Tax Talk: Public Speaking, Tax & Allowable Expenses

Tax Talk is a series of articles brought to you by FSL’s own Tax specialist, Alex Ranahan.


When you know tomorrow you have an Important Thing At Work, it’s hard to switch off and think about anything else.  Well, maybe you find it easy – I certainly don’t.

In the evening on Monday 7th November – my brother’s birthday, as it happens – I was walking around the unfamiliar area of Tower Bridge to take in the surroundings and take my mind off work.

Tuesday 8th was an event called the User Group, where we invited clients who use our CGiX software to come along and hear about how we have improved the software, future developments, and then ask questions and provide feedback at a Q&A.  The speakers at the event were our company founder and owner, several managers… and me.

My slot was on recent developments in tax and views of key issues.  If you are unaware of the extent of tax policy, legislation and other changes over the last 12 months then congratulations, I can only assume your life is fulfilling and joyful!

Over the course of my presentation – only 15 minutes!  What was I worried about?! – I discussed the four(!) government Budgets which have taken place since October 2021 and the changes each one enacted, from the dividend income tax rate increase and Health & Social Care Levy (anyone remember that?  Feels like a lifetime ago already), to the Second Autumn Budget this year which announced that the basic income tax rate would not be cut to 19%. I talked about the changes to CGT on separation and divorce, the outcome of the two reports on CGT by the Office of Tax Simplification (OTS), due to shut down, and ended on a series of educated* guesses on the direction of travel.

*I’d like to think so, anyway.

Those clients I managed to chat with during the course of the event were thoughtful and had interesting things to say about how the raft of changes at that point and media rumours of measures that would be in the next Budget would in turn affect their clients – note that the event took place before the 17th November Autumn Budget.

Even at that time, rumours swirled that the Chancellor planned to fiddle with the CGT annual exemption, although at that time we only knew that the OTS had proposed a reduction to between £2-4,000 dependent on the purpose of the exemption.

Some clients, who act for many taxpayers with medium-sized wealth, predicted that a change to the annual exemption would mean a huge change in how their clients behaved: Without the safety net of the exemption on capital gains, to yield the same cashflow could require a change in investment strategy to more income funds rather than growth funds, since so much of the typical proceeds they would yield from their investments were now exposed to tax.

Other clients acted for high net worth or ultra-high net worth individuals, whose annual gains were far in excess of the exemption, and doubted such a change would make a material impact on their investment strategy.

This broadly rings true and matches the explanation given by the OTS when it recommended the reduction: If the capital gains exemption exists as an administrative de minimis – that is, to ensure that in the case of a taxpayer with modest capital gains, neither the taxpayer nor HMRC were too concerned about tax compliance obligations – then it could be safely reduced to a fraction of its £12,300 current limit, which is unusually high by international standards, without undue harm to that objective.

Another OTS recommendation discussed during the User Group was Recommendation 4 of the second report:

“Individuals holding the same share or unit in more than one portfolio should be treated as holding them in separate pools.”

This touches on a fundament to how financial institutions currently report their clients’ affairs for tax purposes.

The Section 104 pool rule states that when an investor sells shares of a particular share class, to find the historical pool base cost they must look at any holdings of that share class that they hold across all financial institutions and dealers (excluding ISAs and pensions).

This means that when, say, Big Wealth Manager LLP sends a tax report to a client on their investment portfolio, all CGT calculations are subject to the significant disclaimer that if the client holds the same investment with, say, Large Investment Bank plc, then the CGT calculation in the tax pack may well be wrong. The investor has to take the information from both institutions to figure out the true tax position.

The OTS recommendation is to remove this requirement on the taxpayer, which can understandably be quite an administrative burden, and instead treat the holding in each institution as a separate pool.  No cross-referencing would be required.

Not a single person that I spoke to thought this would be a bad idea. Indeed, there were one or two people who liked the suggestion so much that they predicted this would be in the next Budget, such an obvious area of simplification it was.

But one other point we discussed was the imminent closure of the OTS itself. And unanimity struck there too: Nobody thought that this was a good move by the Government.

Writing a blog like this, on tax policy and developments and anything else which pops into my head that I can get past my editor, means not just engaging with the substance of those developments but also doing so in as impartial a way as possible. Just stick to the technical side, don’t talk about politics.

The rollercoaster ride of Westminster politics has made it difficult in recent months!  But on this particular development in the world of tax I will venture an opinion: I think the OTS should remain open.

I understand the stated reason that simplification should be embedded into Treasury policymaking at the start: I agree!  But, more importantly: Who wouldn’t? Can simplification be embedded into policymaking and we have an external department with a remit to analyse, consult on, and inform the Government of possible areas for simplification? We have a National Audit Office to analyse departmental spending across Government, yet surely no serious person would argue that those departments therefore have no obligation to seek value for money at source.

The OTS’s reports on CGT, IHT, and making better use of third party data made for interesting reading, and gave an excellent picture of the ideal direction of travel for Government of any stripe. I can only hope that simplification work beyond the closure of the OTS maintains the same high standard.