Category: Taxation

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Own a second property? Here’s some changes you need to be aware of

There have been several changes relating to Capital Gains Tax (CGT) over the past few years. The coming years are set to bring more. Here’s our summary of some of the more important changes coming that might be coming into effect from April 2020. 

If you are thinking about selling a residential property in the next year or two, you need to know about proposed changes to the capital gains tax rules for disposals from April 6th 2020. 

If you only own one property and have always lived there, you should not be affected. However, if you own more than one property or you moved out of your only property for a period of time, you might face a capital gains tax bill. 

The two main changes you should be aware of are: 

Final period exemption 

The last period of ownership counting towards private residence relief will be reduced from 18 months to just nine. Currently, the final period exemption allows individuals a period of grace to sell their home after they have moved out. However, the government feels that individuals with multiple residences have been taking advantage, hence the reduction.   

Lettings relief

Lettings relief is set to be removed, unless you live in the property with the tenant. For UK property, HMRC must be notified and tax paid 30 days after completion rather than the January following the end of the tax year in which the disposal took place. Failure to pay on time will result in HMRC imposing interest and potential penalties. 

With no transitional measures in place, this means that higher-rate taxpayers previously expecting to benefit from the maximum potential relief of £40,000 could be lumped with £11,200 extra tax overnight. 

Here’s an example of how the new taxes could influence a sale:

Steve, a higher rate taxpayer, bought a flat in April 2009 for £100,000. He lived there for 6 years until April 2015 before moving out to live with his partner. He let the flat until 2020 when he sold it for £300,000. The sale was completed on 4th June 2020. 

If the contracts were to be exchanged before the April 2020 changes, a CGT of £6,618 would be due. However, after the deadline a CGT of £21,636 would be due, payable seven months earlier – this is due to there being a lower period of private residence relief and a lack of lettings relief. 

The next steps

The two above changes are set to be enacted as part of the 2020 Finance Act and at the moment are not definite. The consultation to these steps closed on 5th September 2019. Assuming that draft provisions reach the Finance Bill 2019-20, we will have to see if any changes are made to either after it is debated in Parliament. 

Sources

https://www.accountancyage.com/2019/09/16/prr-how-will-your-clients-be-affected/https://www.bdo.co.uk/en-gb/insights/tax/private-client/further-tax-changes-for-non-residents-holding-uk-propertyhttps://www.killik.com/the-edit/how-capital-gains-tax-on-property-will-change-from-april-2020/

over 60s are jumping off the property ladder. Here’s why….

In 2007, there were 254,000 older people living in private rented accomodation. According to research by the Centre for Ageing Better, over the last decade that figure has skyrocketed to 414,000. If things continue the way they’re going, they estimate that over a third of those over 60 will be privately renting by 2040.

So why the shift? Renting comes with some clear benefits. Having to pay stamp duty becomes a thing of the past, as does worrying about managing property maintenance. A certain sense of freedom comes with renting too, particularly in terms of location. It’s a great opportunity to finally live on the coastline or in the city centre that you’ve always wanted to, but have not been able to afford to.

For example, one couple had previously owned a retirement flat in Torquay which they subsequently sold for £55,000. They dreamed of moving to Bournemouth, where a modest one bed apartment would have set them back closer to £150,000 and so was out of their reach. They found a home to let on an assured tenancy, allowing them to remain in the property for life for a fee of £775 a month including service charges. Selling to rent has allowed them to liquidate their biggest asset, and free up their capital to spend on travel.

Renting needn’t be forever, and for some people it’s a great opportunity to stop and think about your next move. It can give you time to really look at the options out there if you intend to get back on the housing ladder. Your requirements will change as you grow older and downsizing can be a great idea for some. Before you find the perfect property which will suit your needs going forward, renting gives you the chance to release some capital and decide what to do with it.

