Capital Gains Tax for UK property sales from 6 April 2020

Principal Private Residence Relief Changes

From 6 April 2020 tax relief will only be provided for the final 9 months of ownership therefore halving the relief (for the year to 5 April 2020 the final period relief was 18 months).

Filing returns and payment deadline

From 6 April 2020, if you’re a UK resident and sell a residential property in the UK you’ll have 30 days to tell HMRC and pay any Capital Gains Tax owed.

If you don’t tell HMRC about any Capital Gains Tax within 30 days of completion, you may be sent a penalty as well as having to pay interest on what you owe – so it’s really important that everyone involved in the sale of a residential property fully understands these changes, which affect both UK and non-UK residents.

You won’t have to make a report and make a payment within 30 days when:

  • a legally binding contract for the sale was made before 6 April 2020
  • you meet the criteria for full Private Residence Relief
  • the sale or disposal was made to a spouse or civil partner
  • the gains (including any other chargeable residential property gains in the same tax year) are within your tax free allowance (called the Annual Exempt Amount)
  • you sold the property for a loss
  • the property is outside the UK

If you need to file a report with details of capital gains from 6 April 2020, the following information is needed;

  • property address and postcode
  • date you got the property
  • date you exchanged contracts when you were selling or disposing of the property
  • date you stopped being the property’s owner (completion date)
  • value of the property when you got it
  • value of the property when you sold or disposed of it
  • costs of buying, selling or making improvements to the property
  • details of any tax reliefs, allowances or exemptions you’re entitled to claim
  • property type, if you’re a non-resident

 

 

 

 

Budget Update – Year to 5 April 2021

From 6 April 2020, the thresholds will change to the amounts set out below (this does not include rates in Scotland).

                                                          2021              2020

Personal allowance                             £12,500           £12,500

National Insurance (PT)                     £9,500              £8,632

Higher rate threshold 40% tax         £50,000           £50,000

Marriage allowance                             £1,250              £1,250

 

Limited company shareholders:

Dividend allowance                              £2,000               £2,000

The dividend allowance is particularly important to owner managed businesses. The allowance of £2,000 for the year to 5 April 2021 is set at a rate of 0%, meaning any dividend income in the year up to £2,000, will be taxed at 0%.

Corporation tax is set to remain at 19% (the same as for the year to 31 March 2020).

 

Self-employed:

Class 4 National Insurance                        9%                   9%

Rates for taxable profits

over £9,500 up to                                        £50,000          £50,000 (over £8,632.00)

Class 2 National Insurance                       £158.60         £156.00

 

Employment Allowance:

The employment allowance is set to increase from £3,000 per year to £4,000 from 6 April 2020. The employment allowance cannot be claimed in company’s with only one director. There is more information on the employment allowance here.

 

Capital Gains Tax (for individuals):

Annual exemption                                      £12,300       £12,000

 

VAT Threshold

The taxable turnover threshold which determines whether a business or person must be registered for VAT, will remain at £85,000.

The taxable turnover threshold which determines whether a business or person may apply for deregistration will remain at £83,000.

 

Reporting Capital Gains:

From 6 April 2020, if you’re a UK resident and sell a residential property in the UK that is not your main residence, you’ll have 30 days to tell HMRC and pay any Capital Gains Tax owed. There is more information on this here.

 

IR35 off-Payroll Changes:

The Government has announced that planned changes to come in from 6 April 2020 for contractors have been delayed by one year. IR35 reforms have already come in for public sector bodies and was due to be introduced to the private sector for medium and large sized businesses. It has been announced that this change will be delayed by one year to 6 April 2021. There is more information on the changes here.

 

Budget Update – Year to 5 April 2020

From 6 April 2019, the thresholds will change to the amounts set out below (this does not include rates in Scotland).

