OTS Report Review

Capital Gains Tax » June 17, 2021

Changes on the horizon for the tax year of separation?

In this blog we will discuss the potential changes to the tax year of separation, Capital Gains Tax (CGT) payment dates, and some information about what to share with your clients.

The Office of Tax Simplification (OTS) is the independent adviser to Government on simplifying the tax system.  In July 2020, the OTS were asked to undertake a review of CGT to identify opportunities for simplifying the system.

Our Director, Sofia Thomas, was invited to consult with the OTS Tax Director on how the tax system could be simplified for divorcing couples.  We are pleased to see  her recommendation echoed by other professionals and included in the report.

The OTS has made the following recommendation:-

  • Extending the no gain no loss rules to the later of:-the end of the tax year at least two years after separation;
    • the end of the tax year at least two years after separation;
    • at any reasonable time in accordance with a financial agreement approved by the Court.

This report only provides recommendations to Government.  Government will then review the report in full and decide if they want to pursue any of the recommendations further. Therefore, at this stage none of the law has changed but it gives an indication as to the general feeling towards the tax year of separation.

If this change was brought in, it would mean that divorcing couples could transfer assets between themselves without incurring an immediate CGT liability right up until the financial agreement was made by the Court (or up to two years after separation if no financial agreement was approved by the Court). It would mean that the party receiving the asset would receive it pregnant with a gain and would be liable for the total CGT liability on a future sale.

It was interesting to see the report comments that many professionals felt that the tax year of separation was too short and ultimately not fair for taxpayers.  The report does not include any comments from HMRC so we cannot gauge their opinion on this.

The other relevant recommendation the report makes is that the 30 day payment deadline for CGT should be extended to 60 days. The report comments that ‘30 days is a very ambitious target for many taxpayers – as indicated by the fact that a third of the initial returns received took longer than 30 days to arrive.’  Family law professionals can support their clients with this by advising them of the tight turnaround time early on in proceedings if properties are going to be sold or transferred as part of the divorce.

Whilst it is too soon to say if these changes are likely to come in, it is wise to be aware of them.  We have had a number of clients ask us about the report and what it means.  In short, nothing has changed and nothing is likely to change in the next year or so.  Therefore, it is business as usual. 

We will be following this closely, so do subscribe to our mailing list for regular updates here.

The full report can be read here.

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