24 August 2020

Remember to budget for delayed tax payments

The second self-assessment payment on account for the 2019/20 tax year would normally have been due on 31 July 2020, but due to the pandemic there is an automatic option to defer to 31 January 2021.

If you chose not to pay that instalment at the end of July, it will mean a bumper tax payment due in January 2021, made up of the July 2020 instalment, any balancing payment for the 2019/20 tax year, plus the first payment on account towards the 2020/21 tax year.

Some people are choosing to pay now in any case to keep payments on their ‘normal’ cycle, but if you choose not to, do please consider how you will fund the delayed payment in January and budget accordingly.

Stamp duties reduced

A slowdown in house sales and falling prices prompted Chancellor Rishi Sunak to announce a temporary cut to Stamp Duty Land Tax (SDLT) on residential property in his Summer Statement.

Until 31 March 2021, there will be no SDLT in England and Northern Ireland on the first £500,000 of property value, creating a maximum saving of £15,000. However, the 3% additional rate will still apply to additional properties.

Scotland has announced an increase in its nil-rate band for Land and Buildings Transaction Tax for residential property to £250,000, and Wales has decided on the same figure for its Land Transaction Tax nil-rate threshold.

For more detail see our summary of the Chancellor's Summer Statement.

Lifetime limit cut for Entrepreneurs’ Relief (now the Business Asset Disposal Relief)

A significant cut in the Entrepreneurs’ Relief (ER) lifetime threshold was one of the changes announced in the Budget earlier this year. Within certain conditions, ER reduces the amount of capital gains tax (CGT) to be paid when a sole trader or partner sells all or part of a business, or when a director/ employee shareholder sells shares.

However, the lifetime limit on gains eligible for ER, which offers a 10% rate of CGT instead of the usual 20% for higher-rate taxpayers, has been cut from £10 million to £1 million.

The new measure, which applies to all disposals on or after 11 March 2020, also includes an additional rule to stop forestalling. This is arranging disposals to take advantage of the pre-Budget ER lifetime limit. In addition, ER has also been renamed Business Asset Disposal Relief.

New threshold for tapered pension allowance

The maximum annual allowance for pension contributions tapers down for higher earners. In previous years, this tapering started when a person had adjusted income over £150,000 and the normal £40,000 allowance limit tapered down to £10,000.

From the current tax year, 2020-21, the starting point for tapering will be adjusted income of over £240,000 and the tapering reduces the allowance from £40,000 down to a lower £4,000 minimum.

Making contributions in excess of the allowance creates a tax charge, and many in defined benefit pension schemes have found that a modest increase in their pay can result in a tax liability that is sometimes greater than the pay increase. The change will reduce this problem only slightly.

Even an annual allowance of £40,000 is not enough to shelter those on quite modest pay levels from extra tax on a bonus or pay increase.

New cross-border tax avoidance rules now in force

New regulations designed to enable EU tax authorities to share information about cross-border arrangements came into force on 1 July 2020.

Commonly known as DAC 6, the rules require taxpayers and intermediaries to report to HMRC details of arrangements that could be used to evade or avoid tax within 30 days of being initiated. An intermediary is anyone involved in the implementation of a reportable crossborder arrangement.

The reports will be shared by HMRC with other tax authorities. The first reporting deadlines have been deferred by six months because of the disruptive impact of Covid-19. However, banks – viewed as intermediaries because of the client services they provide – are already writing to their customers about DAC 6.

Compliance with DAC 6 will still be necessary after the UK’s exit from the EU. For information about penalties for non-compliance, see here.

Also read our article about How the pandemic may have affected your residency status for tax

New trust register rules

When HMRC introduced the trust register in 2017, trustees were only able to register the initial details of a trust, but not any subsequent changes. All HMRC asked for was notice of a change of lead trustee in writing.

HMRC has now, finally, introduced an online system to inform it of any changes required. Trustees can log in with their own Government Gateway ID and make changes themselves or through their tax agent.

We are happy to make any changes that are required (the trust tax return asks for confirmation of the register being up to date via a tick box before it is submitted), and we will be contacting trustees regarding this in the near future.

A further change to the money laundering regulations will force more trusts to register, and existing trusts to register more details, but these are not yet in force. We will be in touch once final details are known.

Catch all the latest tax rates and dates in our Tax Facts card

For a handy summary of our the latest tax rates, you can download a copy of our Tax Facts card.  It also includes a useful reminder of the latest tax deadlines.

Download your copy

Can we help?

Our team of specialists are happy to answer your tax questions.  Contact one of the team on this page for more help and information.

Specific advice should be obtained before taking action, or refraining from taking action, on the basis of this information. Speak with your usual Shipleys contact or one of our specialist team, shown on this page, for more details and guidance.

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