February 2020

tax tips & finance e-newsletter

In this issue

Budget Day is now 11 March

Possible u-turn on pensions for high earners?

Changes to paying CGT on residential property from 6 April

Another reason to sell property before 6 April 2020

Will Inheritance Tax be simplified?

Breaking up in business

Exam success

Budget Day is now 11 March

The December General Election meant that the Autumn Budget was delayed and we now know that Rishi Sunak will deliver his first Budget on the second Wednesday in March which is when Budget day used to be!

We are expecting that the tax measures in the Conservative Party manifesto will be announced again, together with confirmation that changes consulted on last year will be put in place.

Key tax announcements to listen out for include leaving the rate of corporation tax at 19% and an increase in the national insurance threshold. Unfortunately, it is unlikely that the planned roll out of the “off-payroll” working (IR35) rules to the private sector will be delayed.

The Chancellor is also expected to again announce a u-turn on the 2019 loan charge following a review of the legislation by Sir Amyas Morse.

Possible u-turn on pensions for high earners?

There have been many stories in the press about GPs and senior hospital doctors refusing to take on extra shifts and additional responsibilities due to the additional tax they are required to pay on the extra pension contributions paid by the NHS.

A number of solutions have been put forward. There are now strong rumours that the tapering of the annual pension allowance for those with income over £150,000 may be abolished or amended for all taxpayers, not just those working in the NHS.

Listen out for a possible announcement in the Spring Budget, together with other changes to pension tax relief.

Changes to paying CGT on residential property from 6 April

From 6 April 2020 there is a major change in the reporting and payment of Capital Gains Tax (CGT) on residential property disposals.

From that date, it will be necessary to report the disposal of the property within 30 days of completion of the disposal and pay CGT on account to HMRC.

This will be a significant acceleration of the payment date as CGT is currently payable with income tax on 31 January following the end of the tax year.

Hence, where completion of a property disposal takes place on 1 April 2020 CGT will be due 31 January 2021. If however completion were delayed to 1 May 2020, CGT would need to be paid on 31 May 2020.

There is an anomaly where exchange takes place before 6 April 2020 but completion takes place on 6 April 2020 or later. In that case the sale falls into the 2019/20 tax year, so the 30 day reporting is not necessary and any CGT will be payable by 31 January 2021.

Note that the new 30 day reporting and payment obligation will not apply where no tax is payable such as the disposal of the taxpayers private residence.

Another reason to sell property before 6 April 2020

If the draft legislation issued for consultation last year is enacted in the next Finance Act there will be important changes to private residence relief for disposals after 5 April 2020.

Firstly, the exemption for the final period of ownership will be reduced from 18 months to 9 months. This applies where a former main residence is disposed of and is intended to give relief where the owner has moved to another main residence until the former residence is sold i.e. “bridging”. Note that for many years this additional allowance was 36 months that led to a tax planning strategy referred to as “second home flipping” which HMRC are seeking to counteract.

The second change will be the abolition of letting relief except for situations where the taxpayer lives with the tenant. This generous relief currently provides an exemption of up to £40,000 per owner where the former main residence is rented out.

As a result of these two proposed changes you might want to consider disposing of a property before 6 April 2020 if you were planning to take advantage of these CGT reliefs.

Will Inheritance Tax be simplified?

Another announcement to listen out for in the Spring Budget is whether the Chancellor acts on the recommendations of the Office of Tax Simplification (OTS) regarding Inheritance Tax (IHT).

As reported in an earlier newsletter, the OTS suggested simplifying IHT on lifetime gifts including reducing the period of potential exemption from 7 to 5 years. Such a change would mean that the donor would only be required to survive for 5 years following a gift for the transfer to be exempt from IHT.

The OTS also suggested that the conditions for Business Property Relief might be tightened up by aligning the rules with the definition of a trading company for CGT. This relief currently provides 100% relief on the transfer of shares in an unquoted company.

The suggested change would mean that more transfers of shares would potentially be liable to IHT and may require a careful review of your plans if you are looking to pass on your business.

Breaking up in business

Sometimes things don’t work out in business and it’s time for the owners to go their separate ways.

It’s fair to say that business relationships usually begin with enthusiasm and passion, grow through balance and communication and endure the highs and lows of life. Sometimes, however, businesses don’t weather the storm and things come to an end. As such, it is important to have a plan.

In business, having clear agreements around how the partners can exit the business is acknowledged as good practice. As such, it is important to have this conversation at the beginning of a business partnership and document it.

When selling or exiting a business, it’s important to remain professional. You might feel disappointed over a failing business partnership but angry or emotional communications won’t help the process. Take your time, remain calm and if you find yourself drafting a sharp-toned email, save it to your drafts and review it again the next day before deciding whether or not to send it.

Always seek professional guidance - there are lots of financial and legal experts in the market who have considerable expertise in this area and who can help you to successfully exit your business.

When the time comes, you need to have a good understanding of your firm, its financials, any outstanding issues, etc. If you and your business partner(s) decide to sell the firm to another company, the buyer will be keen to download your knowledge of the business. If you can explain things in detail to the potential new owners, it will help to build their confidence in the deal and could positively affect how much value they assign to the purchase.

Financial issues and long-term partnership agreements can complicate matters. However, you should aim to exit your business in a way that is mutually beneficial and satisfactory for everyone involved.

Exam Success

We are pleased to announce that Nicole Franklyn has recently passed the final exam to achieve her Tax Technician Qualification and become a member of ATT, the leading professional body for those providing UK tax compliance services.

We also have further exam success in the firm with Joshua Cottingham, Ellie Waltham, Jake Allonby and Tom Newton passing their exams to become fully qualified Accounting Technicians (AAT).

We are delighted to have yet more exam success within the firm and congratulate Nicole, Josh, Ellie, Jake and Tom on all their hard work in achieving their qualification.