Predictions for Capital Gains Tax Changes In The 2023 Spring Budget
What changes are we likely to see?
It has already been announced that the annual exempt amount for CGT will reduce from £12,300 to £6,000 for 2023/24 and then halve again for 2024/25.
It is hoped that the Capital Gains Tax rules for separating and divorcing couples will finally be relaxed in this Budget. If you are married or in a civil partnership, you can transfer assets from one to another without any Capital Gains Tax until you separate. Then, under the current rules, the transfer between one spouse and the other is only free from CGT for transfers that occur in the tax year in which the separation occurs, i.e., before the following 6 April.
For disposals of assets from one to the other on or after 6 April 2023, the Government has stated that legislation will be introduced to extend the ‘no gain, no loss’ window on separation to the latter of:
- The end of the tax year, which is three years after the separation occurs; and
- Any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland. We await the Budget announcements with anticipation for this change.
Who will be impacted the most?
Separating and divorcing couples will likely be those most impacted by the changes to Capital Gains Tax in the Spring Budget.
Any positives to these changes?
Separating and divorcing couples will no longer be penalised for failing to agree on the transfer of assets in the tax year in which they separate. You can read more about this here.
Stamp Duty Land Tax Predictions In The 2023 Spring Budget
In this Budget, the Chancellor may take action against the cowboy tax refund claims firms that sign up property purchasers and submit wildly speculative and, in some cases, ludicrous, stamp duty refund claims that depend for their success on HMRC not having the resources to check each refund claim properly. You can read more about this problem here.
In addition, we may see changes to the “all or nothing” mixed-use stamp duty treatment of property purchases where as long as there is some non-residential element to the land purchased, then for SDLT purposes, the top rate of tax on the entire purchase price is 5%. The Budget may bring in a pro-rata apportionment of the price between the residential and non-residential elements so that the different tables of stamp duty rates apply accordingly.
Who will be impacted by the changes?
Purchasers of expensive country homes with lots of land.
Any positives to the changes?
Reduced need to apply to the tax tribunals to determine tax disputes with HMRC over whether a part of the land purchased qualifies as non-residential.
Non-UK Beneficial Owners of Land
The beneficial ownership register designed to identify the ultimate owners (and beneficiaries) of residential property in the UK has not been as effective as expected. The deadline for registration as an Overseas Entity was 31 January 2023, when all qualifying overseas entities, who own freehold land or property in the UK (or leasehold land of more than seven years), should have registered as such with Companies House.
More information about this can be found here. Plenty of owners have either failed to register their details with Companies House or are relying on loopholes to avoid registration, thereby remaining unidentifiable. This enables them to avoid UK taxes.
The Budget may therefore announce a new HMRC programme to enforce the rules against those entities that have failed to register. Failure to register may involve criminal penalties and the entity being unable to register sales and purchases of land at the Land Registry.
Inheritance Tax Predictions in the Spring Budget
In 2019 the Office of Tax Simplification said that inheritance tax was unnecessarily complicated and suggested that the rules around gifting should be made simpler and easier to understand. This would help prevent people from unintentionally falling into the 40% IHT charge.
The many ways in which lifetime gifts can be made that avoid IHT, such as the small gifts allowances, gifts out of surplus income and the annual exemption, serve to confuse taxpayers.
Therefore, the announcement in the Budget of a single, simple large gift allowance would make the tax less complicated and easier to understand.
However, IHT has become a large earner for the Chancellor with £5.9bn raked in between April 2022 and January 2023 which means the chances of such a sensible reform are low.