CGT changes create unwelcome challenges for taxpayers and HMRC
The Association of Taxation Technicians (ATT) is concerned that plans to reduce the annual exempt amount (AEA) for capital gains tax (CGT) from next year will bring more people into self-assessment, increasing complexity and administrative burdens for both taxpayers and the tax authorities.
The AEA allows an individual to make gains1 of up to a certain amount (currently £12,300 for the current 2022/23 tax year) without paying CGT. At today’s Autumn Statement, the Chancellor has proposed that this will be reduced to £6,000 from April 2023, and then again to £3,000 from April 2024.2
These new rules will affect anyone who makes a disposal of assets including land, property (apart from those disposing of their main residence),3 shares and cryptoassets, as well as personal effects such as art or jewellery.4
Senga Prior, Chair of the ATT Technical Steering Group, (pictured) said:
“The annual exempt amount has a number of practical advantages. It is simple, straightforward and widely understood. Having an initial capital tax-free allowance is also consistent with the personal allowance in income tax.
“We are concerned that HMRC are already failing to keep up with the current volume of taxpayer correspondence and increasing the numbers who need to file returns for CGT will only add to these burdens. Taxpayers often find dealing with CGT more challenging than income tax because they are dealing with it infrequently and do not therefore build up knowledge and experience of the rules or understand how to report their gains.”
Notes for editors
1. Very broadly, a capital gain is calculated as the difference between the sale proceeds net of selling costs and the original cost of the asset plus any enhancement expenditure. Where the asset is gifted, the market value is generally used in place of sale proceeds.
2. See the ‘Green Book’ paragraph 5.21. According to HMRC’s policy costings, as a trust is only entitled to an allowance of half that for an individual, trustees will be required to report gains in excess of £3,000 from next April, and only £1,500 from April 2024 which will leave trustees with the burdens of reporting for very modest gains.
3. The most common relief used by taxpayers – which applies automatically in most cases – is that of Private Residence Relief which applies when a homeowner sells a house they have lived in throughout their ownership. This is the reason that the majority of owner-occupiers don’t need to report house sales.
4. There are also some helpful reliefs for chattels (personal possessions) such as art or jewellery. Full relief from CGT on chattels applies provided that the item (or the total for a group of items where they form a set) are bought and sold for under £6,000.
5. The idea of reducing the AEA was proposed as part of the Office of Tax Simplification’s review of CGT in 2020. However, their suggestion to reduce the limit was not made in isolation and included recommendations that there should be simplifications to reduce the administrative burden on taxpayers.. See Chapter 4 of the Office of Tax Simplification’s Capital Gains Tax review – first report: Simplifying by design published in November 2020.