Deadline nearing for those claiming roll-over relief in 2022/23

Business owners who need to claim roll-over relief for the 2022/23 tax year are being reminded by HMRC that if they made a provisional claim for business asset roll-over relief in their self-assessment for that year and haven’t yet replaced it with a final claim, they need to do so.

Roll-over relief can be claimed by a taxpayer who is trading and where a qualifying asset is sold and a new qualifying asset is acquired within a set period. If a valid claim is made, then the payment of Capital Gains Tax (CGT) on the sale of the original asset can be deferred.

A provisional claim would be made if the taxpayer intended to buy the replacement asset, but has not yet done so by the time they need to claim roll-over relief, says the ICAEW. But once the asset is acquired, they need to replace the provisional claim with the final valid claim.

When is the deadline for claims?

The final deadline for these claims is January 31, 2027, and if the final valid claim isn’t made by this time, then HMRC will withdraw any provisional claim, which would mean CGT would need to be paid.

The letter being sent out to taxpayers now by HMRC shows how to make a valid final claim, including what information needs to be provided for the claim to be accepted by HMRC. You can use form HS290 to make the claim, and anyone who doesn’t intend to buy a qualifying asset before the January 31, 2027, deadline should contact HMRC now.

This will start the process of HMRC withdrawing the provisional claim early, reducing the amount of interest you may owe on any tax due. If you are intending to buy the asset either shortly before or soon after the January 31, 2027, deadline, then HMRC will consider “reasonable time” to make the final claim, according to the ICAEW.

Let us help you

If you need help with roll-over relief, then please get in touch with us and we will do what we can to help you.

Taxpayers must be careful how they report CGT this year

Taxpayers with capital gains liabilities that they need to declare in their self-assessment tax return need to take extra care this year to avoid receiving a penalty from HMRC.

Changes made to the Capital Gains Tax (CGT) rates part-way through the 2024/25 tax year mean it will be more complicated to determine exactly what rate applies to each gain and, unfortunately, HMRC’s self-assessment software won’t calculate the correct amount for you. Instead, you will need to do this yourself or with your accountant, and the timing of each transaction will make a difference.

So, you will need to speak to your accountant to either help you file your return, or if your return has already been filed, to check that the calculation you have made is correct, as the sooner you remedy any underpayments, the better it is for you.

How did the rates change?

The CGT rates increased from October 30, 2024, which was the day of the Autumn Budget that year, and they applied to the disposal of assets, except for residential property and carried interest.

On that day, the rates increased as below:

• 10% to 18% for basic rate taxpayers.
• 20% to 24% for higher-rate taxpayers.

This created the complication for this year, as taxpayers need to split gains they made at different dates and then calculate the right amount of tax due, based on the relevant rates. They also need to allocate any losses and the annual exemption to gains realised either on or after October 30, to make sure they maximise their tax relief.

Yet despite the change being made by the Government a relatively long time ago, as already mentioned, HMRC’s software cannot do the calculation for you. So, there is an adjustment on the self-assessment form, in box 51, which you should have used to pay the correct amount of tax. If you didn’t, or you haven’t explained your calculations on the form in box 54, then you might need to make a change after filing. This is where your accountant will be able to help you.

Is there any way I can check my calculation?

Yes, HMRC has made a specific adjustment calculator available. But there is one other thing HMRC will be expecting in your tax return – you would need to have included a disclosure if you entered an unconditional contract before October 30, 2024, if it completed after that date.

Elsa Littlewood, private wealth tax partner at BDO, said: “Changing the CGT rates part way through the year has the potential to be a real banana skin for those completing the form and can be particularly tricky for those doing so without professional help. There is a risk that people unfamiliar with the rate changes will unwittingly input the wrong information as the self-assessment form will not automatically calculate the right CGT liability.

“It is helpful that HMRC have released a calculator that can be used to work out the adjustment to capital gains tax, but it would have been better if this was integrated within the tax return software.

“We would hope that HMRC would not charge penalties if tax returns submitted using HMRC’s software are incorrect and the amount unpaid is minor. But there is a risk of mistakes being made and it could lead to a flurry of disputes with HMRC later. Even if you have already submitted your self-assessment form, you may wish to go back and double check it to ensure it’s right.”

