Tag: Capital Gains Tax

The 2020 Budget and what it means for you

Rishi Sunak delivered not only his first budget, after finding himself in the position of Chancellor of the Exchequer, but it’s also the Government’s first budget since winning the General Election and leaving the EU. All alongside the growing threat from coronavirus.

Hailed by the Chancellor as “the budget of a Government that gets things done” and widely seen as a change of direction from the traditional fiscal approach of established Conservatism.  

So now the dust has settled, what does it all mean for us? 

Important points for high earners
SAVINGS: In the Finance Bill 2020 the government will set the 0% band for the starting rate of savings income. This means that the rate will remain at the current value of £5,000 for the whole of the UK for 2020 – 2021. 

PENSIONS: The two tapered annual allowance thresholds for pensions will both rise by £90,000. From 6 April 2020 the minimum tapered annual allowance will decrease to £4,000 (down from £10,000). From 2020 onwards the threshold at which an individual is assessed for taper will be £200,000, with the point at which your annual allowance begins to reduce being £240,000. 

Important points for business owners
CAPITAL GAINS TAX: The Finance Bill 2020 will reduce the lifetime limit on gains that are currently eligible for Entrepreneur’s Relief, down from £10 Million to £1 Million for all qualifying disposals made on or after 11 March 2020. 

CORPORATION TAX RATES: The Corporation Tax main rate from April 2020 will stay the same at 19%; with this rate being set in legislation in the Finance Bill 2020.   

ENTREPRENEURS’ RELIEF:  Entrepreneurs’ relief is viewed by the Chancellor as ‘expensive, ineffective and unfair’ with three quarters of the relieve going to just 5,000 people. Which is why Rishi Sunakstated that he wishes to make changes to entrepreneurs’ tax relief, rather than abolish it altogether, as he said that he ‘did not want to discourage genuine entrepreneurs’. As such, he is reducing the lifetime limit for relief from £10m to £1m.  

This reform is set to save around £6bn over the next five years, with around 80% of small businesses going unaffected.

Important points for non-residents purchasing UK property through companies
The 2019 Finance Act legislated that non-UK resident companies that operate a UK property business, or have other property income will now be charged Corporation Tax on property income or profits, rather than these charges being levied as Income Tax. Following the budget, the Finance Bill 2020 will ensure that these measures and changes are smoothly implemented and that the transition of the taxation of UK property profits from Income Tax to Corporation Tax delivers a more equal playing field for UK and non-UK resident companies alike.  

Non-UK RESIDENT STAMP DUTY: As promised in the 2018 Budget, and following a consultation, there will be a change in Stamp Duty Land Tax surcharge on non-UK residents purchasing residential property in England and Northern Ireland. The Finance Bill 2020-21 will introduce a 2% surcharge to take effect from 1 April 2021. 

For the avoidance of doubt, if contracts are exchanged before 11 March 2020 but complete or are substantially performed after 1 April 2021, then transitional rules may also apply. 

Other general but important points
INDIVIDUAL SAVINGS ACCOUNTS (ISA) & JUNIOR ISA’s: The adult annual ISA subscription limit for 2020 – 2021 will remain unchanged at £20,000. Where there will be an increase to £9,000 in the annual subscription limit for Junior ISAs. Both of these measures will apply to the whole of the UK. 

CHILD TRUST FUNDS: The chancellor announced an increase to £9,000 in the annual subscription limit for Child Trust Funds for 2020-21. This measure will apply to the whole of the UK. 

LIFETIME ALLOWANCE FOR PENSIONS: The on going Consumer Price Index (CPI) increase in the lifetime allowance for pensions will increase in line with CPI, rising to £1,073,100 for the tax year 2020 to 2021.  

PERSONAL TAX: The personal tax allowance remains at £12,500. Whilst the threshold for National Insurance contributions will rise from £8,632 to £9,500. This should remove 500,000 of the workforce from NI tax eligibility.  

VAT ON SANITARY PRODUCTS: The 5% VAT levied on women’s sanitary products will be scrapped. 

PLASTIC PACKAGING TAX: A £200 per tonne charge will be levied on all manufacturers and importers on any packaging made of less than 30% of recycled plastic. 

VAT ON DIGITAL PUBLISHING: The chancellor will abolish all VAT on digital publications including books, newspapers, magazines and academic journals from 1 December. 

