Will they collect more tax if they again align the rates of CGT and income tax?

“Increases in capital gains tax are inevitable now, despite doubts expressed ten years ago”, says Mark Lee, Chairman of the Tax Advice Network.

On 13 July, the Chancellor asked the independent Office of Tax Simplification (OTS) to undertake a review of Capital Gains Tax (CGT) in relation to individuals and smaller businesses. “The publication of a full scoping document on 14 July, just one day after a formal request was issued, suggests the request was no surprise.” Says Lee. “So, as the Sunday papers predict today, we are likely to see increases in the next Budget”.

The wording of the letter references capital gains as being a type of income. “This is odd language” says Lee, “as the Chancellor must know that CGT doesn’t tax income. By definition CGT taxes capital gains. That’s the increase in the value of your investments – and CGT is only charged when you realise those gains by selling your investments – things like second homes, shares, paintings and so on”.

“No one wants to say it but increasing CGT makes good political sense” says Lee, who was himself a tax adviser for 25 years.  “I remember discussing this very point with Sir Edward Troup at a tax conference in 2010.  Back then he doubted that aligning the rates of CGT and income tax would increase the tax take from CGT. I wonder what has changed?”

There are many exemptions and reliefs from CGT and an annual exemption. This means that the first £12,300 of capital gains anyone makes each year is tax free.  This rule simplifies things for the majority who cannot make significant capital gains.

Notes for editors:

1. Mark Lee is a Fellow of the ICAEW and of the CIOT. He is a former tax partner at the accountancy firm BDO and a former Chairman of the ICAEW Tax Faculty.

2. The Tax Advice Network, launched in 2007, operates the FindATaxAdviser.online website and has members all over the UK.

3. In May 2010 George Osborne, Chancellor in the new Coalition Government, announced that he would “seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities. In his Budget on 22 June 2010 he raised the top rate of CGT to 28%.

4. Mark Lee’s subsequent conversation with Sir Edward Troup is recorded on the Tax-Buzz blog entry 5/7/2010: “CGT rules unlikely to change again in this Parliament”.

5. In 2010, Troup was Managing Director of the Budget Tax and Welfare directorate at HM Treasury. He later became Executive Chair and First Permanent Secretary of the HM Revenue and Customs (HMRC) in April 2016. He retired in December 2017, and was knighted in the 2018 New Year Honours.

6. On 13 July 2020 The Chancellor of the Exchequer, Rishi Sunak, asked the OTS to carry out a review of Capital Gains Tax to identify simplification opportunities. The scoping document for the review was published on 14 July 2020.

7. The rate of CGT has changed over time since it was first introduced in 1965. Until 1988 it was fixed at 30%. Then for 20 years CGT was payable at income tax rates, as if it was additional income (but with it’s own set of reliefs and exemptions). It was a Labour Chancellor, Alastair Darling, who reduced the top rate of CGT from 40% (when it was aligned with the then top rate of income tax) to 18% in 2008. In recent years the top rate of CGT has been 28% whereas the top rate of income tax is now 45%.

8. Lee questioned the rationale for reducing the rate of CGT in an article on his Tax Buzz blog on 5/2/2009: Why are capital gains taxed at less than  half the main rate of tax?

 


Stamp duty tax avoidance schemes are like dodos

The Tax Advice Network is warning property purchasers to beware of false promises if they hope to avoid stamp duty land tax (SDLT).

The avoidance schemes that were popular when stamp duty land tax was first introduced, declined in popularity as loopholes were closed by HMRC. But recent tax increases mean that some providers of tax avoidance schemes are still making promises they cannot keep.

Mark Lee, Chairman of the Tax Advice Network, says “It’s natural that people buying expensive properties will want to find ways to avoid having to pay tens of thousands of pounds in tax on top of the purchase price. And this makes them susceptible to the snake-oil salesmen who promise the unattainable in exchange for a hefty fee but with no guarantee of success. This fee than just becomes an additional cost on top of the tax and interest where the tax is paid late.

The only simple way to reduce the stamp duty charge is to pay less for the property you are buying. This seems to be happening at the top of the market. A report by PwC suggests that recent increases in the rates of SDLT led to a fall in the number of top-end properties being sold and a decline in income for the exchequer.

The tax take from homes worth more than £1.5 million is reported to have fallen by the equivalent of almost £500 million a year.

The situations in which you can legitimately reduce the tax otherwise payable are very few and far between. Simply buying a replacement main residence rarely affords you any opportunity.

Lee advises that those who are tempted by assurances from slick salesmen should ensure they are aware of the reality of the situation. “The occasions on which you can legitimately reduce the tax otherwise payable are very few and far between. The loopholes are gone and key reliefs apply automatically if you satisfy the relevant rules. By all means take advice re the planning opportunities that may be available but avoid salesmen promoting tax avoidance schemes.”

Notes for editors:
1. The PwC research is reported in The Times 23 February 2017: “Treasury loses £500m in tax raid on luxury homes

2. Stamp Duty rates are now:
Nil on properties costing up to £125,000
2% on the portion from £125,000 to £250,000
5% on the portion from £250,000 to £925,000
10% on the portion from £925,000 to £1.5 million and
12% on the portion over £1.5 million
An additional 3% is payable on the acquisition of second properties that are not the purchaser’s main residence.

3. HMRC guidance for anyone tempted by tax avoidance schemes: https://www.gov.uk/guidance/tax-avoidance-an-introduction

4 – The Tax Advice Network was established at the end of 2007 and is now in it’s tenth year of operations. It has dozens of members including a number who can give legitimate tax planning advice re stamp duty land tax.

5 – Chairman, Mark Lee, is a former tax partner at BDO and a former chairman of the ICAEW Tax Faculty.

