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61 Friar Gate  Derby  DE1 1DJ

 

Registered to carry out audit work Association of Chartered Certified Accountants.

www.auditregister.org.uk under number 8011438

Member of the Association of Chartered Certified Accountants
Phone

01332 202660

Blog

30-days reporting for CGT

Adrian Mooy - Wednesday, May 20, 2020
 
Certain changes regarding payment of CGT took effect from April 2020 which align the position of UK residents with that of non-UK residents.

 

Broadly, from 6 April 2020, a UK resident who sells a residential property in the UK will have 30 days to tell HMRC and pay any capital gains tax (CGT) owed.

 

Failure to notify HMRC within 30 days of completing a sale may result in penalty and interest charges.

 

A CGT report and accompanying payment of tax may be required where the taxpayer sells or otherwise dispose of:

 

 • a property that they have not used as their main home;
 • a holiday home;
 • a property which has been let out for people to live in;
 • a property that has been inherited and not used as a main home.

 

There is no requirement to make a report make a payment of tax when:

 

 • a contract for the sale was made before 6 April 2020;
 • the individual satisfies the for Private Residence Relief;
 • the sale was made to a spouse or civil partner;
 • the gains are within the tax free allowance;
 • the property is sold for a loss; or
 • the property is outside the UK.

 

Calculation

 

Subject to certain exceptions, where there has been a disposal of a residential property, payment on account of the CGT will be due on the filing date for the return, which is generally within 30 days of the day after the date the property sale is completed.

 

The payment on account required is the amount of CGT notionally chargeable at the filing date. This is the tax that would be due if, under the normal rules for calculating chargeable gains for a tax year, the tax year ended at the time the disposal is completed.

 

In calculating the amount, any unused allowable losses for capital gains purposes incurred by the time the disposal is completed can be used. Available reliefs and the annual exempt amount are applied in the normal way.

 

The amount of CGT payable on account is the amount after applying the applicable rate of tax to the net gain.

 

Multiple disposals

 

Where there is more than one residential property disposal in the same tax year, the amount of CGT notionally chargeable must be calculated after each disposal.

 

This is, however, done by taking into account that all of the gains (or losses) on those disposals are taken into consideration and any new losses that have arisen on disposals of other assets can also be used.

 

Where there has been a previous return and payment on account for the tax year and the amount notionally chargeable contained in a later return is more than the amount of tax already paid on account, the difference is payable to HMRC.

 

Provisional figures

 

Since the 30-day payment window can make it difficult for some people to provide exact figures, HMRC allow for certain estimates and assumptions to be made.

 

The taxpayer can make a correction once the exact figures are known.

 

If the resulting amount is higher than the amount previously paid, the difference becomes payable to HMRC and interest may be due. No penalty will however, be charged.

 

If the amount is lower, the difference becomes repayable along with repayment interest from HMRC.

 

HMRC are currently developing a new online service to allow taxpayers to report and pay any CGT owed.

 

Tax-efficient savings for all the family

Adrian Mooy - Tuesday, May 12, 2020
 
Although interest rates remain low, there are still various tax-efficient savings incentives available which may help maximise potential returns. This article summarises some of these schemes.

 

Help-to-save
 
The Help-to-save scheme offers working people on low incomes a 50% bonus, rewarding savers with 50p for every £1 saved. Over four years, a maximum bonus of £1,200 is available on savings of up to £2,400. Savings limits are flexible and it is not necessary to pay in every month to get a bonus.
 
How much is saved and when is up to the account holder – the rules stipulate that investors can save between £1 and £50 every calendar month, up to a maximum of £2,400 over a four-year period.

 

Accounts last for forty eight months from the date that the account is opened and the government bonuses are added at the halfway point, i.e. after two years, and at the end of the four year lifespan of the account, or on the date that the individual becomes terminally ill or dies, if earlier.

 

Accounts will be available to open up until September 2023 and may be held by anyone:

 

 • receiving Working Tax Credit;

 

 • entitled to Working Tax Credit and receiving Child Tax Credit;

 

 • claiming Universal Credit and their household earned £604.56 or more from paid work in the last monthly assessment period.
 
