Capital gains tax (CGT) rates
The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.
There are two specific types of disposal which potentially qualify for a 10% rate, both of which have a lifetime limit of £10 million for each individual:
- Entrepreneurs' Relief (ER). This is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses
- Investors' Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares.
CGT annual exemption
The CGT annual exemption is £11,700 for 2018/19 and £12,000 for 2019/20.
Entrepreneurs' Relief (ER)
Minimum qualifying period
The minimum period throughout which certain conditions must be met to qualify for ER is being increased from one year to two years. This has effect for disposals on or after 6 April 2019 except where a business ceased before 29 October 2018. Where the claimant's business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period continues to apply.
New 5% rules for company shareholders
To qualify for ER, the company needs to be an individual's 'personal company'. This means that an individual must throughout the relevant qualifying period:
- be a company employee or office holder
- hold at least 5% of the company's ordinary share capital and
- be able to exercise at least 5% of the voting rights.
For disposals on or after 29 October 2018, an individual must also satisfy either of the following:
- distribution tests which require the individual, by virtue of that holding, to be entitled to at least 5% of the company's profits available for distribution to 'equity holders' and 5% of the assets available for distribution to 'equity holders' in a winding up
- a proceeds test which requires the individual, in the event of a disposal of the whole of the ordinary share capital of the company, to be beneficially entitled to at least 5% of the proceeds.
Gains for non-residents on UK property
Legislation, broadly having effect for disposals from 6 April 2019, charges all non-UK resident persons on gains on disposals of interests in any type of UK land, whether residential or non-residential. As a consequence, the CGT charge relating to the Annual Tax on Enveloped Dwellings is abolished.
All non-UK resident persons will also be taxable on indirect disposals of UK land. The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities who hold a less than 25% interest.
All non-UK resident companies will be charged to corporation tax rather than CGT on their gains.
There are options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019.
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The main effect of the new legislation will be to extend the scope of UK taxation of gains to include gains on disposals of interests in non-residential UK property. Previous legislation has focused on bringing gains made by non-residents on residential properties within the UK tax regime. |
Inheritance tax (IHT) nil rate bands
The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.
IHT residence nil rate band
From 6 April 2017 a new nil rate band, called the 'residence nil rate band' (RNRB), has been introduced, meaning that the family home can be passed more easily to direct descendants on death.
The RNRB is being phased in. For deaths in 2018/19 it is £125,000, rising to £150,000 in 2019/20 and £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.
There are a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.
Downsizing
The RNRB may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the RNRB, are passed on death to direct descendants.
Changes to IHT RNRB
Amendments have been introduced to the RNRB relating to downsizing provisions and the definition of 'inherited' for RNRB purposes. These amendments clarify the downsizing rules and provide certainty over when a person is treated as 'inheriting' property. The changes have effect for deaths on or after 29 October 2018.
Stamp Duty Land Tax (SDLT)
Consultation on SDLT charge for non-residents
The government has recently published a consultation on the introduction of a SDLT surcharge for non-UK residents. The surcharge will apply to purchases of residential property made by non-UK resident individuals and certain non-natural persons. The surcharge will apply to freehold and leasehold purchases of residential property and will be at a rate of 1% on top of existing SDLT rates, including the rates applicable to the rental element of leasehold property.
No date has been set for the introduction of the surcharge.
Comment
In the distribution tests the term 'equity holders' is a wider definition than ordinary share capital. As a consequence, the tax profession raised concerns about the wide ranging impact of these tests and, as a result, the government introduced the alternative proceeds test.
In the proceeds test, the 5% threshold is computed by reference to the market value of the company at the end of the qualifying period. That may mean, in situations where the new distribution tests are not met, it may not be known until the disposal of shares whether ER will be available.