CT Reform London 27 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.