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    Tag: capital gains tax

    Financial planning considerations for the new tax year

    Posted on by Laura Boyd

    With the new tax year underway, it could be a perfect time to review your finances and consider how to make the most of your allowances and investments for the year ahead to gain optimum benefit. Below we consider some of the areas where utilising the allowances available could make a huge difference and potentially save you a substantial amount of money.

    ISA Allowance

    The new tax year means a fresh ISA allowance of £20,000. ISAs can provide tax free benefits for your savings and investments, allowing you to benefit from higher returns over the long term. Maximising your allowance early can allow more time for your investments to grow, free from capital gains and income tax.

    Pension Contributions

    Most pension savers can contribute up to £60,000 per annum into their pension, however, advice should always be taken as an individual’s allowance can be restricted to an amount less than £60,000 due to complexities with the rules. Similar to the ISAs, pensions are tax efficient savings vehicles which can be accessed from the minimum pension age. Your pension can be used to invest in various different investments including cash savings, investment portfolios and commercial property.

    Also, if you haven’t utilised your allowance from the previous three years, it is possible to carry it forward and boost your pension pot further, subject to certain criteria.

    Capital gains tax allowance

    From April 6 2024, the capital gains tax allowance was reduced from £6,000 to £3,000 per person. If find yourself in a position where you have maximised both your pension and your ISA allowance, you could consider investing into a General Investment Account and crystallise your gains on an annual basis using your capital gains tax allowance.

    Dividend allowance

    Rather than investing in growth assets, there is the option to invest into income distributing funds. Any dividend received on unwrapped investments can be claimed tax free if it falls within your Dividend Allowance, the allowance fell from £1,000 to £500 on the 6 April 2024.

    Inheritance Tax

    You are able to give up to £3,000 each year completely free of any inheritance tax (IHT) liability, this can be a useful way to reduce a potential inheritance tax bill, as well as helping out your family with a financial gift.

    The tax-free inheritance threshold is £325,000 per person, above which 40% rate of tax is due (subject to other allowances).

    You can gift more should you wish but if you died within seven years of the gift, the recipient could be subject to a large IHT bill. You are also able to carry over your allowance to the following tax year so if you haven’t used any of your allowance during the previous tax year, you could potentially gift up to £6,000 without any tax liability.

    Get in touch

    For further information or advice on how you can plan ahead to make the most of your finances and maximise the tax allowances available to you, contact a member of our financial planning team today to talk through your personal circumstances by emailing financialplanning@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice.

    HMRC to remind second home sellers to pay CGT

    Posted on by Rebecca Campbell

    HMRC has begun writing to individuals who have recently sold a second home to remind them to file a property disposal return and pay capital gains tax (CGT) within 60 days of completion. HMRC will identify candidate receipts by using unspecified ‘real time information’.

    This follows recent confirmation from HMRC that a CGT property return must be submitted on the sale of a second home, even if a Self Assessment (SA) tax return has already declared the gain. In these situations, the CGT property return must be submitted using a paper return rather than via the online UK property account.

    The only exception is where the SA return is filed within 60 days of completion of the transaction, meaning the SA tax return is filed before the due date for the CGT UK property return. In this case, the CGT UK property return is not required. For example, if a property is disposed of on 25 March 2022, the gain was reported on the 5 April 2022 SA tax return, and it was submitted by 24 May 2022 (60 days from the 25 March 2022), then a CGT property return would not be required. Therefore, this exception is only going to apply in a limited number of cases.

    Taxpayers will be required to contact HMRC to obtain a paper return, which could result in missing the deadline. HMRC recently confirmed that 25,300 CGT UK property returns were submitted after the deadline in 2020/21 tax year, with a further 23,600 in the 2021/22 tax year.

    We will most likely begin to see a decline in the number of returns submitted late following the extension of the deadline from 30 days to 60 days for transactions completing after 27 October 2021. According to recent figures, 2,000 returns were submitted late in the quarter to 31 March 2022, compared to 7,4000 the year before.

    Get in touch

    The latest clarification by HMRC and the requirement to request a paper tax return could lead to further penalty pain for taxpayers. If you would like to discuss the new CGT reporting system in more detail or need help submitting a UK property return, avoiding costly penalties, get in touch with Jonathan Cunningham by clicking the button below.

    20% of taxpayers miss CGT payment deadline

    Posted on by Rebecca Campbell

    According to the latest figures from HMRC, almost 20% of taxpayers failed to report gains from UK residential property and pay the capital gains tax (CGT) on time in 2021/22. The CGT 30-day reporting and payment system, introduced on 6 April 2020 (in the middle of the pandemic), received little publicity from HMRC. After coming into effect, the 30-day deadline was waived for three months and doubled to 60 days with effect from 27 October 2021 due to criticism that the turnaround time was inadequate and awareness of the new rules was limited, but it seems taxpayers who missed the deadline continued to grow.

    How big is the problem?

    The latest CGT statistics, as reported by HMRC, highlight that 137,000 UK property returns were submitted for residential property disposals in 2021/22, with estimates of 26,500 returns filed late (almost 20% of the total). It is estimated that 129,000 taxpayers paid £1.7bn of CGT on residential property in 2021/22, a 50% rise on the previous year, as coronavirus restrictions eased, and property sales increased. However, although the volume of disposals was somewhat suppressed by the pandemic, 28% of UK property returns were filed late in 2020/21.

    Doubling the risk of a penalty

    The new CGT reporting system increases the reporting effort of the taxpayer and their agent, but also increases the risk of a late filing penalty. The UK property reporting service and the self-assessment (SA) system are not connected; therefore, gains will need to be declared twice by taxpayers. Firstly, on the UK property return, and again on their SA tax return. The only instance a UK property return will not have to be submitted is in the rare circumstance that the property deal completes at the end of the tax year, and the SA tax return for that year is filed within 60 days of the completion date.

    Penalty costs

    The penalties for a late UK property return are imposed in the following structure:

    • One day late: £100
    • Over three months late: £10 per day up to 90 days
    • Over six months late: greater of £300 and 5% of tax due
    • Over 12 months late: greater of £300 and 5% of tax due

    Returns submitted over 12 months late will have a penalty liability of at least £1,600.

    Action to be taken

    HMRC is currently contacting taxpayers who failed to file a UK property return for a relevant disposal in 2020/21 and informing them of the requirement to submit a paper version of the UK property return to ensure late filing penalties stop accruing, with a note to explain that the CGT has already been paid via self-assessment (if this is the case). Paper forms (PPDCGT) can be obtained by contacting HMRC directly.

    It is reported that nearly 4,000 appeals have been processed in relation to late payment penalties, a huge increase from 600 in the previous year. It will be interesting to see how HMRC responds.

    Get in touch

    If you would like to discuss the new CGT reporting system in more detail or need help submitting a UK property return, avoiding costly penalties, get in touch with Jonathan Cunningham by clicking the button below.