Tag: capital gains tax

Unclear future for Capital Gains Tax (CGT) – Accountancy Age

Posted on by Alicia Sprott

Despite more than a 100% increase in CGT receipts in the past five years, understanding whether tax rates for CGT will be increased or not is hard to predict, especially with the upcoming 2023 Autumn Statement in November and the possibility of a change of government at the next General Election, to be held at the latest by January 2025. However, businesses are taking note and planning ahead where possible.

Katharine says: “We may not have a clearer picture of what could be on the horizon until at least the Spring Budget in 2024 or the publication of party manifestos in advance of next year’s General Election.” Katharine’s advice for businesses however is to wait for a clearer picture of what could be coming next for CGT. “As there is no indication that we could see an increase to CGT rates in the Autumn Statement, I’d suggest it isn’t necessary at this stage for businesses to rush to sell their assets in order to beat a potential tax hike.”

You can read Katharine’s comments in full here.

As always, tax planning is key – for assistance with your tax affairs and to minimise your tax liabilities, contact Katharine here or a member of our Private Client team.

Changes to Capital Gains Tax rules for divorcing couples

Posted on by Alicia Sprott

Under the old rules, when a married couple or civil partners separate, they could transfer assets between them in the tax year they permanently separated on a no gain no loss basis. This meant that the transferring spouse did not have to pay CGT on the assets transferred and the spouse receiving the assets did so at its original base cost.

However, if a transfer of assets occurred after the tax year in which the spouse/civil partners separated, the transfer would have been subject to CGT, the deemed proceeds being the market value of the asset. As a result, by the time of a divorce, dissolution of a marriage or civil partnership, the couple would be liable to CGT when assets were transferred as part of the final divorce settlement.

What are the new CGT rules?

The new rules can be summarised as follows:

  • Separating spouses/civil partners will have up to three years, after the tax year in which they separated, to transfer assets on a no gain, no loss basis. This extension should allow sufficient time for the division of assets and other financial agreements to be agreed upon without the additional worry of how to meet the CGT liability.
  • There will be no time limit to the no gain, no loss treatment for assets that are subject to a formal divorce agreement. This will be welcome news to couples who are unable to finalise their divorce agreements due to the backlog of cases in the family courts. Any spouse or civil partner who retains an interest in the former matrimonial home will have the option to claim Private Residence Relief (PRR) on their share of the capital gain when the property is sold..
  • Favourable treatment also applies where an individual transfers their interest in the former matrimonial home to their ex-spouse or civil partner but remains entitled to receive a percentage of the sale proceeds when the property is eventually sold. They can apply the same tax treatment to the proceeds as when they initially transferred their interest. This means that if PRR applied at the time of the original transfer, the relief will be available when the property is sold, even though they did not live at the property.

Tax planning opportunities

The extension to the time limit for no gain, no loss transfers provides greater tax planning opportunities for separating couples, as they can now make more informed decisions about the assets they transfer. This change is significant – divorce proceedings are emotionally challenging, and it would be fair to say that tax planning might not be a priority. The extension allows couples to plan their financial separation more effectively, resulting in fairer outcomes. This is particularly crucial for individuals with complex asset portfolios, including businesses and properties. In some cases, lump sum payments might be more favourable than direct asset transfers, requiring careful consideration of potential tax liabilities.

While immediate tax can be avoided, future CGT for couples will still be a factor in financial settlements. Under the new rules, CGT is not avoided completely but deferred until the spouse receiving the assets disposes of it. The value of assets transferred to the spouse will therefore be lower as a result of the inherent capital gains.

The new rules do not change the position for individuals domiciled outside the UK or with overseas assets. They may still be subject to taxation in other jurisdictions. It is essential to navigate double tax treaty provisions and international tax rules, to ensure compliance and minimise potential tax implications.

Conclusion

The changes to CGT rules represent a positive step for divorcing couples in the UK. The extended window for asset transfers allows for more comprehensive financial planning, during an emotionally difficult time. They also highlight the importance of informed decision-making and proactive tax planning. As the implications of these changes continue to unfold, professional guidance remains crucial for couples seeking a fair and tax-efficient separation of assets.

For tax advice and support on the CGT rules for separating and divorcing couples,, get in touch with Kay Mind, Director, or a member of our Private Client team.

