With the new 2020/21 tax year, there were many changes and updates to tax legislation.
New Capital Gains Tax rules on the sale of residential property
If you are a UK resident and dispose of UK residential property, you will need to pay your Capital Gains Tax (CGT) and submit CGT returns, within 30 days of completion of the sale. For example, if the sale completes on 1 July 2020, the CGT will be due by 30 July 2020. Previously, you had either 10 or 22 months to pay CGT, so this is a big change.
Private Residence Relief changes
There has been a reduction in the final period exemption from 18 months to 9 months for Capital Gains Tax (CGT) Private Residence Relief. This reduction means that from 6 April 2020, individuals buying a new home, before selling their old one, will need to ensure a sale of the old property takes place within 9 months to avoid a CGT charge.
Letting Relief also changed so that it’s only available in those cases where the owner remains in shared occupancy with the tenant, i.e. has lodgers living in the house.
Residence Nil Rate Band
The Inheritance Tax (IHT) Residence Nil Rate Band increased to £175,000 on 6 April 2020. This means that with the existing IHT Nil Rate Band of £325,000, an individual taxpayer will be able to leave an estate of up to £500,000 without paying IHT.
Restricted tax relief for landlord finance costs
Individuals will only be able to claim a basic rate tax reduction from their Income Tax liability, on the portion of finance costs not deducted in calculating the profit.
This tax reduction will be calculated as 20% of the lower of:
- Finance costs not deducted from income in the tax year
- Profits of the property business in the tax year
- Total income of the individual (excluding savings income & dividend income) that exceeds the personal allowance in the tax year.
Corporate non-resident landlords moving to Corporation Tax
From 6 April 2020, any non-resident landlord (NRL) company with a UK property business will pay Corporation Tax instead of Income Tax on any UK profits made. The 2019/20 tax year will be the last year which the form SA700 will be accepted to file a tax return for a non-resident company. For accounting periods starting 6 April 2020 onwards, any non-resident landlord will need to file the Corporation Tax return form CT600 instead.
Employment Allowance restriction
It was announced at the Budget that Employment Allowance (EA) was to increase from £3,000 to £4,000 pa from 6 April 2020. The eligibility rules for claiming EA also change. Before you claim you will now have to make extra checks to find out if you are eligible to claim. These include whether your total qualifying employers’ (secondary) Class 1 NIC liability in the tax year before the year of the claim is less than £100,000. In addition, the EA is administered as de minimis state aid and so your business will need to ensure that you have not exceeded the de minimis threshold for your sector in making the claim. There are different thresholds for different sectors.
IR35 (Off-payroll) working
Due to the Coronavirus outbreak and pressure from freelancers and businesses, the UK government has delayed the IR35 rules by 12 months. The controversial new off-payroll working rules were meant to come into force on 6 April 2020. But, these will now be postponed by one year.
Termination payments and sporting testimonials
For any termination payments over the £30,000 tax-free threshold and to sporting testimonial payments exceeding the £100,000 limit, a new type of NIC charge will apply to the excess.
It is a Class 1A payment and so will only be payable by employers. However, this new NIC charge will be reported and payable during the tax year rather than after the end of the tax year.
Corporate capital loss restriction
From 1 April 2020, there is a restriction of 50% of annual capital gains that can be relieved by brought-forward losses. This is subject to sharing the £5m group deductions allowance that already applies for the purposes of the corporate income loss restriction. Overall, this measure is to ensure that large companies pay tax when they make significant capital gains.
Electric cars are tax free
From April 2020, there will be no tax on a company car, if it is electric, or a hybrid, if it can travel 130 miles on a charge and emits emissions of less than 51 g/km.
The saving will benefit the company as the business will not have to pay Class 1A National Insurance.
Digital services tax
From 1 April 2020, the government will introduce a new 2% tax on the revenues of search engines, social media services and online marketplaces which derive value from UK users. These businesses will be liable to Digital Services Tax when the group’s worldwide revenues are more than £500 million with more than £25 million derived from UK users.
If the group’s revenues exceed these thresholds, its revenues derived from UK users will be taxed at a rate of 2%.
Rise in contactless payment limit
Not a tax change, but an important change for consumers at the current time, from 1 April 2020 the spending limit for contactless card payments rose from £30 to £45.
The increase had been under consideration before the outbreak of COVID-19, following consultation between the retail sector and the finance industry, and the implementation was brought forward to support consumers during the pandemic increase. The new limit brings the UK more in line with contactless card payments limits in across Europe.