We can help you

If you have already filed your self-assessment tax return and think it might be worth revisiting it with us to check everything is correct, then please contact us and we will do everything we can to assist you.

VCT and EIS changes – good for companies, not investors

Investors who use Venture Capital Trusts (VCTs) or Enterprise Investment Schemes (EISs) to invest in start-ups and benefit from tax relief as a result, will face new rules from April 6, 2026, thanks to changes made in the Autumn Budget.

These investment vehicles are great ways for companies to raise early investment from investors at what can be the riskiest time to invest in a business. The reward for those prepared to take the risk on investing in a start-up through VCTs or EISs are the tax breaks that are available. But investors are facing a reduction in these tax benefits from April, thanks to changes to the current rules.

The changes are different for both VCTs and EISs, and how much a company can raise with each vehicle under the new rules will depend on what type of business it is.

What are the new investment limits?

Eligible companies will be able to have a maximum of £30m in ‘gross assets’ immediately before the share issue through EISs from April 6, 2026, and £35m immediately afterwards. This is an increase of £15m and £19m respectively, compared to the amounts currently allowed.

Through both EISs and VCTs, the annual combined amount it is possible to raise will double to £10m, and as much as £20m for knowledge-intensive companies (KICs). In a lifetime, a company will be able to raise £24m through these vehicles, again doubled from the current £12m, and up to £40m for KICs.

However, investors may find these vehicles less appealing, as they will see a reduction in their upfront income tax relief on VCT investments from April 6, 2026, when it will fall from 30% to 20%, while tax relief on EISs will remain at 30%. But the way EIS and SEIS shares are treated for inheritance tax (IHT) will change, and from April 6, 2026, 50% of any value over £1m will become subject to IHT at an effective rate of 20%.

Why will these changes be made?

The changes are designed to extend the EIS and VCT limits to support both new companies, and those that are scaling up, while also equalising the tax treatment of VCTs and EISs, as EISs don’t offer dividend relief, said HMRC.

Qualifying companies are those that “are not registered in Northern Ireland trading in goods or the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity. These companies will remain eligible for the current scheme limits,” according to Gov.uk.

Businesses that qualify will be able to access more investment through these schemes, and there isn’t expected to be a significant change in the amount of administration required. For the several hundred businesses that are near to the current limits, this change will offer a considerable boost.

What is the impact on the people who invest via these vehicles?

Around 24,000 people invest in these vehicles, and those using VCTs will see less upfront income tax relief on their investments. But there should be no change in the way they deal with HMRC.

HMRC said this measure “does not change or introduce any tax obligations or processes”.

The largest gender investing in VCTs is men, amounting to an estimated 76% of all investors, even though men make up around 50% of the overall population. Most people (57%) investing in VCTs are aged between 45 and 64, even though this age group makes up just 31% of the overall population.

Contact us

If you are already investing in VCTs or EISs and want to know what these changes will mean, or you are interested in investing in these vehicles for the first time, then please get in touch with us and we will explain what you need to know.

Are we seeing the end of the ‘Bank of Mum and Dad’?

Children hoping they will get financial help from their parents as they get older may find they’re disappointed, as more than one in 10 retirees are cutting back on gifting, according to research from wealth manager Quilter.

Rising financial pressures, such as the cost-of-living crisis, are prompting an increasing number of retirees to reduce the support they are prepared to give to younger generations, raising questions about how wealth will be passed down.

The Quilter Retirement Lifestyle Report found 13% of retirees plan to cut back on the amount they are gifting to children. It rises to 16% when you look at younger retirees with above-average incomes, and 15% for those with lower incomes. This research could show a sea-change in the way younger generations will be financially supported by their parents.

What amounts are typically passed on?

The average retiree currently spends more than £2,500 each year supporting younger family members, the survey of 5,001 retirees found. This is made up of £1,323 in gifts and £1,175 paid towards education.

Some retirees, especially those with higher disposable incomes, pay significantly more than this each year, with many exceeding the £3,000 annual gifting allowance. For example, younger retirees with higher incomes, gift an average of £4,836 to relatives, and pay £5,280 towards education each year.

Shaun Moore, tax and financial planning expert at Quilter, said: “Retirees provide a vital avenue of financial support for younger generations, helping with everything from education to deposits for first homes. If the bank of mum and dad, or even the bank of gran and grandad, begins to close its doors, the ripple effects could be felt across the housing market, education system, and the wider economy.”

