Where a taxpayer holds a number of shares in the same company they are pooled as one asset for the purposes of calculating any CGT. Generally, this is not normally a problem until the individual has more than one portfolio. This can then lead to the unravelling of the calculations to pool shares from different investment portfolios resulting in an administrative headache for all concerned.
The recommendation is that shares should simply be pooled within each portfolio. The concern is that this could lead to manipulation of the rules but this is surely very unlikely.
Debts
Corporate debts are often used when a business is sold as a means of deferred consideration. The type of corporate bond issued dictates the tax treatment when it is ultimately encashed.
Broadly a QCB (qualifying corporate bond) is exempt from tax and therefore any gain arising is fixed at the point of sale and crystallises on encashment. This holds more risk as if the company is unable to repay the bond, the held over gain is still charged. With a non-QCB the gain on sale is held over and the bond takes on the original base cost. Therefore, if the company fail,s the vendor still does not get paid, but does not have a tax charge on the original gain.
There are currently some very complex rules which need to be included or excluded in the loan note document to ensure it is of the correct type. The OTS have suggested that rather than retain these rules they introduce a provision which enables the document to irrevocably specify the tax treatment.
Private residence relief (PRR)
It will be of a relief that the suggestion in the first report that PRR may be removed has been dropped. The Financial Secretary to the Treasury has confirmed that ‘the government are committed to keeping family homes out of CGT’
There are however some suggested changes. Where an individual has a large garden and sells part of it to a builder they will typically get the benefit of PRR on that sale. However, if they build a house on that plot, while they will get PRR on the sale of the original house, the relief will only begin on the new property from the time they move in, meaning that when they sell it PRR will be restricted.
