Tag: ISA

Double Trouble with Capital Gains Tax

Double your money!

On 12 November the Government announced that they were seriously looking at a massive increase in Capital Gains Taxation.

It comes as a result of Chancellor Rishi Sunak exploring new ways to raise revenue, in order to cover the cost of the Covid-19 pandemic. Given that the public realise that we need to replace the money being spent fighting the pandemic and supporting businesses and individuals, it seems certain that there will be tax rises. With a Government commissioned report estimating that around £14 billion could be found if they doubled the rate of Capital Gains tax. 

It’s always serious when the Government spends money on it

The Government has already asked The Office of Tax Simplification (OTS) for a fast-track of its review regarding Capital gains Tax (CGT). I would suggest that it’s worth pondering why the Government would require such a large report to be produced at speed, unless there was a real and pressing requirement for it.

The changes that the OTS has recommended are aligning CGT with Income Tax and slashing the current £12,300 exemption down to just £2,000. 

Now I’m not saying that these changes are absolutely on their way, but it does seem extremely likely that change is coming. 

You can’t stop it, but you can get ready for the impact

Most financial experts recognise that there is a gaping and growing hole in the country’s finances. Albeit as a result of Covid-19, it still has to be plugged; and quick tax rises seem to be one strategy that The Chancellor is advocating. So now is the time to take stock of your current position and to plan for tomorrow.

Look to the future with a boost from today

The best way of reducing any potential impact that a rise in CGT will have, is to use your current exceptions whilst they are still available to you.

If you have sufficient ISA or pension relief, then you could choose to reinvest in a tax free ISA, with up to £20,000 allowance all of which can be in cash, stocks and shares, or a combination of both. Or you could look to top up your pension. Your tax-free allowance means that a £20,000 new contribution instantly translates to a £25,000 gross contribution, with higher rate taxpayers seeing an increase to a £30,000 gross contribution. 

Stock-up on existing losses

If your investment portfolio has losses within it, you could sell the loss making stocks in order to crystallise those losses and offset them against future gains. When calculating your CGT bill, you are allowed to offset any capital losses against any gains, which means that a gain of £50,000 with a loss of £20,000 produces a bill of £30,000.

Plus, in most calculations, you can offset losses for the past four years against current gains. 

How about some bed hopping? I’m being serious!

Transferring assets between you and your spouse, or civil partner, means that they are exempt of CGT. So moving assets around means that you can take advantage of the tax-free allowance of £24,600.

Another way of minimising CGT is by one spouse or civil partner selling an asset to realise a gain, whilst the other partner buys them back. Known as the ‘Bed and Spouse’ technique, where one spouse sells some shares to a broker, the other buys them back at the same time from the same broker. However, it’s important to note that good record keeping is required and any acquired asset or cash proceeds should not pass back between spouses. 

You can also ‘Bed and ISA’. This entails you selling investment funds or shares that produce a capital gain, then immediately buying the same assets back inside an ISA. That way you can directly sell £20,000 of assets and use the proceeds to fund an identical purchase (excluding the sales charges) inside an ISA, which will be free of CGT and income tax on capital gains and income. 

Another viable sell and buyback technique is a ‘Bed and SIPP’. Where you buy back the asset under the tax-free umbrella of your Self Invested Personal Pension (SIPP). With all future income gains made within the SIPP being tax-free.

Options, options, options

Depending upon your own circumstances and your appetite for different investment and asset maintenance strategies, there are all sorts of ways that smart planning now can help eliminate big CGT payments further down the line.

You can, for example, invest in small companies through Venture Capital Trust (VCT) and Enterprise Investment Schemes (EIS). However both are risky and are possibly best left to experienced investors, or television’s dragons, all of whom have a real aptitude for this market. 

Or you could simply reduce your taxable income. As the rate of CGT is directly linked to the rate of Income tax you pay. So lowering your taxable income for a year could lower your CGT rate from 20% to 10%, or 28% to 18% if you’re disposing of residential property. 

Play the game, but play by the rules

It’s the job of every financial adviser to help clients reduce their tax bills where legally allowed. This tax planning is a constantly changing game of cat and mouse with HMRC. However there is one thing that both sides agree upon; and that’s not paying tax (tax avoidance) is never a wise course of action. So please make sure that you do declare everything to HMRC, as defrauding the taxman really isn’t worth the large fines, or worse.

As always, if you have any questions regarding current CGT or possible changes to CGT that could impact upon you, or if you have any questions regarding any aspect of your finances, then please don’t hesitate to contact one of our team at Bridgewater Financial Services; where one of our independent experts will be on hand to help in any way. 

Stay safe

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.