You can also listen to our podcast with Kay and Danielle Ford, Partner and Head of Tax Disputes & Resolutions, discussing the CGT rules, here.

Harvesting Capital Gains Tax isn’t always a win-win for HMRC: The Financial Times

Posted on by Katie Trower

CGT is reaching record levels in the UK as more taxpayers get trapped in the net as a result of inflation and reduced exemptions. This results in HMRC being required to process many more returns and collect the tax due.

The key takeaway from Katharine’s letter is that it is unclear whether HMRC’s systems are ready to deal with the required increase in the reporting of gains, for the large number of small gains now reportable.

You can read Katharine’s comments in full in the FT article here (subscription needed).

If you need further advice, please get in touch with Katharine, Partner and Head of Private Client, here.

Capital Gains Tax reporting for residential properties

Posted on by Alicia Sprott

UK residents

If you are a UK resident and dispose of UK land and property, you must calculate, report, and pay CGT to HMRC on a separate return within 60 days following the completion of the property sale. Initially, the period was 30 days (completion dates between 6 April 2020 and 26 October 2021), but in the 2021 Autumn Budget, this period was increased to 60 days for completion dates on or after 27 October 2021.

It is important to note capital gains can also arise on the gift or sale at undervalue of a property, which also needs to be reported within the 60-day time scale.

The requirement to file applies to UK residents, even if you intend to file a Self Assessment (SA) tax return for that year. However, you do not have to complete the capital gains return if you sell the property you live in, provided you have lived in it throughout your period of ownership, as this gain is likely to be covered by the Principal Private Residence Relief. You also do not have to file a CGT return if no CGT is payable.

Non-UK residents

The reporting requirements for non-UK residents have been in place longer than for UK residents.

For the disposal of UK land and property between 6 April 2015 and 5 April 2020, non-UK residents were subject to a 30-day CGT reporting and payment regime (non-resident Capital Gains Tax – NRCGT). If you dispose of UK residential property or land after 6 April 2020, you must report the gain within 60 days and pay the CGT liability within the same time frame. The reporting requirement is irrespective if CGT is due or if you have made a loss.

How to report

UK residents are required to set up a Capital Gains UK property account to file a CGT return, which is made using an HMRC digital service. It is a standalone service, not within the Personal Tax Account, and it does not use Self-Assessment accounts or references.

The return is made online using your Government Gateway ID, if you have one. If you do not have an ID, you must create one when you sign in.

Non-UK residents now fall within the same reporting regime. The reporting requirements extend to all direct and indirect disposals of UK residential and non-residential property and land, including property-rich companies.

Agents can submit returns on behalf of clients. However, you must set up the CGT UK property account regardless of whether you report the gain or appoint an agent. Once the account is set up, you can authorise an agent to report the gain. Following successful filing, the agent and client will receive a confirmation email from HMRC with a payment reference used to pay the CGT liability.

Penalties & interest

Late filing penalties may be charged (up to £700 or 5% of the tax due, whichever is greater) as well as interest on any unpaid tax. These apply to both UK and non-UK residents.

CGT rates and Annual Exempt Amount

The CGT rates for residential property are 18% for the basic rate taxpayer and 28% for the higher and additional rate taxpayer.

The tax-free capital gains Annual Exempt Amount (AEA) for the 2023/24 tax year has decreased by more than 50% from its 2022/23 threshold of £12,300 to £6,000. For the 2024/25 tax year, this allowance is further reduced to £3,000.

Considerations

The rules on CGT can be complex and dealing with HMRC can be a challenging experience. A tax computation must be prepared to calculate the estimated tax due, and the CGT return can be amended for inaccuracies or details finalised after the filing deadline.

Further tax planning opportunities may be available to mitigate or defer a CGT liability. It is essential to consider these before a sale or gift of UK residential property or land is made.

If you are planning on selling or gifting residential property and would like our assistance with the CGT reporting requirement under the 60-day rules or advice on how you might mitigate your liability please get in touch with your usual haysmacintyre contact within the Private Client and Trust team.

 

Capital Gains Tax on fractional shares: The Daily Mail

Posted on by Alicia Sprott

HMRC’s current stance is that fractional shares are not eligible for investment with an ISA. As such, when investors sell their shares, they may have to pay CGT on any profit made.

Katharine comments: “It seems unfair. I’m not sure why HMRC is worried about this when the Government is supposed to be encouraging share ownership and investment in business.”