6 – The Tax Advice Network website is highly ranked by search engines eg: for ‘tax advice’, and attracts thousands of enquiries a month.


What to do if you missed the tax return filing deadline

The Tax Advice Network is warning taxpayers that they will need a ‘reasonable excuse’ to avoid penalties and interest charges if they missed the 31st January filing deadline for personal self-assessment tax returns.

You are legally obliged to file a tax return if you received an official notice to complete one. You are also obliged to tell the taxman if you had any untaxed income or capital gains that are subject to tax.  The deadline of 31st January 2017 was the filing deadline for tax returns in respect of the tax year that started on 6 April 2015 and ended on 5 April 2016.  If you have had untaxed income or capital gains since then you will need to report these on a tax return for the current tax year that ends on 5 April 2017.

The minimum penalty for filing late is £100 even if you do not have to pay any tax. The penalties increase over time and interest will be charged on any late paid tax.

Chairman of the Network, Mark Lee, explains that “Whatever your reason for missing the deadline, the taxman’s computer will charge the penalty and you will need to pay this unless HMRC later accept that you have a ‘reasonable excuse’.  HMRC are known to have very strict rules as to what they will accept is ‘reasonable’ in this context.”

HMRC’s guidance means they do not accept the following excuses for late filed tax returns:

  • you found the HMRC online system too difficult to use or you left it to the last minute and couldn’t quite work it all out under pressure
  • you didn’t get a reminder from HMRC
  • you made a mistake on your tax return which means you need to correct things after the filing deadline

Excuses that ‘may’ be accepted tend only to be where something outside of your control prevented you from filing ahead of the deadline. For example:

  • your partner or another close relative died shortly before the tax return or payment deadline
  • you had an unexpected stay in hospital that prevented you from dealing with your tax affairs
  • you had a serious or life-threatening illness
  • your computer or software failed just before or while you were preparing your online return
  • you had provable service issues with HMRC’s online services
  • a fire, flood or theft prevented you from completing your tax return

Mark Lee warns that before accepting your excuse, “HMRC will require two things:

1 – Proof or evidence that your excuse is true and not made up.  This might include confirmation from doctors or hospitals re medical issues, and technical reports from IT consultants re computer issues.

2 – Proof or evidence that you made every effort to file your tax return asap after the deadline.”

What to do now?

Whether or not you have a ‘reasonable excuse’, you should aim to file your tax return as soon as you can.

If you need help and can afford to pay for any accountant or tax adviser to help you, you can choose from any of the 100 members of the Tax Advice Network – which is spread across the UK. Members of the Network can also advise you as to the merits of your ‘excuse’ and give you advice to ensure that you don’t pay too much tax. Simply use the search facility on the home page here >>>

Alternatively if you do not want to pay for help and advice you can talk to HMRC by calling their Self Assessment Helpline on 0300 200 3310 (open 8am-8pm Monday to Friday and 8am-4pm Saturdays).  Make sure you have your Unique Taxpayer Reference (UTR) number to hand.

 

 


Don’t rush to file your tax return before 31st January this year

The UK’s 9-year-old Tax Advice Network has controversial advice for anyone rushing to complete self-assessment tax returns this weekend. “It’s better to file right and late than on time and wrong”. This advice follows the release of figures via an FOI request that HMRC fined almost 30,000 people for filing incorrect tax returns last year.

Chairman of the Tax Advice Network, Mark Lee, explains “As the annual self-assessment tax return filing date looms so does the pressure to file your return before the deadline. But it is rarely a good idea to rush things.  If you beat the 31st January deadline and it later transpires that your tax return was wrong you could be liable to a sizeable penalty. If you file a complete and correct tax return at the start of February you will only be charged £100.”

Last year over a million tax returns were filed over the final weekend before the 31 January deadline and 8% of self-assessment tax returns were filed late.

Hundreds of accountants talk of new clients asking for help in January so that they can avoid the late filing penalty. Other accountants are doing their best to complete the tax returns for long-standing clients who leave things to the last minute.

Lee continues: “A good accountant will do their best to help you but they are not miracle workers. It takes time to collate all relevant data, check for inconsistencies, clarify issues and complete a tax return so as to keep tax bills to the legal minimum.”

If HMRC considers you were careless they will charge a penalty of upto 30% of the extra tax even when a tax return is filed ahead of the 31 January deadline . The penalty can be upto 70% of the tax at stake if HMRC determines that you have deliberately underestimated your tax. Much better therefore to pay the £100 and to take the extra time to ensure that your tax return is correct when you file it a little late.

Separate to these fines is the interest that HMRC charges on late paid tax. Lee advises: “Pay an estimate of the tax you will owe before 31st January. This will reduce the interest you will pay on any late paid tax. You can do this even if your tax return is not ready to file by the deadline”.

If you need help to prepare or finalise your tax return; or if you want advice on what you can do to reduce your tax bill, use the Tax Advice Network website to find a local tax specialist or accountant to help you. You may even find someone who will help you beat the deadline!


Official recognition of Tax Advice Network as a “trusted organisation”

I received a letter at the weekend from Stephen Banyard, Director Business Customer Unit at HMRC. Please share my excitement at the implications of this letter – especially in the light of the clarification I have just received.

It includes this line by reference to the Tax Advice Network:

“As a trusted organisation, small businesses already look to you for advice. We would like to ask for your help in sharing this important tax guidance with your members. It could save them, and you, time and money.”

The Tax Advice Network is a ‘trusted organisation’. Well, that’s nice. But how many other such organisations are there?

I telephoned the contact number on the letter and was told that Stephen/HMRC had only sent out about 20 copies of the letter. Now I’m feeling quite chuffed.