The start of this week marked the beginning of a new tax year, and is one that we enter during a period of substantive uncertainty. In addition to the scheduled changes taking effect from 6 April 2020, the end of the 2019/20 tax year contained a number of significant changes, especially for those affected by Covid-19. We have explored a number of these measures in our previous blog (if you would like to find out more about these measures, please click here).
6 April 2020 – Summary
- National Insurance Contributions
- The annual threshold for national insurance contributions has increased to £9,500 (from £8,632). This will lower the contributions required by both self-employed individuals and employees within the tax year.
- The lifetime allowance for pension contributions has increased to £1,073,100 (from £1,055,000). The threshold at which the annual allowance is subject to tapering has also risen to £240,000, though the pension contributions (which attract income tax relief) can now be reduced to £4,000 rather than the previous £10,000 minimum.
- Capital Gains Tax
- The annual exemption has been increased to £12,300 (from £12,000).
- There is also a significant change to Entrepreneurs’ Relief (now renamed as Business Asset Disposal Relief), which is discussed further below.
- Annual Tax on Enveloped Dwellings (ATED)
- The ATED amounts have increased in line with inflation (on 1 April), as they do each year. The normal filing deadline for ATED returns is 30 April 2020.
- The residence nil rate band has increased to £175,000 (from £150,000).
Further Detail – Entrepreneurs’ Relief & UK Property Changes
We have expanded on two key areas that have seen substantial change and are likely to impact a large number of our clients in the 2020/21 tax year.
- Entrepreneurs’ Relief / Business Asset Disposal Relief.
- In the Budget on 11 March, the Chancellor, Rishi Sunak, announced that the lifetime limit would be reduced to £1,000,000 (a reduction from £10,000,000).
- This will affect individuals who sell or otherwise dispose of their businesses/shares in their personal company on or after 11 March 2020.
- We would note that Investors’ Relief remains unchanged.
- UK Property Tax Changes.
- 30 Day Capital Gains Tax Payment and Reporting Requirement.
From 6 April 2020, there is a 30 day reporting requirement for all disposals of UK residential property. The capital gains tax due must also be paid within 30 days of the sale.
This aligns the reporting requirements with the non-resident capital gains tax (NRCGT) regime introduced in 2015. Previously disposals of UK residential property by tax resident individuals were reported within the taxpayers self-assessment tax return due by 31st January the following year.
- Private Residence Relief (PRR)
There are also two key changes to PRR introduced from the start of the 2020/21 tax year that will affect transactions from 6 April 2020:
- The final exemption period has been halved from 18 months to 9 months, which will lead to an increased chargeable gain on disposal (if the property in question has not been the ‘main residence’ for the full duration of ownership).
- Lettings relief has been abolished, with the exception for individuals who have shared occupation with the tenant. Previously relief was available of up to £40,000.
We have explored the changes to disposals of UK property in further detail early this month. To see further information, please click here.
Self-Assessment – Deferral of Payment on Account
- In our previous blog, we explained that taxpayers who were self-employed are able to defer their second payment on account, due 31 July 2020, to 31 January 2021.
- The Government has since confirmed that this ability to defer extends to all taxpayers (not just those who are self-employed) who are due to make payments on account on 31 July 2020.
- This deferral is automatic, however taxpayers are still able to make the payments on or prior to 31 July 2020 should they prefer.
The above is a brief overview of the 2020/21 tax year and we understand that your position is likely to be more complex. If you believe any of the April 2020 changes may affect you or you would like further information on these changes, please feel free to contact Sean Bannister or any member of the Tax team.
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Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.
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