The investment limits mean that £2,400 is the maximum an individual can save, with a maximum government bonus payable of £1,200. In comparison, high street banks are currently offering a typical interest rate of between 1 and 2% on savings bonds, which does appear to make the Help-to-Save account a particularly attractive option for someone looking to save.

 

ISAs and Junior ISAs

 

The maximum annual investment limit for Individual Savings Accounts (SAs) remains at £20,000 for 2020/21. The limit effectively allows a couple to save a not-insignificant £40,000 a year and receive interest on the investment tax free. There will also be no capital gains tax to pay when the account is closed.
 
Junior ISAs are available to UK-resident children under-18 and run on similar lines to ‘adult’ ISAs. The maximum investment limit has been significantly increased for 2020/21 to £9,000 (from £4,368 in 2019/20). This increase provides adequate scope for parents and grandparents to make tax-free savings investments on behalf of their children/grandchildren.

 

Help-to-buy ISAs and equity loans

 

Help-to-buy ISAs continue to be available to assist first-time buyers save a deposit to purchase their first home. Broadly, up to £200 a month can be saved in the ISA (along with an initial deposit of £1,000, and up to a maximum of £12,000) and, provided certain conditions are met, the government will provide a 25% boost to the savings up to a maximum of £3,000 per person. A couple buying together could therefore save up to £30,000 tax-free towards the purchase of their first home.

 

The Help-to-buy loan equity scheme for new-build properties is designed to help those with 5% deposits get on the housing ladder. The Government lends up to 20% of the property price and after five years the purchaser starts paying interest on the loan. The scheme was due to end in 2021, but it was announced in the Autumn Budget that it has been extended until 2023. However, the scheme is now only open to first-time buyers and lower regional price caps will be applied.

 

Premium bonds

 

With a return rate comparable with regular savings accounts (currently 1.40%), Premium Bonds (PBs) remain one of Britain’s most popular ways to save. Currently the minimum amount of PBs that can be purchased is £25 and the maximum that may be held is £50,000. It is now permissible for anyone over the age of 16 to buy PBs on behalf of children. The odds on winning a prize in any one month are currently 24,500 to one. There are currently two £1m prizes, five £100,000 prizes and ten £50,000 prizes each month.

 

Although Premium Bonds are not strictly an ‘investment’, they can be encashed at any time with the full amount of invested capital being returned - and in the meantime, any returns by way of ‘winnings’ will be tax-free. ISAs

 

Coronavirus Job Retention Scheme claims

Adrian Mooy - Tuesday, May 05, 2020
 
The coronavirus (COVID-19) pandemic has brought an unprecedented array of challenges for businesses. Information has been changing on a daily basis, making it difficult to keep up-to-date with support measures and where to find the necessary guidance. This article focuses on claims for wages under the Coronavirus (COVID-19) Job retention Scheme (CJRS), which is now up and running.
 
Broadly, the scheme is available to all UK employers with a PAYE scheme that started on or before 19 March 2020. It covers part of the salary of employees who would otherwise be laid off because of the crisis – known as ‘furloughing’. Employees on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts can be included in a claim.

 

To access the support, employers have to ‘furlough’ employees, which means asking them to stop working but retaining them on payroll. This is a formal process with employment law implications and needs to be followed through carefully. Only furloughed employees on the payroll on or before 19 March who have received some pay in 2019/20 can be covered. HMRC will pay a grant worth 80% of an employee’s usual wages, up to £2,500 a month, and associated employer NICs and minimum automatic enrolment employer pension contributions on the subsidised wage. Note that furloughed employees cannot carry out work for their employer during furlough and there are also rules around volunteer work and training.

 

General requirements for making claims are summarised as follows:

 

 • the employer must agree with the employee that they are a furloughed worker;
 • employees must be notified that they have been furloughed;
 • employees must be furloughed for a minimum of three weeks;
 • the employee cannot do any work for the employer that has furloughed them;
 • the scheme allows claims for 80% of wages, up to a maximum of £2,500 per month per furloughed employee;
 • separate claims are needed for each PAYE scheme;
 • only employees who were on the PAYE payroll on or before 19 March 2020 may be furloughed;
 • an HMRC RTI submission notifying payment in respect of the employee claimed for must have been made on or before 19 March 2020; and
 • the employer must have a UK bank account.