Leaving investors uncertain about whether their portfolios are compliant or not could lead to a lack of enthusiasm for investment. This comes at a time when the Government has committed to opening up investment opportunities to all.

In terms of liabilities, if HMRC believes the ISA investment in fractional shares to be void, the investor could face Income Tax on dividends as well as the previously mentioned CGT on sale. A decision by HMRC on penalties could also take months, leaving investors in further doubt about their portfolios. HMRC could seek to recover tax (and interest) from previous years as well, depending on their stance. This all adds up, leading to what could potentially be a costly venture for individuals, and ultimately platforms such as Freetrade.

You can read Katharine’s comments in full on The Daily Mail here.

If you have any concerns about your tax position, please get in touch with Katharine here or a member of our Private Client team.

 

 

 

Rise in Capital Gains Tax receipts – FT Adviser

Posted on by Alicia Sprott

HMRC’s latest tax figures show that CGT receipts continue to grow, rising by 96 per cent over the past five years. This growth is three times higher than the increase in Inheritance Tax (IHT) receipts over the same period.

Inflation has been a key driver behind recent tax increases, moving taxpayers into new tax thresholds as asset values soar. However, the reduction of the annual exemption for CGT from £12,000 to £6,000, which came into play as of April 6 2023, is likely to increase CGT receipts further.

With more people being brought into new tax thresholds, it means hundreds of thousands of new taxpayers will now be liable to pay CGT. The concern however is that not everyone who is now liable to pay CGT will know that they need to. Katharine notes: “Many taxpayers may be unaware that gifts of a property or shares, for example, to family members can be subject to CGT.”

Katharine’s comments look at HMRC’s ability to manage the additional administrative burden of an increased number of tax returns. To read Katharine’s piece in full, you can read more on FT Adviser.

If you have any queries, please contact Katharine directly or a member of the Private Client team.

Get ready for the Capital Gains Tax exemption cut

Posted on by Alicia Sprott

A cut to the CGT exemption, from April 2023, is expected to make CGT payments even busier than usual in the first few months of the year. Currently, investors can make profits of £12,300 a year before being subject to CGT. However, that annual exemption will reduce to £6,000 on 6 April 2023. From April 2024 onwards, there will be a further reduction to the exemption to £3,000.

Katharine says: “The 18% spike in CGT over the past year is a clear sign of the times. With scores of investors having exited the buy-to-let sector over the past year, and inflation causing house prices and asset values to soar, HMRC is reaping the rewards from people’s capital gains, collecting £18 billion in the past year alone – a rise of 102% in the last five years.

Year CGT
Feb 2022-Jan 2023 £18 billion
Feb 2021-Jan 2022 £15.2 billion
Feb 2020-Jan 2021 £10.8 billion
Feb 2019-Jan 2020 £9.6 billion
Feb 2018-Jan 2019 £8.9 billion

If you are considering selling a valuable asset, you may want to consider doing so by 5 April. Katharine comments that “tax should not dictate any big financial decisions, but if you are going to sell in a few months’ time anyway, then doing it now instead will mean you keep more of your gains.”

You can read Katharine’s comments in full in The Sunday Times (subscription needed) and Accountancy Age.

If you would like to find out more about how we can help you to plan for CGT, please contact Katharine Arthur or a member of the Private Client & Trusts team.

Capital Gains Tax (CGT) receipts on the rise: ePrivateclient

Posted on by Alicia Sprott

The rise in CGT receipts is according to the latest monthly tax figures released by HMRC. Between February 2022 and January 2023, the tax regulator collected a record £18 billion. In January 2023, CGT receipts were £13.2 billion, up 23% over January 2022 when compared like-for-like.

Katharine notes that “with scores of investors having exited the buy-to-let sector over the past year, and inflation causing house prices and asset values to soar, HMRC is reaping the rewards from people’s capital gains.” However, we have yet to see the full impact of the changes to CGT from the Autumn Statement in 2022. In addition, and in advance of the reduction to the CGT annual exemption rate in April 2023, the mood across investors is to streamline their portfolios in anticipation. This could lead to further increases in CGT receipts in January 2024.

Read Katharine’s comments in full in ePrivateclient’s article here (subscription needed).