It’s worth bearing in mind, though, that by selling up and moving into private rented accommodation, your estate could receive a higher IHT bill. The inheritance tax exemption introduced in 2017 allows parents and grandparents an additional IHT allowance when their children or grandchildren inherit their main home, and so selling your home could remove your eligibility for the exemption.https://www.telegraph.co.uk/property/retirement/renting-retirement-over-60s-jumping-property-ladder/
https://www.telegraph.co.uk/financial-services/retirement-solutions/equity-release-service/should-you-sell-up-and-rent-in-retirement/

be aware: HMRC payroll investigations on the rise

Recent figures released through a Freedom of Information Request have revealed that payroll investigations last year led to HMRC collecting £819 million of additional tax, a figure that represents a year-on-year jump of 16%.

It has been suggested that the increase is due to a ‘grey area’ over whether a taxpayer is considered to be ‘employed’ or ‘self-employed’, with this area being targeted by HMRC in order to eradicate any ambiguity and categorise as many people as possible as being employed. Doing so means that tax can be deducted at source and reduces the scope for claiming expenses. However, HMRC have denied this interpretation, stating that a taxpayer’s status as either employed or self-employed is ‘never a matter of choice; it is always dictated by the facts and when the wrong tax is being paid we put things right.’

The ambiguity over employment status has arisen thanks to the gig economy, which has recently created political anxieties for the government. Following the Taylor Report, which investigated the gig economy and made recommendations for reforms needed, the government has indicated that the ‘worker’ category will change to ‘dependent contractor’ in the near future. Dependent contractors will have worker rights that self-employed workers do not, but they won’t be considered employees, thereby straddling the current divide between the two.

Whilst this is likely to go some way to removing the grey area which is causing the controversy, introducing dependent contractor status will remove the advantages businesses currently get from using a contractor. It’s likely that a test will be implemented for dependent contractors, which will place much greater emphasis upon control. It has been suggested that such a test will ultimately place limitations on the number of self-employed people, which has grown considerably in recent years.

Whatever the reason for HMRC’s increased payroll investigations, businesses need to take extra care to ensure that their payroll is completely accurate to avoid incurring any unnecessary penalties. Communicating with whoever handles your accounts and acting on their advice wherever necessary is vital to make sure the taxman has no reason to claim additional tax from your business.
Sources
https://www.accountingweb.co.uk/tax/hmrc-policy/payroll-investigations-are-on-the-up

 

HMRC reveal the UK’s tax landscape

At the beginning of March 2018, HMRC published figures on personal taxation and income throughout the UK for the 2015/16 tax year. The full report offers some interesting insights into the nation’s finances.

According to the report by HMRC, the UK population collectively earned moreincome in 2015/16 than ever before. Total UK income broke the £1 trillion mark for the first time, reaching £1.040 trillion. The total income tax paid on this staggering amount was £178 billion, which is £11 billion more than the £167 billion paid in 2014/15. Perhaps unsurprisingly, therefore, income tax made up the greatest proportion of the government’s total revenue during that year. The total amount collected was enough to pay for the government’s combined investment in education, defence, policing, transport and welfare benefits, not including pensions.

Considering the hefty total income tax bill, you might be surprised to learn that 53% of the UK population (34.6 billion people) paid no income tax at all in 2015/16. Of the remaining 31 million tax payers, 25.3 million paid the basic rate of tax, 4.5 million taxpayers were liable at the higher rate and 800,000 were taxed at the “savers” rate. Only 400,000, less than 1% of all taxpayers, were taxed at the additional rate. Even though they made up just 7% of the total UK population, higher and additional rate taxpayers brought in £120.5 billion of the £178 billion collected – just over two thirds (67%) of the total income tax paid in 2015/16. The 400,000 people earning enough to be taxed at the additional rate paid 30% of the total UK tax bill.

“Income tax is critical to public spending. It represents £1 in every £4 that the government raises in tax,” said Alistair McQueen, Head of Savings & Retirement at Aviva plc. “The latest figures show that our total income rose by 6% over the latest year. At the same time, our total tax bill also rose by 6%.”

Sources
https://www.linkedin.com/pulse/new-data-5-surprising-facts-income-tax-uk-including-most-mcqueen/
https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/july2017
https://www.ukpublicspending.co.uk/piechart_2017_UK_total
https://www.ifs.org.uk/publications/9178
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/685472/National_Statistics_T3_1_to_T3_11_publication_-_FINAL.pdf