Capital Gains Tax
The annual exempt amount rises from £11,700 to £12,000 for 2019/20. The rates of tax are unchanged at 10% (total income and gains within the taxpayer’s basic rate limit) or 20% (gains above the basic rate limit) on assets in general, but 18% or 28% on residential property that is not eligible for the main residence exemption, and also on ‘carried interest’ of investment fund managers.
Most trusts enjoy half the annual exempt amount (£6,000) and pay tax at 20% or 28% on chargeable gains.
Main residence exemption
The exemption of gains on a taxpayer’s only or main residence is one of the most generous tax reliefs of all. For disposals from April 2020, there will be two changes to restrict what the Chancellor considers to be unintended effects. First, the ‘final period exemption’, which allows exemption to continue after a person has moved somewhere else, will be reduced from 18 months to 9 months. The final 36 months of ownership remain exempt where a disabled owner is living in a care home. Second, ‘letting relief’, which can exempt up to an additional £40,000 of gain where a property has been let during the period of ownership, will be restricted to periods during which an owner was in ‘shared occupancy’ with a tenant. At present, this relief is very favourable for someone who moves and lets out the former main residence. The Government will consult on both these measures.
Entrepreneurs' Relief (ER)
ER reduces the tax on disposals of qualifying assets to 10%. The Chancellor commented that he has noted recommendations that he should abolish it. However, he considers it an important incentive to encourage economic growth. To prevent ‘misuse’ of the relief, the definition of a ‘personal company’ will change, for disposals on or after 29 October 2018, to require the claimant to have a 5% interest in both the distributable profits and the net assets of the company.
The minimum period for which the various conditions must be met will be increased from one year to two years for disposals on or after 6 April 2019. Where the business ceased before 29 October 2018 but the disposal falls on or after 6 April 2019, the one-year qualifying ownership period will still apply.
ER has, in the past, been lost where an individual’s shareholding in a company was ‘diluted’ below the 5% qualifying level by a new share issue. New rules will allow ER to apply to gains accruing up to the time of the share issue, where the new shares are issued on or after 6 April 2019.
Non-UK residents used to pay no tax on gains on UK property. This was changed for gains arising on residential property situated in the UK with effect from 6 April 2015. As announced a year ago, the scope of tax on gains will be extended to non-residential UK property with effect from 1 April 2019 (companies) or 6 April 2019 (individuals and trusts). Only the gain accruing after that date will be charged.
Foreign companies will become liable to Corporation Tax rather than CGT on such gains. Foreign companies will also be brought within the scope of Corporation Tax (rather than Income Tax) in respect of rental income from UK property from April 2020.
Payment of tax on residential property
At present, foreign residents disposing of UK residential property are required to pay CGT within 30 days of completion of the sale unless already within Self Assessment. The rules are being revised for non-residents making disposals on or after 6 April 2019, in particular recognising the need to allow reasonable estimates of valuations and apportionments in calculating the tax where accurate figures are not available within the very tight deadline.
From 6 April 2020, all CGT due on UK residences will become payable within 30 days of completion, whether the disposer is UK or foreign resident and whether or not they are already within Self Assessment. This ‘payment on account of CGT’ will only apply if a chargeable gain arises, so it will not affect the sale of an exempt main residence. However, it will affect the tax payable on the sale of a buy-to-let or furnished holiday letting property, and it will significantly advance the payment of the tax. For example, the CGT on a sale exchanged and completed on 6 April 2019 will be due on 31 January 2021; the tax due on a sale completed on 6 April 2020 will be payable on 6 May 2020.