For capital gains tax purposes, individuals are allowed to realise net gains (after deducting any capital losses) of £12,300 for 2021/22 tax-free. Where capital disposals are on the cards, if the annual exempt amount remains available, consider making the disposal prior to 6 April 2022 to utilise the 2021/22 annual exempt amount, paving the way to realise gains free of capital gains tax in 2022/23.
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Limited window for using your 2020/21 tax allowances
Individuals are entitled to a number of allowances each year. However, many of them are lost if they are not used in the tax year to which they relate – it is not possible to carry most unused allowances forward. The 2020/21 tax year comes to an end on 5 April 2021. With the end of the tax year approaching, now is the time to review your allowances and consider whether there is anything that can be done to prevent those allowances being wasted. Remember, any Covid grants that you have received in 2020/21 are taxable and will need to be taken into account when assessing your income.
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Employers who had fewer than 250 staff on 28 February 2020 can claim back up to two weeks’ statutory sick pay paid to employees who were absent from work due to Coronavirus.
Read MoreTo help those affected by Coronavirus, taxpayers could delay paying their payments.
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The Government have put various support measures in place. It is important that you do not miss the deadlines for claiming help under the various schemes; and also that you understand how grants received are treated for tax and National Insurance purposes.
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VAT Deferral – VAT payments from 20 March 2020 until 30 June 2020
Any businesses that wish to defer their VAT payments are automatically eligible to do so. VAT payments due on 7th April, 7th May or 7th June 2020 can be deferred until 31st March 2021.
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Last year, the Government consulted on regulations introducing changes to Child Trust Funds (CTFs) and Individual Savings Accounts (ISAs).
As far as Child Trust Funds are concerned, the changes will make provision for the investment in a CTF to be held in a protected account pending instruction in the event that at maturity no instruction has been received from the account holder as to the future of the investments held within the CTF. Funds held in the protected account will retain their tax advantaged status.
We are sure that you are aware of the support that the Government have put in place during the current COVID19 virus to date, however we want to ensure that you are fully up to date and aware of support available to you. We write to let you know that we are posting updates as they come in on our Facebook Page ‘BFMS Accountants’ and will also be updating our website www.bfmsltd.co.uk ‘latest news’ page.
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Private residence relief and final period exemption
Where a property has at some point been the owner’s only or main residence, any gain relating to the final period of ownership is exempt from capital gains tax. Prior to 6 April 2020, the final period is set at 18 months, subject to a period of 36 months where the person making the disposal is a long-term resident of a care home or is disabled.
However, for disposal on or after 6 April 2020, the final period exemption is halved from 18 to nine months. However, it remains at 36 months for disposal by long-term care home residents and disabled persons.
If you are planning to dispose of a property which has not been your only or main residence throughout the whole period that you have owned it, speak to your professional advisers to ascertain how the timing of the disposal can impact on the capital gains tax payable.
Lettings relief
Lettings relief is a valuable relief that applies on the disposal of a property which has been let out and which has at some point been the owner’s only or main residence.
Under the current rules lettings relief applies to shelter part of the gain arising on the sale of a property which has been let out as residential accommodation and which at some time was the owner’s only or main residence. The amount of the lettings relief is the lowest of the following three amounts:
• The amount of private residence relief available on the disposal;
• £40,000; and
• The gain attributable to the letting.
However, from 6 April 2020, the availability of lettings relief is to be seriously restricted. From that date, lettings relief is only available where at some point the owner of the property lets out part of their main residence as residential accommodation and shares occupation of that residence with an individual who has no interest in the residence.
Where the gain would otherwise be chargeable to capital gains tax because it relates to the part of the main residence which is let out as residential accommodation, it is only chargeable to capital gains tax to the extent that it exceeds the lower of:
• the amount of the gain sheltered by private residence relief; and
• £40,000.
If the property is let but the landlord does not live in the property with the tenant, lettings relief will not be available for disposals on or after 6 April 2020.
Lettings relief can shelter up to £40,000 of gains. Where a disposal of a property that would currently attract the relief is on the cards, it may be beneficial to dispose of the property prior to 6 April 2020. Speak to your professional adviser to ascertain the impact that the disposal date has on the available reliefs and the capital gains tax, if any, that will be payable.
Residential property gains
Although no capital gains tax will arise on the disposal of a property which has been the owner’s only or main residence throughout the period of ownership, a liability may arise on the disposal of a residential property which is or has at some point been a second home or which has been let.
Prior to 6 April 2020, where capital gains tax is payable on a gain arising on the disposal of a residential property, the gain is notified to HMRC on the self-assessment return and the tax is payable by 31 January after the end of the tax year in which the disposal took place.
However, from 6 April 2020, taxpayers will be required to make a payment on account of the capital gains tax liability arising on the disposal of a residential property. The taxpayer will also be required to make a return to HMRC giving notice of the disposal. The return must be delivered to HMRC within 30 days of the date of completion of the disposal. Payment of any associated tax must be made within the same window.
Capital gains tax on chargeable residential property gains is payable at higher capital gains tax rates of 18% and 28%.
If you are planning on disposing of a second home or buy-to-let property on or after 6 April 2020, speak to BFMS Ltd to understand how the new return and payment rules will affect you.
