Key capital tax provisions from the UK 2020 Budget.
The Chancellor Rishi Sunak presented his first Budget on Wednesday 11 March 2020. In this series, we focus on the tax measures which may affect you, your family and your business. To help you decipher what was said we have included our own comments. If you have any questions please contact us for advice.
In this edition of our Budget 2020 series, we focus on Capital Taxes.
Capital gains tax (CGT) rates
The current rates of CGT are 10 per cent, to the extent that any income tax basic rate band is available, and 20 per cent thereafter. Higher rates of 18 per cent and 28 per cent 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 per cent rate up to a lifetime limit for each individual:
- Entrepreneurs’ Relief (ER). This is targeted at directors and employees of companies who own at least 5 per cent of the ordinary share capital in the company, provided other minimum criteria are also met, and the owners of
- Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares.
Investors’ Relief has a lifetime limit of £10 million, however the lifetime limit position for ER has been changed in the Budget and is considered further below.
CGT annual exemption
The CGT annual exemption is £12,000 for 2019/20 and £12,300 for 2020/21.
Entrepreneurs’ Relief (ER)
The lifetime limit is reduced from £10 million to £1 million for ER qualifying disposals made on or after 11 March 2020.
There are special provisions for disposals entered into before 11 March 2020 that have not been completed.
The government’s manifesto stated clearly that there would be a reform and review of this relief, so a reduction in the limit was not unexpected, though the magnitude of the reduction and the immediate implementation will be a surprise. No other consultations to reform the relief were announced.
Private Residence Relief (PRR)
Draft legislation has been issued to make changes to the PRR regime from 6 April 2020.
For properties that have not been occupied throughout the period of ownership, available deductions for capital gains tax purposes will be amended as follows:
- the final period exemption will be reduced from 18 months to nine months (there are no changes to the 36 months that are available to disabled persons or those in a care home)
- lettings relief will be reformed so that it only applies in those circumstances where the owner of the property is in shared occupancy with a tenant.
At present, lettings relief gives up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was the former main residence at some point in their period of ownership.
Despite concerns raised during the consultation about periods of letting prior to April 2020 and whether the current rules should be allowed to apply, the government is proceeding as planned and lettings reliefs will be abolished except in very limited circumstances of co-occupation with a tenant. The changes apply for disposals on or after 6 April 2020, regardless of when the period of letting took place.
Payments on account and 30 day returns
Legislation has been enacted to change reporting obligations for residential property gains chargeable on UK resident individuals, trustees and personal representatives. Also introduced is a requirement to make a payment on account of the associated CGT liability. For disposals made on or after 6 April 2020:
- a tax return is required if there is a disposal of UK land on which a residential property gain accrues
- CGT is required to be computed on the reported gain in the tax return.
The return needs to be filed and the CGT paid within 30 days of the completion date of the property disposal.
The new requirements do not apply if a chargeable gain does not arise, for example where the gains are covered by PRR.
Inheritance tax (IHT) nil rate bands
The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021. An additional nil rate band, called the ‘residence nil rate band’ (RNRB), continues to be phased in. For deaths in 2019/20 it is £150,000 rising to £175,000 for deaths in 2020/21. Thereafter it will rise in line with CPI.
The RNRB was introduced in April 2017 to allow the family home to be passed more easily to direct descendants on death without incurring a charge to IHT. There are, however, a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.
Stamp Duty Land Tax (SDLT) surcharge
A SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland is to go ahead. The 2 per cent surcharge is to take effect from 1 April 2021. Where contracts are exchanged before 11 March 2020 but complete or are substantially performed after 1 April 2021, transitional rules may apply.
For more information or to discuss how we can help you effectively structure your finances for tax and save you money, contact your usual Beavis Morgan Partner.
Our experts at Beavis Morgan take the hassle of dealing with HMRC away from you, so you don’t need to deal directly with them. We are also able to advise on all aspects of tax whether compliance or planning.
If you have any concerns about your personal or business financial situation, our experts at Beavis Morgan group business, BM Advisory, are able to assist. We specialise in finding innovative solutions for businesses and individuals in distress. Contact Andy Pear or Mike Solomons of BM Advisory for more information and an initial free consultation.
Other articles in our Beavis Morgan Budget 2020 series include:
For Rates and Allowances 2020/21, view the full Beavis Morgan Budget 2020 Summary Report.
You can also follow our Beavis Morgan LinkedIn page to keep up with key developments in tax and the impact these changes might have on you and your business.