Government decide Inheritance Tax staying as is and Capital Gains Tax to be refined

The Treasury has written to the Office of Tax Simplification (OTS) in response to its second report on Inheritance Tax (IHT) and on its two Capital Gains Tax (CGT) reports.

The second report on IHT had the aim of investigating and commenting on the complexities of IHT and some of the technical aspects of the tax. The response also made reference to other reports on IHT, including those by the Organisation for Economic Co-operation and Development and the All-Party Parliamentary Group on Inheritance and Intergenerational Fairness (the latter suggested fairly far-reaching reform).

The headline for IHT is that, whilst reforms have been made to the reporting process for non-taxpaying estates, the Government has decided not to proceed with any changes to IHT at this moment. Though it should be noted that the Government may consider “reform of IHT in the future”.

The Treasury has correctly pointed out that the nil rate band and residence nil rate band have been frozen until 2025/26, and that “[a]ny potential changes to reliefs and the regime for lifetime gifts must be considered in this wider context”, which suggests that adjusting or reducing reliefs and the policies behind the reliefs, is unlikely happen whilst the current nil rate bands are maintained.

It may be the case that IHT reform is revisited in the future, perhaps to coincide with an increase in the nil rate band.

The response to the reports on CGT is slightly different as “the Government has accepted five recommendations from the second report on the technical and administrative issues with CGT.” Briefly the comments on the reforms suggested, include:

1. The suggestion to integrate reporting on CGT into a Single Customer Account, has been accepted, and the Government will consider a real time CGT service.
2. The extension of the deadline to fine a UK Property return to 60 days has been accepted, as announced in the budget.
3. We may see changes to Principal Private Residence Relief nomination in the future, in addition to those already put forward.
4. The Government agree the ‘no gain no loss’ window on separation and divorce should be extended and will consult over the change in the next year.
5. The Government have rejected the suggestion that CGT should be paid when cash is received where proceeds are deferred, such as on the sale of a business or land.
6. The Government have accepted that Rollover Relief should be expanded where land is acquired under a Compulsory Purchase Order.

It seems likely then that we will see some refinement to CGT in the coming year.