CT Reform

London27 January 2005

Capital Assets and Cars

Jo Brindley and Malcolm Smith

Inland Revenue Business Tax

Where are we now?

Looking at ways of

• Modernising the taxation of capital profits

• Simplifying and streamlining the approach to capital expenditure and capital profits

By

• Building on the existing capital allowances regime

The Basics

Use the capital allowances approach to:

• give relief for capital expenditure

• bring profits and losses into income

• spread profits and losses on disposal

Farewell to….?

• Separate computations of profits under two regimes

• The complexities of industrial buildings allowance

• The complexities of roll-over relief

• Advantages?

• Disadvantages?

Particular assets

Buildings:

• A new definition of ‘building’ for tax purposes

• bringing clarity and compliance savings?

• The benefits of pooling

• bringing simplicity and spreading profits and losses?

• Integration of capital profits into the income regime

• bringing economic coherence to the tax system?

Issues

• Transition?

• Bringing assets into the new regime

• Dealing with legacy losses

• Limiting the need to keep two systems operating

• Group transactions?

• Individuals?

Particular Assets

• Cars

• Current regime essentially unchanged for over 30 years.

• Distinction based only on cost of car.

• Single asset pool and leasing restriction requirements can increase compliance burden on all businesses.

Possible Way Forward

• Need to respond to wider environmental concerns

• Encourage purchases of “clean” cars.

• Pooling for cars

• Link to established vehicle tax regimes e.g. CCT and VED

Trading and Investment Companies

• Management expenses modernised Finance Bill 2004

• Continue to consider the case for extending the Substantial Shareholding Exemption to disposals by investment companies.

• The SSE itself is relatively new. Need to assess its impact.

• Government would like to explore further the behavioural effects of an extension - eg with venture capital industry.

• Not considering extension to non-trading companies at the investee level.