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    Tag: CGT

    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.

    Roger Phillips – tax partner at PM+M – reacts to the March 2024 Budget

    Posted on by Laura Bannan

    It’s fair to say that this Budget threw up no great surprises as there was limited scope for any sizeable changes to tax, spending or borrowing. With the spectre of Kwarteng and Truss’ dual legacy still in the air, coupled with it being an election year, the Chancellor simply couldn’t risk being seen as fiscally irresponsible. He had to tread a fine line of giving away something to appease the right in his own party but without spooking the markets.  I don’t think he could have feasibly done much more as unfunded and grandiose tax cuts were – thankfully – off the table.

    By choosing the cheaper – and some might say less headline grabbing – option of cutting national insurance by a further 2% rather than slashing income tax, the Chancellor has professed to putting more money in the coffers of millions of working people. The changes should mean that someone who earns £30,000 a year will be around £58 “better off” a month when the national insurance cuts that were announced in the Autumn Statement are factored in. However, when you look at it in the round, it will have little impact as we are all still facing the highest tax burden in recent memory – as he didn’t take the opportunity to increase the personal allowance or tax thresholds – and therefore the effect of fiscal drag will likely outstrip the NIC saving for many.

    Cutting income tax would have been significantly more expensive as it benefits both workers and pensioners. The announced cut of 2% in employee NIC will cost about £10 billion a year, whilst a 2p cut in income tax would have cost £13.7 billion a year. I also had concerns that if he did capitulate to the right – and had cut income tax or announced a raft of short-termism, vote grabbing measures – there might have well have been inflationary consequences, so I think he’s made the right call, especially as the government is so constrained by the highest public sector debt levels since the 1960’s, low public spending, weak economic growth and overall tax levels that are beyond the highest level as a share of GDP, since World War II.

    The Chancellor has helped some families by way of a long-overdue reform of the high-income child benefit charge tax trap, largely seen as unfair by many – although he decided to shift the issue further up the earnings ladder for the time being, rather than choosing to get rid of it altogether – so this will please some, but not all.

    The increase in the VAT registration threshold from £85,000 to £90,000 was long overdue – and anything that acts as a barrier to growth should be addressed. The news will cut taxes for some small businesses in the North West and right across the UK – however, he could have been braver and increased the threshold even further – or alternatively he might have considered a more dramatic reform to the VAT registration rules, as has been called for by some well-respected tax commentators.

    There is a fear that the decision to abolish the current ‘non-dom’ status to fund tax cuts for working families could have led to a decline in investment in the UK, as those affected may be more inclined to move to other locations. The abolition of the concept of “domicile” and the introduction of a new residency-based system sounds like a sensible solution – although as ever the devil will be in the detail as to how this will work in practice for those looking to come to the UK – and whether it will have the unintended impact of making taxpaying individuals leave the UK for other shores.

    Other tax changes included the scrapping of the furnished holiday let regime – so a tax rise for those who currently benefit from it, and a modest reduction in CGT for higher rate taxpayers where they sell residential property – the rate dropping from 28% to 24%.

    In terms of stamp duty, we saw the Chancellor abolish multiple dwellings relief. This was not necessarily the stamp duty change that many in the property sector were hoping for.

    This Budget was largely aimed at workers, and it was interesting that there was no real mention of anything for pensioners. Perhaps he is hoping the triple lock guarantee will be enough to win that vote.  In reality, the Budget was always going to be about the election – and making sure nothing was done to rock the country’s current fragile economy.

    All in all, he may have achieved that and hopefully the markets will be reassured. I’m sure the Chancellor is now hoping that he has persuaded some voters that the Conservative party isn’t economically, and politically, dead in the water. That will of course, remain to be seen. It will now be interesting to see when the Prime Minister calls for a general election, and whether there will be enough time for the Chancellor to try to win a few more votes with another fiscal event before that.

    5 things to consider before the end of the financial tax year

    Posted on by Katie Heaton

    With the end of the tax year fast approaching, have you thought about whether there is anything further you can do to make the most of your tax allowances before time runs out?

    1/ Pension payments

    Are you aware that you can save up to £40,000 into a pension completely tax-free every year? If not, looking to increase your pension payments could be a great way to maximise these tax savings. This equates to 20% tax relief on contributions for a standard-rate taxpayer and 40% for higher-rate taxpayers.

    There is also the possibility to carry forward any unused allowances from the previous three tax years, this could potentially give you a huge boost but is subject to a number of factors so it’s important to seek advice prior to making extra pension contributions.

    Making a pension contribution will also reduce your total taxable income which can be beneficial for the purposes of child benefit. For instance, if you earn between £50,000 and £60,000, you lose 1% of child benefit for every £100 over £50,000 – this means child benefit is lost at £60,000. However, if making a pension contribution brings your total taxable income below £60,000, child benefit would become partially or fully payable once more.

    The same is true for those who lose their personal allowance earning between £100,000 and £125,140, making pension contributions can return part or all your personal allowance, avoiding 60% tax.

    2/ Capital gains allowance

    Capital gains tax is based on the gain you make from the value of your assets and can include things such as a second home, stocks, shares, or jewellery.

    You will be required to pay capital gains tax when you sell an asset for profit. Before the 5 April 2023, you have a tax-free allowance of £12,300, after which the rate is dependent on the level of income tax you pay (10% for basic-rate taxpayers and 20% for higher-rate payers or 18% and 28% if you’re selling a property).

    However, from 6 April 2023, the capital gains allowance will reduce to £6,000 and from 6 April 2024, it will reduce further to £3,000.

    You aren’t able to carry any capital gains allowance over to the following year so it is important that you move quickly if you’re planning on selling any assets as you only have until 5 April to benefit from the larger allowance.

    3/ Gifting Allowance

    You are able to gift 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 are able to 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 a tax year, you could potentially gift up to £6,000 without a tax liability.

    4/ Lifetime ISA

    Perhaps you’re saving a deposit for your first home, but if you aren’t saving that money into a Lifetime ISA, you could be missing out on an annual bonus of £1,000 paid for by the government.

    Although you can only use the money you save to buy a property (below £450,000), if you’re aged 18-39 and haven’t yet bought your first home, you are able to save up to £4,000 a year and you will receive an extra 25% on top! If the money isn’t used to buy your first home, you wouldn’t benefit from the bonus. This could help to get you onto the property ladder sooner.

    5/ ISA top up

    You can top up your ISA up to a maximum of £20,000 per year and you won’t pay any tax on the interest, withdrawals or any profits you make. Therefore, if you haven’t reached your limit for the year, it could be worth considering transferring some of your savings into your ISA to ensure you are making your money work as hard as possible.

    Get in touch

    For further information or advice on how you can ensure you’re doing all you can to maximise your tax allowances, 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.