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Tax FAQ’s

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Here you will find some answers to the questions we are often asked.

We have popped these into categories to make them easier to find. Click on the category to get going.

Capital Gains Tax

Currently the due date for paying any Capital Gains Tax owed to HMRC is 31st January following the end of the tax year in which a Capital Gain was made.

This deadline will change for UK residents from April 2020. This change will mean that any CGT due on the sale of a residential property will need to be reported earlier than is current the case. In addition, a payment on account of any CGT due (an advance payment towards their tax bill) will need to be made within 30 days of the completion of the transaction.In practice, this change will apply to the sale of any residential property that does not qualify for Private Residence Relief (PRR).

The PRR relief applies to qualifying residential properly used wholly as a main family residence. The new deadline will mainly apply to clients who are disposing of a second / holiday home, an investment rental property or a home that does not qualify or only partially qualifies for PRR.

There are also changes to the PRR rules which will see the final exempt period for CGT purposes being reduced from 18 months to 9 months from April 2020. This time period can be extended to 36 months under certain limited circumstances such as the owner having to move into care. This relief applies even if the homeowner was not living in the property when it was sold.

These CGT changes have already come into effect (from April 2019) for non-UK residents. If your client lives abroad and sells a UK residential property, they must inform HMRC within 30 days of the sale. The notification must be made whether or not there is any non-resident CGT to be paid. Any non-resident CGT that is due must be paid within 30 days of the sale.

This App and its contents have been produced as a helpful reference point.The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice.

Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Category: Capital Gains Tax

Nominating your main residence

Private residence relief shelters a gain on the sale of a residence from capital gains tax while the property has been the owner’s only or main residence. Where a property has been an only or main residence at some point, the final period of ownership (currently 18 months but reducing to nine months from 6 April 2020) is also exempt from capital gains tax.

Only one main residence at a time

As the name suggests, the relief is only available in respect of the only or main residence. Thus, where a person has more than one home, only one of those homes can be the ‘main residence’ at any given time. However, as long as certain conditions are met, the taxpayer is free to choose which property is classed as the ‘main’ residence for capital gains tax purposes – it does not have to be the one in which the owner spends the majority of his or her time.

Only one main residence per couple

A couple who are married or in a civil partnership and who are not separated can only have one main residence between them.

Property must be a residence

Only properties that are lived in as a home can be a ‘main residence’ – a property which is let out can’t be a main residence while it is let.

Making an election

Where a person has only one residence, that residence is their only or main residence. Where they acquire a second residence, they have a period of two years to nominate which residence is the main residence for capital gains tax purposes. Where residences are acquired or sold, the clock starts again from the date on which the particular combination of residences changes, and the taxpayer then has another two years in which to elect which residence is the main residence.

The election should be made in writing to HMRC. The letter should include the full address of the property being nominated as the main residence and should be signed by all owners of the property.

No election made

In the absence of an election, the property which is the main residence will be determined as a question of fact and will be the property in which the person lives in as their main home. For example, if a couple has a family home and a holiday home, in the absence of an election, the family home will be treated as the main residence.

Advantages of flipping

There are a number of advantages to a property being the main residence at some point in the period of ownership as not only is any gain while the property is the only or main residence exempt from capital gains tax; the final period of ownership is also exempt. Where the property is let, occupying the property as a main residence at some point may open up the option of lettings relief (although it should be noted that the availability of lettings relief is to be seriously curtailed from April 2020).

Once an election has been made to nominate a property as a main residence, this can be varied any number of times (‘flipping’). This can be very useful from a tax planning perspective, for example, occupying a property as a main residence after it has been let but before it is sold can shelter some of the gain.

Flipping properties and making use of the capital gains tax annual exempt amount to shelter any gain that falls into charge when the property is not the main residence can be beneficial in reducing the tax bill.

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Category: Capital Gains Tax

If you own a business as a sole trader or in partnership, a Capital Gain will arise if your business is transferred into a company structure, ie you become a Company..

The gain will be assessed by reference to the market value of the business assets, including goodwill, at the date of transfer. This could give rise to a chargeable gain based broadly on the difference between the market value of the assets and their original cost.

In most cases, the incorporation of the business will be completed so that incorporation relief can be claimed. The claim for incorporation relief should defer any tax until you sell your shares in the business.In order to qualify for incorporation relief, all your business assets other than cash must be transferred as a going concern, wholly or partly in exchange for shares in the new company.It is important to note that where the necessary conditions are met, incorporation relief is given automatically and there is no need to make a claim. The relief works by reducing the base cost of the new assets by a proportion of the gain arising from the disposal of the old assets.

Although the relief is automatic, it is possible to make an election in writing for incorporation relief not to apply. An election must be made before the second anniversary of 31 January next, following the tax year in which the transfer took place e.g. an election in respect of a transfer made in the current 2019-20 tax year must be made by 31 January 2023.

The election deadline is reduced by one year if the shares are disposed of in the year following that in which the business was incorporated.

Incorporation Relief is just one possible strategy that can be used to minimise tax liabilities if you incorporate your business. However, there are other planning options. If you are considering incorporation, be sure to contact me.

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Limited Company

If you own a business as a sole trader or in partnership, a Capital Gain will arise if your business is transferred into a company structure, ie you become a Company..

The gain will be assessed by reference to the market value of the business assets, including goodwill, at the date of transfer. This could give rise to a chargeable gain based broadly on the difference between the market value of the assets and their original cost.

In most cases, the incorporation of the business will be completed so that incorporation relief can be claimed. The claim for incorporation relief should defer any tax until you sell your shares in the business.In order to qualify for incorporation relief, all your business assets other than cash must be transferred as a going concern, wholly or partly in exchange for shares in the new company.It is important to note that where the necessary conditions are met, incorporation relief is given automatically and there is no need to make a claim. The relief works by reducing the base cost of the new assets by a proportion of the gain arising from the disposal of the old assets.

Although the relief is automatic, it is possible to make an election in writing for incorporation relief not to apply. An election must be made before the second anniversary of 31 January next, following the tax year in which the transfer took place e.g. an election in respect of a transfer made in the current 2019-20 tax year must be made by 31 January 2023.

The election deadline is reduced by one year if the shares are disposed of in the year following that in which the business was incorporated.

Incorporation Relief is just one possible strategy that can be used to minimise tax liabilities if you incorporate your business. However, there are other planning options. If you are considering incorporation, be sure to contact me.

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

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