Capital Gains Tax 2020 – What’s New?

New rules on Capital Gains Tax came into force this spring (April 6^th) – with the country just a couple of weeks into lockdown. So, naturally, the nation’s attention focused on things like staff furlough and VAT deferrals, and less so on property sales and Capital Gains Tax. But with the property market reinvigorated, more and more people are being impacted by the changes introduced back in April.

If you’ve been following us on Linked In over the last week or so, you’ll have seen a short video from our Accounting M.D., Neil Ormesher, discussing the new rules that apply. So, today, we wanted to provide a little more information into what Capital Gains Tax is, what’s changed, and how it might apply to you.

What is Capital Gains Tax & does it apply to me?

First things first, it is a tax on any profits you make when you sell – or dispose of – an asset that’s increased in value. Fairly straightforward, right? Well, as you’d imagine when it comes to HMRC’s rules, there are certain nuances and caveats to be aware of.

In terms of the kind of ‘assets’ this tax applies to, it ranges from a piece of art or memorabilia to shares you may own in a particular company. Depending on your circumstances, you might also be required to pay Capital Gains Tax when selling a property that is not your home or permanent residence. So, this includes things like:

• Land
• Buy-to-let properties
• Business premises
• Holiday homes
• Property you’ve inherited

Since April 6^th 2020, the maximum allowance for Capital Gains Tax (which is the tax-free amount you’re entitled to keep from the increased value of your possessions) is £12,300. This applies to individuals and representatives and may vary for businesses and corporations. For ‘trustees of settlements’, the figure is £6,150.

So, if it applies to you, you’ll need to work out the amount of money you’ve gained through sale or disposal of the item/s in question to ascertain whether or not you need to pay Capital Gains Tax.

Capital Gains Tax DOES NOT apply in the following circumstances:

• The property is your main or permanent residence and this has been the case for the entire period of ownership.
• You made a loss on the property.
• The amount of money you’ve made on the property is within your Annual Exempt Amount.
• Your property was sold or gifted to your spouse, civil partner, or a charity. Read more, here.

You might not be obliged to pay Capital Gains Tax if the property you’re selling / disposing of was occupied by a dependent. Furthermore, if it’s a business asset (more on that below), you may be entitled to tax relief. Either way, speak to your accountant.

What are the 2020 changes?

Since April, certain rules surrounding Capital Gains Tax in the UK have changed.

One key difference is, you now have a maximum of 30 days to report and pay the tax to HMRC on the sale or disposal of certain residential properties in the UK. As above, this excludes those for whom the property they’re selling is their main residence. So, this will predominantly affect buy-to-let landlords and those with second homes.

In addition, anyone who makes a ‘taxable capital gain’ from the sale or disposal of a UK residential property now has to pay any tax owed within 30 days of completion. Previously, the deadline was between 9 and 18 months.

So, if Capital Gains Tax applies to a property you’re disposing of, you must (within 30 days):

1. Calculate any capital gains you’ve made
2. Report that amount to HMRC
3. Make your Capital Gains Tax payment

Again, this ONLY applies to UK residential property (sold on or after April 6^th 2020). Reports can be made online to HMRC and you must also include your Capital Gains Tax claims when filing a self-assessment tax return.

Furthermore, you should include on your tax return the means by which you worked out your Capital Gains Tax, as well as whether you lost any money on any such investment.

There’s more information on how to report and pay Capital Gains Tax here. The process is fairly straightforward, though if you have the right accountant they should always be able to assist you.

Does Capital Gains Tax apply if I’m selling a business?

If you’re a sole trader or are in a business partnership and you make a profit on the sale or disposal of (all or part of) your business (or business asset), you may have to pay Capital Gains Tax.

According to Gov.UK, the ‘business assets you might need to pay tax on’ include:

• Fixtures and fittings
• Land and buildings
• Shares
• Machinery
• Registered trademarks

Furthermore, certain types of tax relief are available to individuals or partnerships who are selling their business. Namely, Entrepreneurs’ Relief, which can significantly reduce the amount of Capital Gains Tax you pay on a disposal of business assets. You can read more about Entrepreneurs’ Relief, here, or ask your accountant about it.

As it applies to individuals and representatives, it DOES NOT apply to Limited Companies. Instead, they pay Corporation Tax on the profits they make from asset sales.

Hopefully that clears a few things up about this complicated type of taxation. When it comes to tax and your business, though, it’s always beneficial to seek specialist advice that’s personal to you and your business. At Danbro, our dedicated team are always on hand to provide the level of support and guidance you need. Contact us today or email your Personal Accountant direct.