Tax planning assistance

With the reduction in CGT annual exemption expected to raise an additional £25 million in tax revenue in 2023/24 alone, it makes planning in this area even more important. Our Private Client & Trusts team is on hand to help you make best use of the annual exemption and to plan your tax affairs. Please get in touch with Katharine or a member of the private client team to discuss your needs further. You can also reference our Year End Tax Planning Guide 2023 to help you make the tax rules work to your advantage ahead of the tax year-end.

Careless penalties and deliberate tax errors: Accountancy Daily

Posted on by Alicia Sprott

In January 2023, Mr Zahawi reached a settlement with HMRC in respect of undeclared Capital Gains Tax relating to disposals of shares in YouGov, the polling company which he co-founded in May 2000. The settlement amount is unknown but is believed to be in the region of £5m including a 30% penalty. It also led to him losing his job as the Conservative Party Chair.

Danielle and Riocard provided an analysis on Mr Zahawi’s case. Their analysis highlights that expert advice should be sought with careless penalties, as these can often be mitigated and even suspended.

In their Accountancy Daily article, Danielle and Riocard deep dive into HMRC’s position on careless penalties, why careless penalties are unique in having suspension conditions, and whether Mr Zahawi could still have his job as Conservative Party Chair if his penalty was mitigated.

Read Danielle and Riocard’s insights in more detail in the full Accountancy Daily article here (subscription needed).

If you have any kind of dispute with HMRC then please contact Danielle or Riocard. Our team have a proven track record in representing our clients in tax disputes with HMRC to reach the best possible outcome for them.

Conservative Party Chair HMRC tax settlement: Analysis

Posted on by Alicia Sprott

As widely reported in the mainstream media, Nadhim Zahawi, the current Conservative Party Chair and former Chancellor of the Exchequer has reached a settlement with HMRC. This was in respect of Capital Gains Tax relating to disposals of shares in YouGov, the polling company which was co-founded by Mr Zahawi in May 2000. The amount is unknown but is believed to be in the region of £5m including a 30% penalty.

Careless penalties

The report quotes that Mr Zahawi has said this penalty was “careless and not deliberate”. Careless penalties are charged where reasonable care has not been taken in respect of a submission to HMRC.

’Careless’ penalties fall within a range. Either:

  • 0% to 30% where the discovery of the loss of tax is unprompted or voluntarily disclosed; or
  • 15% to 30% where the discovery of the loss of tax is prompted by the action of HMRC.

We do not have enough information to determine whether Mr Zahawi’s penalty was prompted or unprompted, but it appears he was charged the maximum careless penalty allowable as per the penalty ranges. Penalties can be mitigated based on three criteria: telling, helping, and giving HMRC access to records. The size of the penalty suggests HMRC were not willing to mitigate the penalty charged, based on engagement throughout the dispute.

Please note that the above analysis is on the basis that this is an error within the UK, with no offshore element. In some cases, the penalty range can be higher for offshore matters, depending on the jurisdiction involved. It has been reported that Mr Zahawi co-founded YouGov before entering politics, with shares held in Balshore Investments, a Gibraltar-registered family trust. There could be an associated offshore element involved here, however penalties appear not to have been fully mitigated with the potential minimum remaining at 0% for offshore penalties.

Seek expert advice

We strongly recommend taking experienced professional advisers with knowledge of HMRC processes to appropriately manage a dispute with HMRC. Expert advisers can ensure that if any penalties are to be charged, that they are mitigated where possible to ensure the most cost-efficient settlement.

Careless penalties can be suspended in most cases, subject to certain conditions being agreed. This means the penalty will not actually become payable providing the agreed conditions are met and the individual is tax compliant during the suspension period. Reports infer that the penalty was actually paid and comprises part of the overall settlement, rather than being suspended.

This again highlights the importance of the right professional advice, to ensure that careless penalties are suspended where possible. Suspension is intended to be an incentive for future compliance and Mr Zahawi could have avoided paying the penalty, had his advisers been able to agree suspension with HMRC.

Based on the figures reported, Mr Zahawi’s penalty was a seven-figure sum. Penalties are often not considered until it is too late, however they can clearly have a significant financial impact. If you have any kind of dispute with HMRC then please contact Danielle Ford, Head of Tax Disputes or Riocard Hoye, Senior Manager. Our team have a proven track record in representing our clients in disputes with HMRC to reach the best possible outcome for them. You can read about one of our previous successes here.

 

 

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