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Capital gains tax and inheritance tax changes in 2022

Back in September 2021, the UK government’s first Autumn Budget in three years suggested that there would be no new Inheritance Tax (IHT) reforms and minimal Capital Gains Tax (CGT) reforms.

Following the second Tax and Administration Maintenance Day of 2021, on 30th November, the government responded to reviews of the tax system by the Office of Tax Simplification (OTS).

In a letter addressing the recommendations for updating Capital Gains Tax (CGT) and Inheritance Tax (IHT), the UK government accepted several CGT changes, and upheld an earlier objective to amend the Excepted Estates regulations for estates that are exempt from IHT from January 2022.

Read on to learn more about the new rules for CGT and IHT, and when they come into effect.

How is IHT changing in 2022?

While the OTS made 11 recommendations for IHT
reforms, the government decided not to pursue them, as the IHT threshold
is already frozen at £325,000 until 2025-2026. While the IHT interest rate is increasing from 2.6% to 2.75% from 4th January 2022, the Inheritance Tax rate itself is staying the same. This means that the standard 40% tax still applies for any inheritance valued above £325,000.

However, the government announced its intention to change the IHT reporting rules for non-paying estates earlier, in March 2021. The Excepted Estates Amendment applies from 1st January 2022. Previously, you had to notify HMRC when inheriting an estate, even if its value was below £325,000.

The amended rules should ease this administrative burden, as grieving families in this situation will no longer need to submit an IHT
form to gain probate or confirmation. If the estate value is less than the threshold for owing IHT, the beneficiary will only need to provide the estate value information directly on the probate or confirmation form, which they can calculate using the IHT Checker tool.

More estates held in trust should now find themselves exempt from IHT, as the limits for chargeable properties and aggregated transfers are increasing from £150,000 to £250,000. The gross estate limit is also increasing from £1 million to £3 million (though not for trust assets that pass to a spouse or charity). These increases only apply if the deceased person had their permanent home in the UK.

Additionally, the ‘prescribed period’ of IHT liability
is increasing from 1st January 2022 to bring the rest of the UK in line with Scotland’s practices. UK court services previously had 1 week from issuing probate or confirmation to notify HMRC, but this is now extended to 30 days. Rather than 35 days, HMRC will now have 60 days to investigate the estate before discharging it from IHT liabilities.

How is CGT changing in 2022?

The OTS had 14 recommendations for Capital Gains Tax reform, of which the government only accepted 5. However, a further 5 are under review and may be considered for implementation in the future. Here’s a breakdown of what the government accepted, put on hold, and rejected for CGT:

Accepted CGT reforms

  • ✓ Implementing a CGT deadline extension for reports and payments (from 30 days to 60 days)
  • ✓ Eventually introducing a Single Customer Account for reporting and paying CGT
  • ✓ Possibly extending the ‘no gain no loss’ window for divorce (consultation expected)
  • ✓ Potentially expanding Rollover Relief for investments in property acquired via Compulsory Purchase Order
  • ✓ Improving guidance on Enterprise Investment Schemes and UK Property Tax Return Business Asset Disposal Relief
  • ? Formalising administration for a Capital Gains Tax Service (which the Single Customer Account will be a part of)
  • ? Treating shares or units held in multiple portfolios as separate share pools
  • ? Reviewing Corporate Bond and Gilt-edged Security CGT exemptions
  • ? Further reviewing Private Residence Relief nominations
  • ? Looking at income rules for Enterprise Investment Schemes as well as CGT rules
  • ✗ Changing Corporation Tax rules for freeholders extending their own lease
  • ✗ Extending Private Residence Relief cover for garden developments that the taxpayer occupies
  • ✗ Changing CGT rules for property sales when payment of the proceeds is deferred
  • ✗ Calculating foreign asset losses and gains in their own currency rather than sterling

CGT reforms for further consideration

Rejected CGT reforms

To be clear, the rejected reforms will NOT be happening, the reforms under consideration may still happen at some point, and the accepted reforms are in development. Extending the deadline for reporting and paying CGT
is the only recommendation that is already in force (from October 2021).

What to do if these tax changes affect you

These relatively minor tax adjustments are mostly good news, but they will only affect taxpayers in specific circumstances. The IHT
changes will affect those administering estates of the deceased worth more than £325,000 in England, Wales, and Northern Ireland, while the existing CGT extension affects anyone who has a duty to report capital gains and/or pay tax on them.

As for the CGT reforms still in the works, we cannot be certain who they will impact and what the extent will be under the government undertakes further consultations, which should happen at some point in 2022. In the meantime, if you need advice on Capital Gains Tax or assistance with Inheritance Tax from expert accountants in Barnsley, please contact GBAC by phone or email. Our accountants in Barnsley are happy to help, while we also have accountants in Leeds and accountants in Sheffield too.