 

The majority of employers with full-time or part-time employees on a set salary will need to work out the following for the claim period:

 

1. total amount being paid to furloughed employees - 80% of your employee’s wages up to a maximum of £2,500 a month per employee
2. total employer NICs
3. total employer pension contributions (up to 3%)

 

Example

 

An employee who has been working for an employer for many years is paid a fixed gross monthly salary of £2,400 per month, with the last payment received on the last day of February 2020. The employee has agreed to be placed on furlough from 21 March 2020, at 80% of their salary.
 
The employer can claim a CJRS payment for Mach as follows:

 

£2,400 divided by 31 (days in March) = £77.42
£77.42 x 11 days (21 March to 31 March) = £851.62
£851.62 x 80% = £681.30
The maximum amount test is: monthly maximum of £2,500 divided by 31 days in March = £80.65
£80.65 x 11 days of furlough = £887.15. This employer’s claim of £681.30 is a lower amount, so this is the amount that may be claimed.
The employee’s gross pay at the end of the month is made up of £1,548.40 of salary funded by the employers for 1 to 20 March (20 days), plus £681.30 of pay funded by CJRS for the remaining 11 days of March. The employer NICs due on the total gross pay of £2,229.70 is £208.48
 
Step 1: £208.48 divided by 31 days in March = £6.73
 
Step 2: Daily employer NIC amount of £6.73, multiplied by 11 furlough days = £74.03.
 
The employer claims £74.03 for employer NIC’s due on the employee’s March pay.

 

Claiming - Employers need to be registered for PAYE before CJRS claims can be made. Once the employer has gathered together the relevant information, the claim can be made at https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme.

 

HMRC advise that payment will be received six days after making an application. Employers who wish to receive a payment from the scheme by the end of the month will therefore need to submit their claim at least six working days in advance for the money to clear into their bank account.
Note that HMRC are contacting employers on a random basis to check whether a claim is valid.

 

Annual tax on enveloped dwellings

Adrian Mooy - Monday, May 04, 2020
 
The annual tax on enveloped dwelling applies in the main to companies that own residential property in the UK. The amount of the tax depends on the value of the property, and only applies where the property is valued at more than £500,000.

 

Scope of the ATED

 

A liability to the ATED arises where a property that is classed as a ‘dwelling’ is owned completely or partly by a company, a partnership where any of the partners is a company, or by a collective investment scheme (for example, a unit trust or an open-ended investment vehicle), and that property is worth more than £500,000.

 

A property is classed as a dwelling if all or part of it is used, or could be used, as a residence. The definition of dwelling includes houses and flats. Where the property has a garden or grounds, these too form part of the dwelling.

 

However, the definition of ‘dwelling’ excludes hotels, guest house, boarding house accommodation, student halls of residents, care homes, hospitals, military accommodation and prisons.

 

In some circumstances it may be possible to claim relief from the charge, for example if it is let to a third party on a commercial basis or open to the public for at least 28 days a year. Details of the reliefs and exemptions can be found on the Gov.uk website.

 

Valuing the property

 

To ascertain whether the ATED applies and if it does, the amount of the tax, the property’s value must be known. For ATED purposes, properties are revalued every five years; from 1 April 2018 the charge is based on the value as at 1 April 2017. The next revaluation date is 1 April 2022.

 

The value of the property is the price that it would fetch in the open market with a willing buyer and a willing seller. If help is needed in working out how much ATED is due, HMRC can provide a pre-return banding check. Applications can be made on the Gov.uk website using the PRBC form.

 

Chargeable period

 

The chargeable period for the ATED runs from 1 April to the following 31 March.

 

ATED returns

 

Where the property in respect of which a liability to the ATED is held on 1 April, a return for the period that commences on that date must be filed by 30 April in that year. Thus, where a property within the ATED is held on 1 April 2020, a return for the chargeable period that runs from 1 April 2020 to 30 March 2021 must be filed by 30 April 2020. Returns must be filed online.

 

Amount of the charge

 

The amount that charged depends on the value of the property. The charge for the period from 1 April 2020 to 31 March 2021 is shown in the table below. It must be paid by 30 April 2020.

