Will the recent Capital Gains Tax changes affect you?

Capital Gains Tax changes with Kayleigh Wilson of Stephenson Smart

5th July, 2023, Kayleigh Wilson

Kayleigh Wilson, Tax Manager at Stephenson Smart Accountants and Business Advisors, analyses the recent Capital Gains Tax changes made by HMRC, including changes to the annual exemption amount and the introduction of a separation and divorce measure.

What is Capital Gains Tax (CGT)

Capital Gains Tax is a tax on the profit made after a sale of an asset (i.e. a property) that’s increased in value.

The gain you make is the part that is taxed, not the amount of money you receive.

If you sold a UK residential property on or after 6 April 2020, and you have a Capital Gains Tax liability, you must report and pay the tax due online using a CGT on UK property account.

Depending on the asset, you may be able to reduce any tax you pay by claiming a relief.

What Capital Gains Tax changes have been made to the annual exemption amount

The tax-free allowance was £12,300 for 2022-23. From April 2023 this was dramatically reduced to £6,000 and from April 2024, it will be reduced again to £3,000.

The CGT rates that apply after the tax-free allowance will remain the same and depend on the type of asset sold and whether you’re a basic-rate or higher-rate taxpayer.

Principal Private Residence Relief

There’s been lots of changes since 2020, particularly with the rules of principal private residence (PPR) relief.

In a nutshell, when a person sells their only or main residence the gain is exempt from Capital Gains Tax due to PPR.

It may apply to all or part of a gain on a property and for most taxpayers, any gain made on the sale of their home will be completely exempt as it will be covered by PPR relief.

The charge may arise though if the taxpayer has been absent from the property during their ownership, or if they own more than one residence.

Capital Gains Tax separation and divorce measure

From 6 April 2023, any property disposals have been subject to the government’s new separation and divorce measure.

This measure makes changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating. They will now be given up to three years in which to make no gain or no loss transfers of assets between themselves when they cease to live together; and unlimited time if the assets are the subject of a formal divorce agreement.

It also introduces some special rules that apply to individuals who have maintained a financial interest in their former family home following separation that will apply when that home is eventually sold.

The 60-day rule for filing a CGT return in on competition of a sale is also still in place.

In addition to these Capital Gains Tax changes, there are many areas to take into consideration when owning property that isn’t a primary residence.  I am an expert in these areas, please get in touch if I can help you.

Payments on account with HMRC

Henry Pettitt: Payments on account

19th January, 2023, Henry Pettitt

If you are recently self-employed, or in receipt of rental income or other sources of untaxed income, this may be the first year that you will be asked by HMRC to make payments on account to them, and you might be wondering why…

What are payments on account?

Payments on account are payments to HMRC towards your next year’s income tax liability. They are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed).

Each payment is half your previous year’s uncollected tax bill. Payments are usually due by midnight on 31 January and 31 July.

Payments on account do not include anything you owe for capital gains or student loans (if you’re self-employed) – you’ll pay those in your ‘balancing payment’.

Do I have to pay the payments on account?

Yes. If you’re a UK taxpayer who pays less than 80% of your income tax at source and your tax bill is over £1,000, you will be asked by HMRC to make payments on account. However, if you expect your tax liability to be less in the following tax year you can make a claim to reduce your payments on account. If your adjusted payments on account are not sufficient to cover your liability, HMRC will charge 6 per cent interest (rate from 6 January 2023). If your payments on account are more than your tax liability, HMRC will pay repayment interest at 2.5% (rate from 6 January 2023).  If you will struggle to make the payments, you talk to HMRC about their Time to Pay scheme.

How are payments on account worked out?

For example:

If your tax liability for the 2020 to 2021 tax year is £3,000, and you haven’t made any payment on account towards this, you would owe HMRC £3,000 by 31 January 2023 to cover 2020/21.

In addition to this you will need to pay HMRC £1,500 towards your 2021/22 tax bill by 31 January 2023 and another £1,500 towards your 2021/22 tax bill by 31 July 2023.

If your tax bill for the 2021 to 2022 tax year is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2024.

What if my circumstances change and I end up overpaying?

If you end up paying too much in advanced tax payments, HMRC will give you the difference back. This will either be via cheque or bank transfer, or by deducting the difference from your next tax bill.

If you know that you will pay too much on account because your tax bill next year will be lower, if you’re winding your business down, or because you’re passing retirement age and will no longer have to pay class 4 National Insurance, you can apply to HMRC to reduce your payments on account.

If you need help with working out your tax liability and ensuring you are compliant with HMRC please get in touch as soon as possible.

Profile: Henry Pettitt ACA CTA

Useful links: HMRC: Payments on account

Do you need to complete a Self Assessment Tax Return?

Self Assessment tax return advice from Sean Page

12th January, 2023, Sean Page

That time of year is fast approaching where those who are self-employed, a partner or director in a business, or get income from property, may need to complete a Self Assessment tax return.

The deadline for completing this return online is 31 January 2023.

What is a Self Assessment tax return?

A Self Assessment tax return is currently an annual return that demonstrates to HMRC an individual’s annual income, that does not fall into their Pay As You Earn (PAYE) earnings.

So, for example, you may be employed and paying tax via your employer under the PAYE scheme, but also have a property that you rent out.  The additional income from the property should be declared to HMRC by completing a Self Assessment tax return.

HMRC send out ‘notice to file’ notifications.  If you have received one of these, you MUST complete a return by 31 January 2023.

