Guest blog: Capital Gains Tax – changes and consultation

Guest blog - Capital Gains Tax

Today we’re handing over the reins to the experts at Mellor Oxland LLP, to tell you all about the current and proposed changes to capital gains tax:

To say the past few months have presented challenges seems rather an understatement, but a debate about what is the best choice of words could run and run. HMRC saw a huge change in focus while they introduced the various Covid-19 support schemes, and pressed pause on their usual day to day activities. However, HMRC is now firmly ‘back to business’ and here we look at what is changing in capital gains tax and what the future may hold.

Changes that have already happened…

6 April 2020 saw significant changes in the reporting and paying of tax on the sale of UK residential properties. From that date, if you sell a residential property in the UK and capital gains tax is due on that gain, then the gain must be reported to HMRC and the tax paid within 30 days of completion. This change of rules appears to be little published by HMRC themselves, however, it is likely that penalties for non-compliance will be enforced as the initial soft landing for the new system no longer applies for any sale completed after 30 June 2020.

Any residential properties, other than those where the gain will be fully exempt because of main residence relief, will need to be reviewed.  Following the changes from 6 April 2020 to the main residence relief final period exemption and lettings relief, the gains could be higher than expected.  The final period exemption meant that no tax was payable on gains made in the final 18 months of ownership, even if it was not the main residence during that period. From 6 April 2020, this period is reduced to 9 months although requests have been made to the Government to extend this because of the difficulties experienced by sellers during the lockdown. Properties sold at a loss do not need to be reported within 30 days, although details will still need to go on annual self-assessment tax returns if the loss is to be used in the future.

If you are planning to sell a residential property in the near future, other than a property that has been your main residence throughout your ownership, please do get in touch with Mellor Oxland LLP.  Calculating the reliefs and tax payable is not always straightforward and as noted above there is a strict time limit for reporting the gain and paying the tax.

What’s coming next?

The Office of Tax Simplification has already opened a consultation into the future of capital gains tax and speculation within the industry is rife with what could be the outcome. Though nothing is known for certain at this point possibilities mooted currently include:

  • A change in the capital gains tax rates. There are currently a number of rates in place – higher rate taxpayers pay 28% on gains on residential property and certain investment gains, whereas gains on some business assets benefit from a 10% rate, both of which seem favourable when compared to a 45% top rate for income tax
  • A removal of the tax-free base cost uplift for assets on death, especially where the assets were sheltered by inheritance tax reliefs
  • Extension of the 30-day reporting rule for residential properties to other assets
  • Further changes to the newly named Business Asset Disposal Relief – last year saw what was formerly known as Entrepreneurs’ Relief suffer a significant hit with the lifetime allowance being reduced from £10M to £1M
  • Widespread reform of the existing reliefs which remove capital gains tax charges in certain circumstances, for example, those which defer a charge when assets are put into trust or when business assets are passed to other family members.
  • The removal of exemptions entirely – for example on the family home

Of course the above is all speculation, however, if you are contemplating a disposal that depends on the availability of a capital gains tax relief, then it may be wise to take action now to bank the relief before any changes are announced.

Thank you to Mellor Oxland LLP, Chartered Tax Advisers, for their thoughts on Capital Gains Tax.

If you have any questions or would like to discuss your finances or an existing financial plan, then please get in touch with us and speak to one of our financial planners – we closely work with a range of professionals, like Mellor Oxland, to help provide you with the best advice.