Proposed Changes to CGT on Separation

In response to a recommendation by the Office of Tax Simplification the Government have introduced draft legislation for inclusion in Finance Bill 2023 that extends the no gain/no loss rule when a couple separate.

Under the current rules the no gain/no loss rule that means that there is no CGT on transfers of assets between spouses or civil partners only applies up to the end of the tax year in which they separate. The divorce settlement or court order that transfers assets between the couple often takes place many months after the separation and may lead to CGT being payable.

The main change proposed is that separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain/no loss transfers. Most divorces would be concluded within this period.

No gain/no loss treatment will also apply to assets transferred as part of a formal divorce agreement.

Check that your shares qualify for CGT Business Asset Disposal Relief

A recent case before the tax tribunal has confirmed that all of a company’s shares are ordinary shares except those that carry a fixed rate of return.

This is crucial as CGT business asset disposal (BAD) relief requires a shareholder to be entitled to at least 5% of a company’s ordinary share capital in addition to being an officer or employee of the company, and for the company to be a trading company or the holding company of a trading group.

These conditions need to be satisfied throughout the 24 months prior to the disposal of the shares. This two-year rule is important if you are considering transferring some of your shares to other family members now that only the first £1 million qualifies for CGT BADR.

There are a number of further conditions that need to be satisfied by the shareholding in addition to the 5% ordinary share capital test. The shareholder must have 5% or more voting control and be entitled to 5% or more of the company’s distributable profits, and of its assets should be company be wound up. Those final two conditions do not need to be satisfied where the shareholder would be entitled to receive at least 5% of the proceeds on the hypothetical sale of the whole company.

This tends to be a problem area where a company has a number of different classes of shares.

If that is the case please contact us so that we can check the eligibility of different shareholders.

16th April 2021 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week. 

• Self-Employment Income Support Scheme (SEISS) Update

• 30-day Capital Gains Tax Reporting on Property Sales

• New Enhanced Loss Relief Rules May Result in Extra Tax Refunds

• Further easing of Covid restrictions from 12th April

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

 

I hope you have a good weekend.

 

Stay safe and well.

 

Kind regards,

 

Steve

 

Steven Hillman BSc (Hons) ACA

Chartered Accountant

Tel: 01934 444100

30-day Capital Gains Tax Reporting on Property Sales

From last April (6th April 2020), the government made a major change to Capital Gains Tax, whereby a UK resident who sells a residential property in the UK will have 30 days to tell HMRC and pay any Capital Gains Tax (CGT) owed.

HMRC introduced a new online service to allow taxpayers to report and pay any CGT owed.

A CGT report and accompanying payment of tax may be required where the taxpayer sells or otherwise dispose of:

- a property that they have not used as their main home;
- a holiday home;
- a property which has been let out for people to live in;
- a property that has been inherited and not used as a main home.

There is no requirement to make a report or make a payment of tax when:

- a legally binding contract for the sale was made before 6th April 2020;
- the individual satisfies the test for Private Residence Relief (generally a main residence);
- the sale was made to a spouse or civil partner;
- the gains (including any other chargeable residential property gains in the same tax year) are within the tax free allowance known as the annual exempt amount (£12,300 in 2021/22);
- the property is sold for a loss; or
- the property is outside the UK.

Subject to certain exceptions, where there has been a disposal of a residential property, payment on account of the CGT will be due on the filing date for the return, which is generally within 30 days of the day after the date the property sale is completed.

The payment on account required is the amount of CGT notionally chargeable at the filing date. This is the tax that would be due if, under the normal rules for calculating chargeable gains for a tax year, the tax year ended at the time the disposal is completed.

In calculating the amount, any unused allowable losses for capital gains purposes incurred by the time the disposal is completed can be used. Available reliefs and the annual exempt amount are applied in the normal way.

The amount of CGT payable on account is the amount after applying the applicable rate of tax to the net gain.

Since the 30-day payment window can make it difficult for some people to provide exact figures, HMRC allow for certain estimates and assumptions to be made. The taxpayer can make a correction once the exact figures are known, most probably when submitting their self-assessment tax return.

If the resulting amount is higher than the amount previously paid, the difference becomes payable to HMRC and interest may be due. If the amount is lower, the difference becomes repayable along with repayment interest from HMRC.

12th February 2021 – Hillmans Weekly Update

 

Below I have summarised all the main tax related updates we have seen this week.

• Possible Inheritance Tax Changes
• Will CGT Rates Go Up?
• What to do if you’re employed and cannot work – guidance for employees
• VAT on purchases from the EU

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

I hope you have a good weekend.

Stay safe and well.

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

Will CGT Rates Go Up?

The Office of Tax Simplification (OTS) report highlighted the mismatch between Capital Gains Tax (CGT) and income tax rates which currently encourages taxpayers to prefer to take profits as capital rather than income. This potential opportunity has been addressed recently in the case of company liquidations where there is now a targeted anti-avoidance rule. There has also been increased scrutiny of share for share exchanges and company share buy backs by HMRC. Both of these transactions, if properly structured, can currently be taxed as capital gains instead of income.

The CGT annual exempt amount is currently £12,300 which is considered a very generous de minimis. It is important that taxpayers do not need to report trivial disposals of capital assets but perhaps we will need to get used to a more modest limit going forward. Consider making use of the current generous limit whilst it is still there.

A possible change that has featured in a couple of OTS reports recently concerns the treatment of property passing on death. Although the value of the property is subject to IHT, there is currently no CGT and also a tax free uplift to market value for CGT purposes.

The OTS recommendation is that the value for CGT purposes should be the deceased person’s base cost. Although there would still be no CGT to pay on death, the reduced base cost would mean a larger gain and CGT liability on subsequent sale.

We are hoping that the current business asset disposal relief that provides business owners with a 10% CGT rate on disposals will continue to apply as this encourages entrepreneurs to build successful businesses.

February 2020 Tax Tips & News

Welcome...

To February's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice in your own specific circumstances. We're here to help!                        

February 2020

· Loan charge repayments deferred

· CGT on cryptoassets

· Increased NMW rates from April 2020

· VAT and Brexit

· February questions and answers

· February key tax dates

July 2018 Tax Tips & News

Welcome... To July's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman. If you need further assistance just let us know or you can send us a question for our Question and Answer Section. We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year. Please contact us for advice in your own specific circumstances. We're here to help! July 2018 · MTD update · EU mandatory tax disclosure rules take effect · CGT payment date under consultation · HMRC continue to face issues with TRS · July questions and answers · July key tax dates

June 2017 Tax Tips & News

Welcome... To June's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman. If you need further assistance just let us know or you can send us a question for our Question and Answer Section. We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year. Please contact us for advice on your own specific circumstances. We're here to help! June 2017 · IHT: main residence nil-rate band · Reform of landlords’ taxation? · CGT annual exemption: use it or lose it! · Brexit legislation update · June questions and answers · June key tax dates