What happens if you gift more than the annual allowance?

If you breach the gifting annual allowance under the Inheritance Tax (IHT) rules, you won’t immediately trigger a tax charge, but if you die within seven years of the gift, then your estate could face an IHT charge, but this will depend on what your overall estate is worth and whether it will be subject to IHT at all.

Any gift above the annual allowance would then become part of the Potentially Exempt Transfer (PET) rules, where there is an inheritance tax charge that tapers down depending on how many years you survive the gift by. This creates complexity for the people who are left behind as your executors, who then need to determine whether gifts made were survived by more than seven years.

The gifting allowance of £3,000 has stayed the same in more than 40 years. If this figure had kept pace with inflation, it would currently be £12,000. Quilter is calling on the Government to uprate this figure to at least £9,000 to allow families to transfer wealth with greater confidence and flexibility. With the Autumn Budget happening on November 26, it remains to be seen whether any changes to this allowance, or any other aspect of IHT, are made.

Mr Moore said: “The rumour mill is already in overdrive as we near the Chancellor’s upcoming budget and has so far seen a potential lifetime cap on gifting, an extension to the period donors must live after making a gift before it falls outside of their estate for IHT purposes, and the potential for a further freeze on the nil rate band all debated.

“A modernised allowance would support financial planning, reduce reliance on the state and help unlock economic potential. With pensions soon falling within the IHT net, generating a considerable uplift in revenue, this reform would be a modest concession for meaningful economic gain. If the government’s goal is to foster a high-growth, investment-led economy, then reducing friction around intergenerational wealth transfer is not just aligned with that vision, it is essential to it.”

We can help you

If you want advice on how to pass your wealth to the next generation, whether through regular gifting or inheritance tax planning, then please contact us and we will do everything we can to assist you.

HMRC sending letters to self-assessment payers about CGT

Self-assessment taxpayers who have submitted their 2024/25 tax return are now being sent letters by HMRC as they may not have applied the correct rate of Capital Gains Tax (CGT) on disposals after October 30, 2024.

The main rates of CGT on the disposal of assets, other than residential property and carried interest, rose from 10% to 18% for basic rate taxpayers, and 20% to 24% for higher rate taxpayers. But there is a danger they may have not paid the right CGT as the return may not have automatically calculated the CGT liability correctly.

This means they would need to adjust their return, according to the ICAEW. You can check if the amount you paid is correct by using the online calculator at Gov.uk.

What letters are being sent?

There are two letters that HMRC is sending to the taxpayers HMRC feels may have made this mistake. The first letter is for those people who included an adjustment which appeared to be incorrect. The second letter is for those where the return didn’t include the adjustment, and an incorrect rate of CGT has been used.

Depending on which letter is received, HMRC is asking people to use its online tool to check the correct adjustment, and amend the return if it is incorrect. Or if the figure on the return is correct, then people are being asked to let HMRC know that by contacting it using the information in the letter. Either way, action needs to be taken within 30 days of the date of the letter.

If you are paying CGT late, then HMRC will be charging interest on it. The letter will also tell you what to do if you miss the 30-day deadline given in the letter for responding.

Let us help you

If you’re not sure whether you have paid the right amount of CGT via your self-assessment return for 2024/25, then please get in touch with us and we will do what we can to help you.

Extra steps needed to calculate Capital Gains Tax

Anyone making disposals of assets on or after October 30, 2024, will need to take some extra steps to calculate any Capital Gains Tax (CGT) due. The extra steps, which will affect individuals, trustees and personal representatives, have resulted from the Self-Assessment tax return not being able to automatically calculate the figures at the new rates.

Exceptions to this include:

• Residential property.
• Business Asset Disposal Relief.
• Investors’ Relief.
• Carried interest.

The Chancellor increased the amount of CGT due on specific transactions in the Autumn Budget. The main rates of CGT that apply to assets apart from residential property and carried interest have risen from 10% and 20% to 18% and 24% respectively for disposals made on or after October 30, 2024, said HMRC.

For trustees and personal representatives, the rate has gone from 20% to 24% for disposals made on or after the same date. But the CGT applying to Business Asset Disposal Relief and Investors’ Relief has gone up from 10% to 14% from April 6, 2025, and will rise again to 18% for disposals made after April 6, 2026.