If you have not received one of these, but fall under certain categories, you are advised to complete a Self Assessment return by 31 January 2023, for any earnings that fall into the period 6 April 2021 to 5 April 2022:

  • If you are self-employed (unless this income is within the annual £1,000 trading allowance)
  • If you are a partner in a business
  • If you are a company director and have income on which tax is due that is not taxed under PAYE
  • If you have property income – for example, you are renting out a room, a garage or a whole property to someone else (unless this income qualifies for rent-a-room relief or is within the annual £1,000 property allowance)
  • If you want to claim tax relief on employment expenses over £2,500 in a year
  • If you have to pay a tax charge on your child benefit, known as the high income child benefit charge
  • If you have untaxed savings income. HMRC might be able to collect any tax due on small amounts without you doing a full tax return, but should always tell them about savings income of more than £1,000 a year (or £500 if you pay tax at the higher rate) and dividends of more than £2,000 a year
  • If you have capital gains tax to pay which hasn’t already been paid in-year – this should be paid within 60 days of the sale of the property.

How do I complete a Self Assessment tax return?

There are many reliefs that can be applied to additional, private income.  If you have had a ‘notice to file’ or fall into any of the above categories, it may be worth employing the services of an accountant to help you complete your Self Assessment tax return.

Accountants are experts in ensuring the return is completed correctly and have the knowledge to apply any reliefs that you may be eligible for, such as married couple’s allowance or property allowances.

This is an incredibly busy time of year for us, but we will always help where we can. The earlier you approach us though, the better we can help you.

If you would like our support with your Self Assessment tax return, or any other advice relating to tax or business, please get in touch.

Profile: Sean Page BA ACA

Helpful links: HMRC

What is the benefit to employing an accountant?

The importance of employing an accountant - Martyn Benstead

3rd November, 2022, Martyn Benstead

Martyn Benstead, Partner at Stephenson Smart Chartered Accountants and Business Advisors explains why now, more than ever, employing an accountant is important:

Financially, as well as politically, these are turbulent times.

Replacements in Prime Minister and Chancellor of the Exchequer are coming thick and fast and with these changes, volatility in the financial markets and economic climate inevitably follow.

Why employ an accountant at times likes these?

Good accountants relish change as it enables them to advise clients to take advantage of tax reliefs and of opportunities to maximise wealth.

Interest rates, tax rates and the markets are all changing constantly and it is hard to follow and understand what to do for the best with our finances and how to plan for the future.

Employing an accountant to your team at times like these is crucial and at Stephenson Smart, we’re available to help.

“Martyn was extremely helpful and clear and went above and beyond in trying to resolve the issues we had – even though it was our first meeting with him. We definitely got the sense that he cared about his work and clients and would do all he could to help. We had a very positive experience and would highly recommend Martyn and Stephenson Smart.”

Key areas that may affect you:

Property

If you are thinking about selling a residential property, you may need to be aware of the requirement to submit a Capital Gains Tax (CGT) Return and pay the tax due online within 60 days of completion. We can calculate the likely CGT to assist you in making an informed decision over whether to sell or rent your property.

Depending on the asset, you may be able to reduce any tax you pay by claiming reliefs.

As well as CGT, another factor needing consideration over whether to sell would be your inheritance tax position. Some assets would be subject to inheritance tax if left to beneficiaries in your estate at your death. Careful planning can assist in minimising the impact of this.

Business

There have been a raft of changes in the rates and thresholds in Income Tax, Corporation Tax, National Insurance and Dividend Tax.

It’s more important than ever to consider your business structure – whether you’re operating as a sole trader, partnership or limited company, it may no longer be the best for your circumstances.

Please contact us if you need a fresh look at how you structure your business.

 

 

 

Changes to Capital Gains Tax

Capital Gains Tax

20th October, 2022, Kayleigh Wilson

Kayleigh Wilson, Tax Specialist at Stephenson Smart Chartered Accountants and Business Advisors, talks through the ongoing changes to Capital Gains Tax (CGT) and the areas to be aware of.

Capital Gains Tax

Capital Gains Tax is a tax on the profit made after a sale of an asset (i.e a property) that’s increased in value.

The gain you make is the part that is taxed, not the amount of money you receive.

If you sold a UK residential property on or after April 6, 2020, and you have a Capital Gains Tax liability, you must report and pay the tax due online using a CGT on UK property account.

Depending on the asset, you may be able to reduce any tax you pay by claiming a relief.

Principal Private Residence Relief

There’s been lots of changes since 2020, particularly with the rules of principal private residence (PPR) relief.

In a nutshell, when a person sells their only or main residence the gain is exempt from Capital Gains Tax due to PPR.

It may apply to all or part of a gain on a property and for most taxpayers, any gain made on the sale of their home will be completely exempt as it will be covered by PPR relief.

The charge may arise though if the taxpayer has been absent from the property during their ownership, or if they own more than one residence.

Lettings Relief

Lettings relief can only be applied where the residence qualifies for PPR relief – it must have been a person’s main or only home at some point. It’s given after PPR relief, where part of the gain remains chargeable due to residential letting during a period of absence.

Since 2020, lettings relief is available only if there is shared occupancy, the owner and the tenant both live in the residence at the same time, it is just this period of joint occupancy that qualifies for lettings relief. Lettings that occurred prior to 6 April 2020 that would have qualified for lettings relief under the pre-6 April 2020 rules is not banked.

It’s also worth noting that penalties are being issued by HMRC for the late filing of Capital Gains Tax returns on the sale of UK residential property, whether or not you are a UK resident. Depending on the date of the disposal, you now have either 30 or 60 days from the date of completion, to submit your CGT Return online.

I am an expert in Capital Gains Tax, please get in touch if I can help you.

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