Capital Gains Tax
The annual exempt amount rises from £12,000 to £12,300 for 2020/21. The rates of tax are unchanged at 10% (total income and gains within the taxpayer’s basic rate limit) or 20% (gains above the basic rate limit) on assets in general, but 18% or 28% on residential property that is not eligible for the main residence exemption, and also on ‘carried interest’ of investment fund managers. Most trusts enjoy half the annual exempt amount (£6,150) and pay tax at 20% or 28% on chargeable gains.
Main residence exemption
As previously announced, the generous exemption of gains on a taxpayer’s only or main residence will have two additional restrictions from 6 April 2020. First, the ‘final period exemption’, which allows exemption to continue after a person has moved out, will be cut from 18 months to 9 months. The final 36 months remain exempt where the owner is disabled or living in a care home. Second, ‘letting relief’, which can exempt an additional gain of up to £40,000 where a property has been let, will be restricted to periods during which an owner was in ‘shared occupancy’ with a tenant. Up to now, this relief has been very favourable for someone who moves and lets out the former main residence.
Chargeable residential property
Also as previously announced, new rules apply from 6 April 2020 to disposals of UK residential property where a CGT liability arises. A return must be made to HMRC, and a payment made of the estimated tax liability, within 30 days of completion of the sale. This is a considerable advance on the normal CGT payment and filing deadline of 31 January following the end of the tax year. Similar rules have applied to foreign resident sellers of UK property for several years, but they now apply to UK residents as well. There is no obligation to report disposals on which no CGT is payable.
Entrepreneurs’ Relief (ER)
ER reduces the tax on disposals of qualifying assets to 10%. It has been criticised as being excessively generous to people who are already rich, and as ineffective in incentivising entrepreneurs to start businesses. The Chancellor decided against abolishing it altogether, but reduced the lifetime amount of eligible chargeable gains from £10 million to £1 million with effect from 11 March 2020. The effect will be to increase the tax on a £10 million gain from £1 million to £1.9 million. Where a contract was signed before 11 March but the transaction had not been completed, a claim for the higher amount of ER will have to be justified by the taxpayer on the basis that the disposal was not made to obtain tax relief.
There is no change to the £10 million limit for the similar ‘Investors’ Relief’ which is for external investors in qualifying trading businesses.