The CGT rates for applicable residential property sales will remain at 18% and 24% as before.

Some special provisions to be aware of

Where contracts have been entered into before October 30 last year but not completed until after that date, there are special provisions. The same applies for “contracts entered into on or after 30 October 2024 for the phased rate change that applies to Business Asset Disposal Relief and Investors’ Relief”, HMRC said.

Additional special provisions apply for share reorganisations and exchanges, where an election is made. But the best thing to do is to consult with your accountant and find out the best way to ensure you are meeting all your relevant CGT obligations.

There is an adjustment tool available to support individuals, trustees, and personal representatives when calculating the correct adjustment figure.

Adjustment boxes on the following forms should be used to account for any in-year difference in tax to make sure the tax due is correct:

• SA108 — individuals capital gains summary page.
• SA905 — Trusts and Estates capital gains.
• SA970 — Tax Return for Trustees of Registered Pension Schemes.

Source: Gov.uk

You can find out more about the changes to the main rates of CGT at Gov.uk.

Let us help you

If you will be affected by these changes and want to make sure you don’t make a mistake with your CGT calculation, then please get in touch and we will do everything we can to help you.

Mixed-use property with stables pays less SDLT

Stamp Duty Land Tax (SDLT) is the tax payable on most property purchases within the UK, and the figures for who needs to pay what are set out very clearly by HMRC. But there are times when specific allowances can be made that reduce the amount of SDLT due, and depending on the circumstances, HMRC may challenge them if it feels they do not comply with the rules.

One instance of this was a case that was decided by the Upper Tribunal, the appeals court for HMRC, in November this year, where the taxman took on Mr and Mrs Suterwalla, who had bought a family home with an adjoining paddock in December 2020. On the same day, but after the purchase had been completed, Mr and Mrs Suterwalla granted a lease to their neighbour for grazing in the paddock.

As a result, the couple filed their SDLT return stating that the property was a mixed-use property, with the residential part of the property being the family home, and the non-residential part being the paddock which was now leased for grazing to their neighbour.

Mixed use status reduced the SDLT due significantly

As the property had been declared by the couple as a mixed-use property, the amount of SDLT fell from £330,750 that would have been due if it was purely residential, to £169,500 due to the combination of residential and non-residential usage.

HMRC subsequently opened an inquiry into the SDLT payment, and it issued a closure under paragraph 23, Schedule 10, Finance Act 2003, increasing the SDLT due in respect of the acquisition of the property from £169,500 back to the full residential SDLT value of £330,750.

Mr and Mrs Suterwalla appealed to the First-Tier Tribunal (FTT) because they felt HMRC was incorrect. Their appeal was upheld by the FTT, but this was then challenged further by HMRC, and the appeal was referred to the Upper Tribunal.

What happened next?

HMRC claimed in its appeal to the Upper Tribunal that the FTT had not taken into account, and should have, the decision in a previous case – Ladson Preston Ltd v HMRC [2022] UKUT 301 (TCC). This had confirmed that the nature of the property when the purchase was completed was relevant to whether the property should be considered to be purely residential, and due to pay the higher SDLT. HMRC also claimed the FTT should not have treated the grazing lease as relevant to whether the entire property at completion was residential. HMRC also disagreed with the FTT’s finding that the taxpayers had established the property was mixed use, and both residential and non-residential in nature.

However, the Upper Tribunal dismissed HMRC’s appeal, as it said the FTT wasn’t obliged to follow the precedent of the Ladson Preston case as that related to multiple dwellings relief rather than mixed use SDLT rates. Also, although the FTT took the grazing lease into account, it didn’t exist at the time of completion, so the Upper Tribunal said the FTT should not have taken that to form part of the SDLT status analysis.

However, with that said, the Upper Tribunal confirmed that the paddock wasn’t residential as it wasn’t on the same title as the house at the Land Registry, it wasn’t close to or visible from the house, the paddock didn’t support the house or form an integral part of the property. Also, it was only accessible via a small gate. So, the Upper Tribunal agreed the lower, mixed-use SDLT rate was the correct one to be applied.

