Capital Gains Tax: oft misunderstood, but is its future finally looking clearer?
Featured Products Promotional FeaturesPosted by: Dental Design 21st August 2021
As a dental accountant, I speak with many practice owners and dental professionals who want to dispose of an asset, but are worried they could be trapped by Capital Gains Tax (CGT).
CGT is a complex tax, and much misunderstood. Crucially, it tends to affect taxpayers on a one-off basis – meaning most are dealing with it for the first and only time. Some assets are tax free and disposing of an asset doesn’t just refer to selling it, either. It can mean gifting or transferring it to someone else, swapping it for something else, or receiving compensation for it (for example, via an insurance payout).
In 2020, the Chancellor requested a review into CGT and the Office for Tax Simplification (OTS) has now published both parts of its report. It highlighted the “low level of public awareness” about CGT and how more should be done to “ease the administrative burden” for those who need to pay it.
The OTS made 14 recommendations for how CGT could be simplified. Here are the just some of the key points from its report, which might indicate what this tax could look like in the future.
A single customer account?
Currently, there are several ways that you can report CGT and pay any that is due. You can do it via self-assessment, using 30-day reporting or the real-time CGT service. The OTS recommended that CGT be integrated into a new, single customer account instead.
An extended payment deadline?
A much-criticised feature of CGT is the 30-day reporting and payment deadline for residential property disposals, which has been in place since April 2020. The OTS recommended that this deadline be increased to 60 days or, to make the short timeframe less of a challenge, to get estate agents and conveyancers more involved in the process.
CGT and divorced, or separated couples
If a couple is divorced or separated, they won’t incur CGT on transfers between themselves, for the tax year in which they separated. However, this is perhaps asking a lot – essentially, that they were able to reach a financial agreement and transfer their assets within that time. The OTS suggested that relief be extended for at least two years, or after any reasonable time set for the transfer of assets, once a financial agreement between the couple is finalised.
The OTS also made recommendations to change the nomination procedure for second homes, including a review of the practical operation of nominations, increasing awareness of how the rules operate and – again – the use of a single customer account.
Why wouldn’t HMRC want to make these systems easier for tax payers, so they don’t have to spend time chasing errors? Well in the last six months of 2020, over £1.3 million was raised in CGT late filing penalties: CGT is an effective tax.
At Figurit, we are specialist dental accountants who can help you with optimising your personal finance, as well as efficient tax-planning for your business. We can ensure you achieve clarity with CGT, so you can decide whether it’s better to hold on to an asset, or make a disposal.
The very fact that the OTS made so many recommendations indicates a broad agreement that the rules and processes around CGT do need streamlining. Whether the Chancellor takes up any of the recommendations remains to be seen, but in the meantime, if you are considering disposing of an asset and this is your first time around with CGT, get in touch with experts who can guide you through the process and keep you fully compliant with the current rules.
For more information, please visit https://figurit.com
or call Figurit (formerly known as Lansdell & Rose) on 020 7376 9333.
