Office of Tax Simplifications on Capital Gains Tax

Written by John Bunker, Solicitor and Head of Private Client Knowledge Management

Chancellor Rishi Sunak delivered his Autumn Budget on Wednesday 27 October, setting out the Government’s tax and spending for the next 12 months. The Budget was mainly focused on investment and optimism and while there were no major tax changes for private clients, one sensible Capital Gains Tax (CGT) change was the implementation of one of the Office of Tax Simplification’s (OTS) recommendations on the tax.

Property sellers will be delighted to know that there’s been an increase on the amount of time given to pay CGT on a residential property. With an increase from 30 days to 60 days, it means that there’s now some much-needed time and flexibility. In particular, individuals, estates and trusts with capital gains on homes that don’t qualify for the main residence relief, Principle Private Residence relief (PPR), or that only get PPR relief for part of the period of ownership. This also applies to a gain on the gift of residential property, or an interest in a property, where CGT is payable.

The recent change follows an OTS proposal on Inheritance Tax (IHT) that was actioned just before the Budget. It was announced that there would be a change in the accounts that are needed to obtain a grant of probate, but this is as far as the government have gone with changes to capital taxes following two previous OTS reports on each of IHT and CGT. In the Budget earlier this year, it’s important to remember that the government froze all CGT exemptions, IHT nil-rate bands (NRBs) and residence NRBs. This particular tax levy or ‘stealth tax’ means that the revenue from IHT and CGT will be significantly increased over the course of the next five years.

The IHT practice change for estates, to take effect for deaths from 1 January 2022, comes through the statutory instrument laid before Parliament on 21 October 2021. This is to meet the Government’s target that 90% of non-tax paying estates should not need to submit IHT accounts to HMRC. It’s estimated that this affects 240,000 estates and is designed to save a lot of work. Executors of estates will still have to get valuations and prepare gross and net estate figures to submit with probate applications, and these are needed as base costs for CGT for assets like shares and land.  

By increasing the percentage of non-tax paying estates that don’t need to submit IHT accounts, a huge amount of cases will find this beneficial, including:

• Non-taxable estates with values up to £3 million (an increase form £1 million)
• Estates where the deceased made specified transfers, with a chargeable value over £250,000 (increased from £150,000)
• Cases where a deceased spouse used part of the NRB and so only part of the funds are transferred to the survivor’s estate (now an account will not be needed)
• Cases where there’s an aggregable estate up to £250,000 (previously £150,000) if the total value including the exempt amount is limited to £1 million.

Although the Budget was noticeably missing lots of questions surrounding tax, these new changes should ease some of the pressures for the moment as we wait to see the implications following the autumn announcement.