Stability, simplification and succession: The three S's of capital gains tax

KPMG family office and private client team partner Jo Bateson talks about the key takeaways from the UK Government’s Tax Administration and Maintenance Day.

When the UK government announced there would be a Tax Day 2 - i.e. another day where they publish a command paper and various consultations - I was intrigued especially as the Autumn Budget had been so quiet from a personal tax perspective. Perhaps it would explain the somewhat startling increases in capital gains tax (CGT) revenues expected over the next five years. However, when the day was crowned ‘Tax Administration and Maintenance Day’ or TAMD for short, to be honest, my interest waned a little. A day on tax administration is hard to get excited about even for someone like me who loves tax! So, when the day arrived on November 30, 2021, I did not expect much and in some ways, it lived up to my expectations. But in other ways it has opened up new possibilities. Never in my 20+-year career have I seen such a stable capital taxes environment – stability, simplification and succession are the key personal tax themes for the remainder of this Parliament.

So, first to the good news. We were awaiting the Government’s response to the Office of Tax Simplification’s (OTS) second review into Inheritance Tax (IHT) on how to simplify the technical design of IHT, which was published in July 2019; and they responded on TAMD. The Government said “… After careful consideration of your recommendations, the Government has decided not to proceed with any changes at the moment, but will bear your very valuable work in mind if the Government considers reform of IHT in the future”. So, what does this mean? The Government are not looking to make changes to the CGT uplift on death (one of the OTS’s recommendations where a relief from IHT applies) nor are they going to review our lifetime gifts regime.

But the key point is on Business Property Relief (BPR) where the OTS recommended a review to align the legislation with capital gains tax rules which would have resulted in a number of businesses struggling to qualify. The Government response on TAMD indicates there will be no such review during this Parliament, which is great news for those seeking stability and succession. It is disappointing that the Government have not taken the opportunity to update BPR for modern business making joint ventures and minority stakes in other trading businesses, nor have they addressed the issues arising from businesses adapting to be more environmental. However, I don’t want to underplay the good news here. The impact of stability in relation to BPR rules should not be underestimated, especially for family businesses who usually have a long-term horizon - they can now look seriously at succession within this Parliament with certainty on the rules and how they apply to them.

So what did TAMD say about CGT? Again, we were awaiting a response to the OTS’s reviews of capital gains tax, which came on TAMD. The Government accepted five of the OTS’s recommendations which sit within the simplification theme – improving the single customer account, increasing the reporting window on the disposal of residential property to 60 days, consulting on extending the nil gain/nil loss rules on divorce and separation, review the roll-over relief provisions on compulsory purchase orders and improving HMRC’s guidance on a number of key areas. None of these on their own are particularly exciting, but the changes will address some specific areas which will be a real positive for those impacted. I know when helping my clients through separation and divorce, the current tax rules can give results that do not make sense, so a change to these rules could make a significant difference.

Five of the OTS’s recommendations were put in the ‘We may consider later’ bucket – some of them understandably as they are tricky issues. The tax profession longs for reform of the share pooling rules to make the preparation of tax returns more efficient so will be pleased to see ‘Consider’ next to this recommendation – part of the simplification theme. Also making main residence relief elections easier (one of the other ‘Consider’ recommendations) will be welcomed by all – our existing process is very clunky and prone to oversight due to its purely manual nature.

There were four OTS recommendations that were rejected by the Government. Each were on very specific issues – building homes in your garden, making gains in foreign currencies, changing the timing of tax payments on deferred consideration and removing inappropriate tax charges on the extension of a lease to the freeholder. For those impacted by these, I expect that they will be disappointed but for most these are not key issues.

It is great news from a personal tax perspective that there is certainty and stability in relation to capital taxes at least for the remainder of this Parliament. Stability, simplification and succession are the key personal tax themes from TAMD, but these themes can equally apply to clients. Having certainty on the taxation of capital for at least for the next 2-3 years opens up possibilities for those wanting to simplify their affairs and/or plan for their succession. A window of opportunity lies ahead for those who want it at least until the next general election and perhaps beyond.