                                                         2020              2019

Personal allowance                             £12,500           £11,850

National Insurance (PT)                     £8,632              £8,424

Higher rate threshold 40% tax         £50,000           £46,350

Marriage allowance                             £1,250              £1,185

 

Limited company shareholders:

Dividend allowance                              £2,000               £2,000

The dividend allowance is particularly important to owner managed businesses. The allowance of £2,000 for the year to 5 April 2020 is set at a rate of 0%, meaning any dividend income in the year up to £2,000, will be taxed at 0%.

Corporation tax is set to remain at 19% (the same as for the year to 31 March 2019).

 

Self-employed:

There were discussions around raising the rate of National Insurance on Self-employed profits. Class 4 National Insurance is set to remain the same for the year to 5 April 2020.

Class 4 National Insurance                        9%                   9%

Rates for taxable profits

over £8,632 up to                                         £50,000          £46,350

Class 2 National Insurance                      £156.00         £153.40

 

Capital Gains Tax (for individuals):

Annual exemption                                     £12,000       £11,700

 

VAT Threshold

The taxable turnover threshold which determines whether a business or person must be registered for VAT, will remain at £85,000.

The taxable turnover threshold which determines whether a business or person may apply for deregistration will remain at £83,000.

Builders – VAT: reverse charge for building and construction services

Changes to the way that builders charge VAT for their services are being introduced from 1 October 2019. The guidance issued by HMRC does not give detailed examples and we expect further details and examples to be released in Spring 2019.

The change in rules from 1 October 2019 will affect VAT registered builders providing certain construction or building services to another VAT registered business for onward sale/supply. There are some exceptions where the new rules won’t apply, typically it will apply to work that falls within the construction industry scheme.

The Reverse Charge Mechanism 

Under the current rules where both businesses are VAT registered and where the building work is normally standard rated for VAT, a subcontractor charges VAT on the supply of building work to contractors, the contractor would pay the VAT to the subcontractor and the subcontractor would pay this VAT to HMRC.

Under the new rules that apply from 1 October 2019, this will now be treated under the Reverse Charge rules. The invoice to the contractor will need to state that the service is subject to the domestic reverse charge. 

The contractor will need to treat any VAT under the reverse charge rules as both input and output VAT. The result for the contractor is a nil net tax position, as they are including the VAT as both input and output VAT.

For the subcontractor, this may lead to VAT returns being submitted where repayments of VAT are due to them from HMRC, as no VAT will be charged under the reverse charge rules. This could potentially lead to delays for some businesses in receiving VAT refunds from HMRC.

The contractor needs to know whether they are dealing with the final customer, as the reverse charge only applies between businesses. VAT should be charged to the end customer.

 

 

 

 

 

Budget 2018: Entrepreneurs’ Relief (ER) changes

Entrepreneurs relief (ER) is a valuable relief for small businesses, which when available, can mean gains on the sale of a business, qualifying shares, or qualifying business assets, are taxed at 10% rather than the standard capital gains rate of 20%.

There have been some changes to the conditions to the relief from the last budget, that is worth noting for any businesses that are hoping to use the relief;

Sale of shares

Qualifying conditions for ER before the changes were broadly that for the sale of shares to qualify for the relief;

  • you must hold 5% of the issued ordinary share capital of the company
  • you must hold 5% of its voting rights
  • you’re an employee or office holder of the company
  • the company’s main activities are in trading (rather than non-trading activities like investment) – or it’s the holding company of a trading group

The new conditions for the relief in addition to the two above are that;

  • The conditions above previously applied for a period of 1 year prior to the sale. From 6 April 2019 the period will increase to 2 years.
  • From 29 October 2018 in addition to the 5% requirements set out above, shareholdings must also have an entitlement to at least:
    • 5% of the profits available for distribution to equity holders; and
    • 5% of the assets available to equity holders on a winding-up.

For small businesses, the new additions 5% conditions from 29 October 2019 is less likely to affect you, as small limited company shareholders with ordinary shares may meet the two additional conditions above already. ER is a valuable relief, so if you are unsure of whether it applies or not, then it is worth finding out.

Rent a Room Relief – Proposed Changes

HMRC have been looking at the rules around rent a room relief and whether the rules around the relief should be changed. 

What is Rent a Room Relief? 