Alcohol, Tobacco and Fuel
ALCOHOL: All duties on spirits, beer, cider and wine have been frozen. 

TOBACCO: Tobacco taxes will continue to rise by 2% above the rate of retail price inflation. This will add 27 pence to a pack of 20 cigarettes and 14 pence to a packet of cigars. 

FUEL: Fuel duty has been frozen for the 10th consecutive year. 

Any questions? Please get in touch
As always, were here to help, whenever you need us.

If you do have any questions regarding anything that the chancellor has changed or mentioned in his budget, or any points I’ve raised in this blog, then please get in touch with us at Bridgewater Financial Services, where we will be delighted to help guide you through your individual options and strategies.

 

 

 

Changes in Capital Gains Tax and your home!

Selling a property? Then read on about the changes in CGT coming your way.

This year, on 6 April 2020, HRMC are proposing some changes that could significantly increase the Capital Gains Tax (CGT) paid on the disposal of any residential property. 

That, along with a decrease in the time you have to pay CGT, should generate a one-off additional increase in CGT paid to the Government by around £7bn.

Changes in CGT on your main home

If, like the majority of residential sales, you have occupied the property throughout the period of your ownership as your main residence, then there will be no CGT due on the sale. 

However, if you did once occupy the property as your main residence, but have since moved out and let the property, or kept the property of any other reason, then these changes may well affect you. 

Even getting divorced, separated or working away could see your traditional entitlement to full CGT relief significantly diminished. 

Put simply, if any of the above scenarios apply to you, then you will likely face a larger CGT bill if you transfer or sell your property on or after 6 April 2020.

Letting relief 

Since 1980 the valuable tax break that is Letting Relief that was applied to any property that was your main residence, allowed any private gain that remained after Private Residence relief, to be further reduced by up to £40,000. 

Not only is this £40,000 exempt of CGT, if you qualify, but it is also available to each owner of the property. Meaning that a property could deliver a massive £80,000 CGT exemption for a property owning couple.

The bad news here is that for any disposals made on or after 6 April 2020, HMRC is looking to limit the availability of Letting Relief, by restricting it to those landlords who share occupancy with their tenant. Unfortunately for everyone else, it looks as though letting relief will no longer apply.

If you’ve already moved out, then the clock is ticking

In most cases Final-Period Exemption allows you to have moved out of the disposed of property in the last 18 months and still avoid CGT, even if you now live elsewhere. 

However, from 6 April 2020, this will be reduced to just 9 months before CGT becomes applicable.

Those with a disability, or who have moved to a care home, will still be able to claim private residence relief for the last 3 years of ownership.

A decrease in the time to pay

As HMRC take away with one hand, they would also prefer that you paid a little quicker with the other. 

As CGT is included in your self-assessment due on 31 January, following the year of the disposal of the property, this means that HMRC can be waiting for up to 10 to 22 months after the date of the sale.

HMRC believe that they far are better placed to look after that lump sum than you are. |

So after 6 April 2020 you’ll have just 30 days from the date of completion to clear any CGT liability. All this will be done via a residential Property return and the tax will be treated as a payment on account of the CGT tax due for that year.

So what can you do? What are the opportunities?

Well obviously the single most important thing you can do is to be aware of the changes coming. So the very fact that you are reading this sentence should provide you with some sense of calm. 

Other practical things you may want to consider are:

• Speaking to a knowledgeable financial advisor, who understands these matters

• If you are letting out your old main residence, then workout how much additional tax would be payable if you were to sell after 5 April 2020

• If you have multiple properties and are considering selling or gifting, then consider which properties you should focus upon under the lens of CGT

• Consider disposing of property assets before 5 April 2020, if your tax position suits that choice

• If you individually own a property and you have a spouse or civil partner, then consider transferring ownership into joint names prior to any disposal. This can allow you to take advantage of both of your annual allowances and lower any potential CGT.

A bridge over troubled waters

Although this isn’t the start to the new decade that many private landlords want, there are always actions you can take to mitigate the impact upon your own finances. 

So talk to an expert today.

As always, were here to help, whenever you need us. If you do have any further questions regarding the new CGT regulations, then please get in touch with us at Bridgewater Financial Services, where we will be delighted to help guide you through your individual options and strategies.