Legal firm RPC, which wrote a detailed analysis of the decision, said on its website: “The UT’s reasoning is helpful in clarifying when a property may be considered mixed-use and so subject to the lower rate of SDLT. Although the nature of the property at the time of completion is relevant when determining whether the mixed use SDLT rates apply, the UT did note that there may be circumstances where a transaction that takes place after completion will evidence the nature of the property at completion.”

If you want more information, you can see the full decision here.

We can help you meet your obligations

SDLT can be complicated if the property you are buying is potentially mixed use or has multiple dwellings. So, if you are unsure what your liabilities might be, then please get in touch and we would be happy to give you the guidance you need.

Furnished Holiday Lettings tax rules set to change in 2025

The tax regime for Furnished Holiday Lettings (FHLs) is set to be abolished from April 6, 2025, with some key tax breaks being removed by the Chancellor in the Spring Budget on March 6 in a move which could raise as much as £300m extra in tax each year. The changes will make it much harder for individuals providing holiday lets to reclaim some of the key costs associated with their letting business, and could make it more difficult to make these types of lettings profitable.

Around 127,000 properties in the UK were reported as FHLs on the 2019/2020 tax returns, but the measure is designed to encourage those offering their properties for rent as FHLs to instead offer them for long-term rent. These measures could have the desired effect, or it could result in some of those landlords affected deciding to sell up instead as it is expected the regime would bring FHLs in line with the tax treatment of long-term rental properties, but the draft legislation surrounding this change hasn’t yet been announced.

Even so, experts predict the changes could make a big dent in an FHLs current profits. At present, interest on mortgages on FHL properties can be deducted from the rental income for individuals. From April 6, 2025, interest on mortgages for businesses operated by individuals could no longer be deducted if the regime is aligned with longer-term rental property. Instead, a 20% tax credit would be given against the owner’s tax liability, which for higher rate taxpayers will reduce the tax relief for interest to 20%, rather than 40%.

What else will change?

FHLs owned by individuals currently enjoy a lower capital gains tax on their sale as they are classified as trading assets which are subject to business asset disposal relief when they are sold. This means that where the FHL qualifies, with gains up to the lifetime limit of £1m, they would be taxed at 10%.

From April 6, 2025, the business asset disposal relief won’t be available on FHLs owned by individuals, so they will face CGT of 18% of profits in the standard rate band, or 24% for profits in the higher rate band once the property is sold.

Also, under the current regime, FHLs would qualify for CGT rollover relief if a “replacement qualifying asset” is bought with the proceeds of the sale. But this benefit will also be removed from April 6, 2025.

Are there other allowances that will be removed?

Other changes that allow the offset of running costs could also impact the profitability of FHLs. Under the current regime, any expenditure on an FHLs can get tax relief as capital allowances. This will also be removed from April 6, 2025, although there may still be a way of reclaiming the cost of replacing domestic items against profits. Landlords can claim tax relief for replacing broken furniture and other domestic items under the Replacement of Domestic Items Relief, but this doesn’t apply to furnishing a property at the start, only for items that need to be replaced.

Toby Tallon, Tax Partner at professional services and wealth management group Evelyn Partners, said: “For second homeowners who like to make extra money out of their holiday home by putting it on AirBnB while they are not using it, it will simply make this a less lucrative ‘side hustle’. If that is a make-or-break issue for them and they don’t want to be long-term private landlords, then we could see some of these properties being sold.

“Recent changes to other areas of tax have benefitted FHL owners, which may have influenced the Government in its decision to withdraw the benefits. FHLs qualified for capital allowances, so the full expensing change last year increased tax deductions available to owners. During the pandemic, FHLs that paid business rates became eligible for grants targeted at small businesses. The rules to qualify for business rates rather than council tax were tightened in 2023. For those registered for VAT, they were also eligible for the temporary reduced rate of VAT for hospitality businesses.”

None of these changes will apply to FHLs owned through a company structure, so these properties would not be affected. We will have to wait to see the draft legislation until we know exactly what the impact of the changes will be on individuals running FHLs.

We can help you

If you own an FHL and want to find out what your options are before the rules change, then please get in touch with us and we will be happy to help you.

Cryptocurrency gains must be reported on self-assessments

If you hold or invest in cryptocurrency, or even if your employer pays you in a cryptocurrency such as Bitcoin, you may need to declare this on your self-assessment form. For anyone who didn’t in the 2022/23 form which should have been filed before January 31, it would be wise to get advice quickly on how to amend this error.