 

Property value                                               Annual charge
More than £500,000 up to £1 million            £3,700
More than £1 million up to £2 million            £7,500
More than £2 million up to £5 million            £25,200
More than £5 million up to £10 million          £58,850
More than £10 million up to £20 million        £118,050
More than £20 million                                   £236,250

 

New-style Lettings Relief

Adrian Mooy - Saturday, May 02, 2020
 
Lettings relief provides additional relief for tax where a property that has been occupied as a main residence is let out. For disposals prior to 6 April 2020, relief was available where a property was let as long as that property had at some time been the owner’s only or main residence. However, availability of the relief is seriously curtailed in relation to disposals on or after 6 April 2020. From that date, relief is only available where the owner shares the property with the tenant.

 

Amount of the new-style relief

 

For disposals on or after 6 April 2020, lettings relief is available where:

 

• part of the property is the individual’s only or main residence and

 

• another part of that property is let out by the individual, otherwise than in the course of a trade or a business.

 

The gain relating to the let part is only chargeable to capital gains tax to the extent that it exceeds the lesser of:

 

• the amount of private residence relief; and

 

• £40,000.

 

Spouses and civil partners can take advantage of the no gain/no loss rules to transfer the property or a share in it to each other without a loss of lettings relief. Where lettings relief would be available to a transferring spouse or civil partner for the period prior to the transfer, it remains available to the recipient.
 
Example

 

Henry brought a three-bedroom house in 2015. He lived in the property for five years until it was sold in May 2020, realising a gain of £90,000. Throughout the time that he lived in the property, he let out two rooms. The let rooms comprised one-third of the property by floor area.
Two-third of the property was occupied as Henry’s main residence, and thus two-thirds of the gain qualifies for private residence relief. This equates to £60,000 (2/3 x £90,000).

 

The remaining gain of £30,000 is attributable to letting.

 

As Henry occupied the property with the tenants, he can claim lettings relief. Thus, the gain attributable to the letting is only chargeable to capital gains tax if, and to the extent, that it is greater than the lower of:

 

• 60,000 (the amount of the private residence relief); and

 

• £40,000.

 

As the gain attributable to the letting is less than £40,000, lettings relief is available to shelter the full amount of the gain.

 

Consequently, the entire gain is free from capital gains tax

 

Leaving your main residence to go into care

Adrian Mooy - Friday, May 01, 2020
 
There may come a time when an individual can longer manage on their own at home and has to leave their main residence to go into care. Depending on their financial circumstances, they may need to sell their home or rent it out in order to meet some or all of their care costs.

 

Selling the main residence

 

A person may not have time to plan their move into care – the move may be dictated by circumstances. An unexpected fall may lead to a hospital stay followed by a move into care. Consequently, the property may be empty for a time before it is sold.

 

Where the property has been the only or main residence at some point, the final period of ownership qualifies for private residence relief. This allows time for a buyer to be found without the loss of relief. For a disposal occurring on or after 6 April 2020, the final period of exemption applies to the last nine months of ownership, reduced from 18 months for disposal before that date. However, where either the individual or their spouse or civil partner is a long-term resident in a care home, the final period exemption applies to the last 36 months of ownership. This is the case for disposals both before and on or after 6 April 2020.

 

Thus, if the property was occupied as a main residence until the person went into care and the disposal occurs within three years of that date, the gain will be fully sheltered by private residence relief.

 

Example

 

Following the death of his wife, Albert moves into a bungalow in September 2014, which he lives in as his main residence until June 2018, when he moves into a care home following a fall. The property is finally sold in May 2020, realising a gain of £80,000.

 

The gain qualifies for private residence relief in full. Although the disposal took place on or after 6 April 2020 and, at 23 months, the period from the date on which Albert moved to the care home and the date on which the property was sold is more than nine months, as Albert is a long term care home resident, he is entitled to the longer final period exemption of 36 months.

 

Letting the property

 

The family may wish to retain the property rather than sell it, particularly if it has been the family home. Instead, a decision may be taken to let the property out to generate income to pay for the care.

 

Normal rules apply as regards the taxation of the rental income and the individual will be taxed on the rental profits.
 
If the rental income is less than £1,000 year, the individual can take advantage of the property income allowance and enjoy the income tax-free. Otherwise it is necessary to complete the property income pages of the tax return and pay tax on the profit. Normal rules apply – there are no modifications where the landlord is in care.

 


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