There are changes for both the 2019/20 and 2020/21 financial years in relation to capital taxes. We have highlighted a couple of these below. These and other adjustments are not major, however we want to encourage clients to review their capital tax position for the longer term in order to be prepared should any more significant changes take place.
Entrepreneurs’ Relief reduces the amount of Capital Gains Tax payable when you sell shares in all or part of your business assets. This is, of course, contingent on qualifying conditions and these are what were altered in the last budget.
The first key change is the minimum period throughout which certain qualifying conditions must be met for an individual to be able to claim Entrepreneurs’ Relief. This is now 24 months, an increase from 12 months.
The second change is the definition of a personal company. Previously, this was defined as one in which the shareholder:
- is an office holder, director or employee of the company or group company; and
- owns at least 5% of the ordinary share capital and of the voting rights of the company.
There is now an additional requirement namely:
- the shareholder needs to hold a 5% interest in the distributable profits and the net assets of the company.
As this change applies to disposals on or after 29 October 2018, the new conditions will need to have been met for a period of 12 months leading up to any disposal, which may alter your plans if you are considering an imminent sale.
Principal Private Residence Relief – 2020 changes
Principal Private Residence Relief (PPR) enables taxpayers to sell their homes without having to pay Capital Gains Tax. In order to claim the relief, the property being sold must be the tax payer’s main residence.
From April 2020, two changes will be made to the operation of PPR.
Firstly, where a property has not qualified as a taxpayer’s main residence for the whole of the individual’s ownership, the duration of ownership is apportioned into exempt and non-exempt periods. The last 18 months of ownership is regarded as exempt from Capital Gains Tax even if the property is not occupied – this will reduce to 9 months. Keep this change in mind if you are likely to move into a new property before selling your old one, as it may incur unexpected tax bills.
Secondly, lettings relief exempts a sum of up to £40,000 where a property has been used as a main residence but has also been let out. From April 2020, this relief will be restricted to circumstances where the owner shares occupancy with a tenant, eg. you may rent a room but still reside in the property, a much less common situation.
If you are thinking of selling your main residence or have a property you plan to let out please do call us to ensure you can manage the existing and proposed new allowances to best effect.
Influences for longer term reform
Our country has seen a fairly long period of stability in relation to capital taxes in recent decades. However, with talks of a general election in addition to Brexit on the cards, we should not be complacent in assuming the ‘same old same old’
The Resolution Foundation* recently announced that the bill for tax exemptions reached £164 billion in 2018 – the equivalent of £6,000 per household but that many of the large gains were benefiting a small number of people. In addition, only 0.5% of our tax revenues are raised by Inheritance Tax compared with around 12% by the French equivalent wealth tax.
It could be the case that future politicians may well be influenced by such research and comparisons. As a result, it would be remiss to presume that there will be no change ahead.
If you want to be sure you and/or your business is receiving the maximum benefit from capital tax relief, please do not hesitate to contact us on 01289 306688 or 01620 823211.
*Resolution Foundation press release 31 January 2019. The Resolution Foundation is an independent think-tank focused on improving the living standards for those on low to middle incomes.