HMRC has urged anyone with crypto assets to declare any income or gains above the tax-free allowance on their tax return and they should have already paid any tax due. If you haven’t, you should address this as soon as you can.

When would I pay tax on cryptocurrency?

Someone may need to pay tax on cryptocurrency if a person:

• Receives crypto assets from employment, if they’re held as part of a trade, or are involved in crypto-related activities that generate an income.
• Sells or exchanges crypto assets, including:
  • Selling crypto assets for money.
  • Exchanging one type of crypto asset for another.
  • Using crypto assets to make purchases.
  • Gifting crypto assets to another person.
  • Donating crypto assets to charity.

Source: Gov.uk

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “People sometimes forget that information about crypto-related income and gains needs to be included in their tax return. Some people affected may not have had to do a tax return before, so it is important people check.”

How are cryptocurrencies taxed?

The way cryptocurrency is taxed will depend on how you have acquired or sold them, or whether you have given them away. For example, to check if you need to pay capital gains tax (CGT) you need to consider how much gain you have made on each transaction. The way you calculate your gain is different if you sell your tokens within 30 days of buying them.

If you got your cryptocurrency for free, then you would need to work out the gain from the market value of the asset. CGT doesn’t need to be paid on the cryptocurrency if you have paid income tax on it, but if you have made gains after receiving it, you would still need to pay CGT on any gain arising afterwards. You can find out more about how your cryptocurrency is taxed on Gov.uk.

Although the value of cryptocurrency is very volatile, there is an event coming up in the next few weeks which in the past has resulted in Bitcoin increasing significantly in value. This event is known as the ‘halving’ which is when the reward for mining Bitcoins is cut in half. It has happened on average every four years, and results in a reduced rate at which Bitcoins are created which has in the past increased the price.

Bitcoin last halved on May 11, 2020, and the next halving is expected to happen around mid-April at the current rate of mining. If the price of Bitcoin goes up after the halving in April this time, then anyone holding Bitcoin before this may see a gain that they would need to include in the tax return.

We can help you meet your obligations

If you forgot to include cryptocurrency gains in your most recent tax return, or you want to find out more about how your cryptocurrency holdings might need to be declared to HMRC, then please get in touch with us and we can explain what you need to know.

The cost of divorce – how the pain can be more than emotional

January has earned the dubious distinction of being the month when more couples decide they want to get divorced than any other. The reasons are likely to be myriad, but the likelihood is that they either mark Christmas or New Year as a line in the sand for changing their lives, or simply that spending so much time together during the festive season helps them realise they are no longer compatible.

One law firm has seen an increase of 150% in divorce enquiries this January compared to the surrounding months, possibly boosted by the fact that couples can now have a ‘no fault’ divorce in England and Wales – it was already available in Scotland – after new legislation came into force last April. But the emotional turmoil that divorce brings is only one source of pain, as the financial cost is also considerable.

What does divorce have to do with the taxman?

Splitting assets between couples who have had their lives intertwined for decades is a complicated business. Add into this the emotion involved in such splits and it becomes very difficult to deal with these issues amicably.

However, when it comes to splitting assets, there may be a tax implication depending on what you do and how you do it. For example, if a couple splits a pension pot – which is taken into account as part of the assets held by one or both spouses depending on their financial position – the way this is done could potentially be a benefit for one or both of you. If the pension itself is likely to breach the £1,073,100 Lifetime Allowance threshold, then splitting this could mean both parties are able to add more to their pension without breaching this limit.

However, pensions are often not split in this way. So, often there is an offset of other assets – one spouse may get the family home, for instance, and the other spouse may keep the pension intact. It all depends on the financial agreements you make in the divorce.

What else should divorcing couples consider?

The pension conundrum is definitely not the only issue for divorcing couples to consider when it comes to their finances. There could be Capital Gains Tax (CGT) charges to think about as assets are split between the two parties.

To be sure there is no CGT to pay on the transfer of assets between you, it would be best to transfer assets before you formally separate – as long as you lived together at some point within the current tax year, which runs from April 6 to April 5 the following year, you shouldn’t have a CGT liability on giving assets to the other spouse.

If you split assets after you have been separated and the divorce has been finalised, then there could be a CGT liability. You can find out more on Gov.uk and by speaking to your accountant.

