider tax rates, annual allowances and reliefs. This is unusual for an OTS review and may signal that the Chancellor is actively considering tax rate changes.”

He continued: “As the Chancellor has only recently reduced the value of Entrepreneurs’ Relief, it seems highly unlikely that further CGT changes will occur for those who own and manage their own businesses until the economy recovers.

“In addition, as the Chancellor has just increased the nil rate band of Stamp Duty Land Tax in order to help the residential property market to recover, it would seem unlikely that the Chancellor would increase the CGT rates on property gains just yet. However, when the economy recovers, there may well be changes in this area.”

Seamus went on to point out that given the current economic uncertainty, the Chancellor may well put off making any changes to CGT until April 2021. This would be preceded by an announcement courtesy of his Autumn Budget statement.

He concluded: “Many farmers, particularly those contemplating transactions, which could have CGT implications, should consult with their accountants in order to discuss the potential changes and options available.”