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CGT Relief, IR35, Defined Benefits Pensions and more...

October 2019

While stamp duty land tax is not something people relish paying when they move home, a potentially bigger shock could be a capital gains tax (CGT) bill.

When you sell your home for more than its purchase price, a relief known as the private residence relief (PRR) is often applicable. This can exempt homeowners from paying 18% or 28% CGT on the property’s gain in value, depending on their tax bracket.

In many cases, PRR means there is no CGT liability when selling your home, but don’t automatically assume you qualify; be sure to check these criteria. Broadly speaking, to qualify for PRR you need to: 

  1. demonstrate you live in the home permanently
  2. show it has been equipped for normal living while you’ve lived there
  3. be aware of any period when it was let – under draft legislation, from 6 April 2020 the ‘letting relief’, which affects the exemption that otherwise requires continuous ccupation, will only be allowed when the home is shared with a tenant, irrespective of whether that letting was before 6 April 2020
  4. only include land enjoyed as part of the dwelling – outbuildings or land for business use will be excluded 
  5. be mindful of the size of your land – a property’s grounds in excess of 0.5 hectares may fail to qualify
  6. elect which property qualifies for relief if you, or you and your spouse/civil partner, own two or more properties that are used as residences 
  7. check that unoccupied periods at the property don’t affect qualifying for the PRR
  8. sell your old home within 18 months of moving out (going down to 9 months from April 2020), if you want to get full relief.

A more detailed explanation of how to qualify for PRR is available on our website at https://tinyurl.com/y4md4ae2

Changes for IR35 contractors
New IR35 rules may affect businesses that use the services of consultants or contractors – or off-payroll workers – through personal service companies from 6 April 2020. Most  businesses, except ‘small’ ones, will have to apply PAYE and NIC to payments for offpayroll workers’ services provided through intermediaries. In such cases the intermediary will no  longer have to apply IR35. Fuller notes on the proposals are at https://tinyurl.com/y6ezxnrd

Defined benefits pensions
The defined benefit pension scheme's arcane system to measure pension inputs can result in a tax liability exceeding a pay increase. This has deterred many NHS staff, in particular,  from taking on extra responsibilities. The government has at last recognised the issue. The British Medical Association is consulting on ways to avert the problem. See https://tinyurl.com/y6I48oas

Post-Brexit tax for non-UK residents
Non-resident UK citizens will lose the income tax personal allowance post-Brexit unless the tax law is changed. Those with UK rental income, for example, could have up to £5,000 more tax to pay.

New employment allowance criteria
The £3,000 employment allowance against national insurance contributions from 2020/21 will only to be available to employers with an annual secondary Class 1 NIC liability under £100,000.

Concern for company directors?
One of the draft clauses intended for the Finance Act 2020 has attracted a lot of criticism. As drafted, the clause on ‘Joint and several liability of company directors etc’, could apply to  perfectly innocent shareholders of companies that fail – as well as to those who have been actively involved in a company deliberately not paying tax.

Sale of homes before 6 April 2020 could save £11,200 in tax
A change in the ‘letting allowance’ is one of the proposals affecting capital gains tax on disposal of a home from 6 April 2020. A sale before 6 April 2020 could save £11,200 tax. Leaving  aside the letting allowance change, there is a cashflow advantage in a sale of UK residential property before 6 April 2020. The tax on a sale in March 2020 would be payable in January 2021 and on a sale on 6 April 2020 due by 6 May 2020.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.

Copyright © Shipleys LLP 2019

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