There are other areas to consider too. For example, if you pay spousal maintenance after your divorce, you may be able to claim tax relief on this. Also, if you had a High-Income Child Benefit Charge while you were with your spouse, you may now be able to claim full Child Benefit. Again, more information is available or you can speak to your accountant.

Contact us

If you are separating from your spouse or civil partner, then please get in touch with us and we can help you make the right financial decisions to keep your costs to a minimum.

Landlords, what should you be doing now?

Changes to the Capital Gains Tax (CGT) allowances announced in the Autumn Statement mean that from next April, the current £12,300 allowance will fall to £6,000 and then to £3,000 in 2024. This is a major concern for landlords with rental property, as this will make a significant dent in the gains they can make on property before they pay tax.

It could mean that any landlord currently holding a considerable gain on a property may want to think about whether now is a good time for them to sell, especially as property values are expected to stagnate or fall, in the coming months.

Private residence relief

However, there are some ways you can reduce your CGT bill. If you have lived in the property at any point, you can get some relief from CGT under the ‘private residence relief’ rules. You can get relief for the number of years you have lived in the property, plus nine months at the end of the ownership whether you lived in the property then or not.

The example on the Gov.uk website highlights a property with a gain of £120,000 when you sell, which you have owned for 15 years. But for 7.5 years you lived in the whole property, and then rented out your property for the remaining 7.5 years. The Private Residence Relief applies for the 7.5 years you lived there plus the last nine months you owned the property.

This means you get a total of 8.25 years of Private Residence Relief, which amounts to 55% of the time you have owned it. So, you will not pay tax on 55% of the £120,000 gain, but you will on the remaining 45% – which means you will pay CGT on £54,000.

The reduction in CGT allowances could prompt landlords to sell

The more than halving of the CGT allowance from April next year means some landlords may attempt to sell some of their properties before the CGT allowance reduces. It will not be the right decision for everyone, but if a landlord is already considering this, now might be a good time to press the button.

Zaid Patel, director of London-based estate and lettings agents, Highcastle Estates: “With the CGT tax allowance to be halved to £6,000 from April 2023, we may see an increase in landlords selling up and second homeowners listing their properties with the hope of completing before April. Landlords, who own property as part of a limited company, will be further penalised as they’ll pay more tax on dividends.

“This, coupled with the rise in corporation tax, will likely lead to more landlords trying to sell their properties. However, with the rising cost of living, first-time buyers will continue to find it challenging to save for a house, which may mean demand will stifle.

“I expect house prices to drop slightly until late 2024, when there will be a rush of buyers hoping to complete before the stamp duty cuts end. It means estate agents will struggle over the next two years and cutting the dividend tax relief while increasing corporation tax could mean estate agents may start selling their businesses or winding up during this recession.”

Landlords have been hit hard

Landlords have been hit hard by various changes to what they can claim and the way in which they are taxed in recent years, especially if they do not hold the properties within a limited company. For example, if someone is getting rental income of £15,000 a year but having to pay mortgage interest amounting to, say, £8,000 a year, then previously they would be able to offset the entire interest against their rental income before tax. This would mean paying tax on just £7,000 of income.

Now, unless they own their properties within a limited company, they are not able to offset the mortgage interest against their income before tax. So, they would pay tax on the full £15,000 of income. If they were 40% taxpayers and all their allowances had already been used, this would give a tax bill of £6,000 when they are also paying £8,000 in mortgage interest. This would leave just £1,000 for the landlord. Paying 40% on the same basis on the £7,000 of income after accounting for the mortgage interest would give a bill of £2,800 – leaving £4,200 for the landlord.

This is one reason that the number of buy-to-let properties being held within a limited company has reached a record level of 300,000 according to estate agent Hamptons.

We can help you

If you have concerns about your buy-to-let property or you want to find out if you would be better off using a limited company structure, then contact us and we will work with you to help you make any necessary changes.

End of bulk appeals for tax fines in May

If you are unlucky enough to be fined for a late filing, then the way in which any appeal can be made changed as of May 7.

Prior to this, HMRC had temporarily reintroduced the ability to bulk appeal late filing penalties for income tax in 2020 and 2021. But from now onwards, all such appeals need to be made individually.