Rent-a-room relief provides that the rent received by an individual from a lodger from their main residence can be exempt from income tax (currently up to £7,500).

Why are HMRC considering changing the rules? 

HMRC are concerned that the idea behind the rent a room relief, to increase the amount of rooms available to rent, is not being used as was initially intended. The relief was introduced in 1992 but over recent years online apps and social media have made it easier for landlords to let out rooms for short periods.

Policy Paper

In a policy paper released 6 July, HMRC proposed a change to the legislation in the form of an additional test that must be satisfied in order for income to be eligible for rent-a-room relief. The test requires the individual or individuals in receipt of rental income to have “shared occupancy” of the residence in question for all, or part, of the period of occupation which gives rise to the receipts.

Who will the changes affect?

The proposed change will affect rentals where the owner does not intend to actually be present in the property at the same time as the lodger. So for instance where there was a major event taking place near the property – for instance a festival or similar event – the owner might let out the house for say two weeks and go on holiday for that complete period. The receipts from the rental would not be eligible for rent-a-room relief as there is no shared occupancy during the period of the rental. The receipts would however be eligible for the property allowance

Where there is an element of shared occupancy, HMRC give the following examples in the policy paper:

  • An individual rents a room in their main residence to a student during term time. The landlord goes on holiday for a week during the rental period. The receipts would be eligible for rent-a-room relief as there is shared occupancy for part of the period of the rental. The receipts would be eligible for property allowance if rent-a-room relief was not claimed.
  • An individual lets their house (their main residence) during the Wimbledon tournament to a visiting family. The individual goes on holiday for the whole period of the rental. The receipts from the rental would not be eligible for rent a room relief as there is no shared occupancy during the period of the rental. The receipts would be eligible for property allowance.

 

When will the changes come in?

Should the changes gain Royal Assent to Finance Bill 2018-19, the changes will come in from April 2019.

We can advise on whether the rent a room relief is available and circumstances where it will not be available once the changes take effect.

 

Trading and Property Allowances

From 6 April 2017, there was a new £1,000 Trading Allowance and £1,000 Property Allowance available to use against trading income and rental income. Although the allowance is designed to be straightforward, as ever, there is always some detail in the rules that is worth considering.

Trading Allowance

The trading allowance can be used against self employment income from 6 April 2017. Here some important points to consider with the allowance;

  • If your total self employment income before expenses in the year is £1,000 or less, you may not be required to submit a tax return.
  • You will have the option of claiming the trading allowance or claiming expenses in the year. It may be more beneficial to claim expenses where allowable expenditure is more than £1,000.
  • The trading allowance cannot be used to create a loss, whereas if you claim expenses in the year, this can create a loss, from which it might be possible to get tax relief.

Property Allowance

The property allowance works in a similar way to the trading allowance. It can be used against rental income when renting out a property that is not your own home/residence.

You cannot use either allowance against;

You can’t use the allowances in a tax year if you have any trade or property income from:

  • a company you or someone connected to you owns or controls
  • a partnership where you or someone connected to you are partners
  • your employer or the employer of your spouse or civil partner

You can’t use the property allowance if you:

 

New Tax Year Update

As the 2019 tax year begins, the thresholds, rates, and allowances will change from 6 April 2018. Details of the allowances and thresholds can be found here.

Dividend Tax

The dividend tax was introduced from 6 April 2016, which is a major change in the way that dividend income is taxed. The dividend allowance was set at £5,000 for the years ending 5 April 2017 and 5 April 2018. The threshold means that any dividends received in the tax year up to the threshold, are taxed at 0%. Any dividends received in the tax year over £5,000, would be taxable at the applicable marginal rates set out below.

Tax band Tax rate on dividends over £5,000
Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%

From 6 April 2018, this allowance is set to reduce to £2,000 a year. Depending on your other taxable income in the year, this will mean that any individuals that receive dividend income over £2,000, will likely have higher personal tax liabilities. For example, if your total taxable income for the year to 5 April 2019 is within the basic rate band and you receive dividend income over £2,000, then the tax increase could equate to £3,000 x 7.5% = £225.