To be fair, if you keep in close contact with your accountant and give sufficient time for all of the paperwork to be done, then you should not be in a position where you are facing a late filing penalty. But if you have either filed paperwork late yourself or had a late filing penalty for some other reason, then each appeal now must be made individually.

Your responsibilities

Even though you use an accountant to deal with your tax liabilities, you are still ultimately legally responsible for the correct and timely filing of your returns. There are several different penalties that could apply too.

Types of penalties

For example, there is an ‘inaccuracy penalty’ which can be applied across specific taxes, including income tax, PAYE, capital gains tax, inheritance tax and corporation tax. This penalty could be anything from 0% to 30% of the extra tax due if the error occurred due to a ‘lack of reasonable care’.

If the error is considered deliberate, this rises to between 20% and 70% of the extra tax due, and if it is both deliberate and concealed, it could rise to between 30% and 100% of the extra tax due.

You could also face a penalty for a failure to notify HMRC of a change in your liability to tax. This could be, for example, if your company makes a profit and becomes liable to corporation tax. Or it could be because your business has reached the turnover for the VAT threshold (£85,000) and you have not registered for VAT.

Other penalties could include ‘Offshore penalties’ and ‘VAT and Excise wrongdoing penalties’ – so it is important if any of these could potentially apply to you, that you speak to your accountant immediately. You can find more information on the types of penalties that could apply on the GOV.UK website.

We can help you meet your obligations

If you think there is a chance that you could fall foul of any of these rules and face a penalty, or that there is any other issue you need advice on to make sure you comply with all your HMRC requirements, please contact us as soon as possible. We will help you navigate any problems that arise.

Claim relief for shares of negligible value

If you have some shares that have become worthless, you can make a negligible value claim. This will allow you to set the associated loss against any chargeable gains that you make in the same, or a later, tax year, potentially reducing the amount of capital gains tax that you pay.

Making a claim

A claim can be made either in your self-assessment tax return or by writing to HMRC.

If you are making a claim in respect of unquoted shares, you will need to provide the following information in support of your claim:

• a statement of affairs for the company and any subsidiaries;
• a letter from the liquidator or receiver showing whether any return will be made to the shareholders;
• details of how this decision was reached (for example, a balance sheet where liabilities are significantly greater than assets); and
• evidence that no recovery or rescue is likely (for example, a statement that the company has ceased trading).

If your claim is in respect of shares in a company that is not in liquidation or receivership, comprehensive evidence to support the claim that the shares are of negligible value should be provided.

For quoted shares, HMRC produce a list of shares that they accept being of negligible value.

Talk to us

Talk to us to find out how you can benefit from making a negligible value claim for shares that have become worthless.

Budget 2021 – Capital Taxes

Capital gains tax (CGT) rates

No changes to the current rates of CGT have been announced at Budget 2021. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for Private Residence Relief.

There are two specific types of disposal which potentially qualify for a 10% rate up to a lifetime limit for each individual:

• Business Asset Disposal Relief (BADR) (formerly known as Entrepreneurs’ Relief). This is targeted at directors and employees of companies who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met, and the owners of unincorporated businesses.
• Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares.

The lifetime limit for BADR was reduced from £10 million to £1 million for BADR qualifying disposals made on or after 11 March 2020. Investors’ Relief continues to have a lifetime limit of £10 million.

CGT annual exemption

The CGT annual exemption will be maintained at the current 2020/21 level of £12,300 for 2021/22 and up to and including 2025/26.

Inheritance tax (IHT) nil rate bands

The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2026. An additional nil rate band, called the ‘residence nil rate band’ (RNRB) which has been increased in stages and is now £175,000 for deaths in 2020/21 will also be frozen at the current level until 5 April 2026. A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.

Business assets and Gift Hold-Over Relief

Gift Hold-Over Relief operates by deferring the chargeable gain on the disposal when a person gives away business assets. The gain then comes into charge when the recipient disposes of the gifted asset. The recipient is treated as though they acquired the asset for the same cost as the person who gave them the asset.

A change to the relief ensures that Gift Hold-Over Relief is not available where a non-UK resident person disposes of an asset to a foreign-controlled company, controlled either by themselves or another non-UK resident with whom they are connected. This measure will affect disposals made on or after 6 April 2021.

Budget 2021 links:

• Business
• Capital taxes
• Employment
• Personal tax
• Other matters