Corporation Tax Rates

Corporation tax rates reduced from 20% to 19% for all companies from 1 April 2017. If your company year does not run to 31st March, the corporation tax charge will be apportioned between the two rates e.g. if your year end is 30 September 2017, then the profit will be apportioned to the two rates for the period to 31 March 2017 and the period to 30 September 2017.

Mortgage Interest Relief Changes

The changes to the way in which mortgage interest relief is calculated, came in to effect from 6 April 2017. These changes are being phased in over four years to 5 April 2021, as set out below;

  • in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

The changes mean that any mortgage interest payments made in the tax year, are only partially included in the calculation of rental profits (75% of mortgage interest in the year to 5 April 2018) and then a separate tax reducer is included for the remaining mortgage interest at basic rate tax, which will be calculated at 20% of the lower of:

  • finance costs (for example 25% of mortgage interest payments in the year for the year to 5 April 2018)
  • property profits excluding any mortgage interest payments in the year
  • adjusted total income (exceeding Personal Allowance)

The changes could mean that a larger amount of any rental income is taxed than it would have been previously. It could also lead to higher rate tax being due on the rental income, depending on your total taxable income.

Stamp Duty Land Tax

The additional rates for stamp duty that were introduced for purchases of an additional property, were set at 3% above the normal stamp duty rates.

There has also been the introduction of first time buyer rate for stamp duty, which came in from 22 November 2017. The rates are set lower than the standard stamp duty rates, to help first time buyers get on the property ladder. These rates are only available if;

  • You are purchasing your first property to be your main residence
  • You are purchasing a single dwelling
  • The property is purchased for £500,000 or less
  • A company will not be entitled to claim this relief
  • A purchaser must not, either alone or with others, have previously acquired a major interest in a dwelling or an equivalent interest in land situated anywhere in the world. This includes previous acquisitions by inheritance or gift, or by a financial institution on behalf of a person under an alternative finance scheme

More guidance on the relief can be found here.

 

If you have any questions about any of the tax changes, please feel free to contact us

Budget Update – Year to 5 April 2019

From 6 April 2018, the thresholds will change to the amounts set out below (this does not include rates in Scotland).

                                                     2019               2018

Personal allowance                             £11,850           £11,500

National Insurance (PT)                     £8,424              £8,164

Higher rate threshold 40% tax         £46,350           £45,000

Marriage allowance                             £1,185              £1,150

 

Limited company shareholders:

Dividend allowance                              £2,000               £5,000

The dividend allowance is particularly important to owner managed businesses. The allowance of £2,000 for the year to 5 April 2019 is set at a rate of 0%, meaning any dividend income in the year up to £2,000, will be taxed at 0%.

Corporation tax is set to remain at 19% (the same as for the year to 31 March 2018).

 

Self-employed:

There were discussions around raising the rate of National Insurance on Self-employed profits. Class 4 National Insurance is set to remain the same for the year to 5 April 2019.

Class 4 National Insurance                        9%                   9%

Rates for taxable profits

over £8,424 up to                                    £46,350          £45,000

Class 2 National Insurance                      £153.40         £148.20

 

Capital Gains Tax (for individuals):

Annual exemption                                     £11,700       £11,300

 

Marriage Allowance

The Marriage Allowance could help to save you money, if you are married or in a civil partnership and your spouse has taxable earnings under the personal allowance threshold. For the current tax year, you can transfer up to £1,150 of your personal allowance.

Claims can also be backdated to previous tax years if the eligibility criteria is met.

 

How much is the personal allowance?

The personal allowance changes each year. The following allowances applied in the years below;

5 April 2018        £11,500

5 April 2017        £11,000

5 April 2016        £10,600

 

If both you and your spouse file tax returns, you should make sure that the correct sections of your tax returns have been completed to claim the allowance. We can advise on whether you are eligible for the allowance.

 

More information can be found at the following links;

https://www.gov.uk/married-couples-allowance

https://www.gov.uk/marriage-allowance