Tax Solutions

What is Capital Gains Tax?

Capital Gains Tax (CGT) is the tax you pay on the profit you make when you sell an asset which has increased in value. You'll only pay tax on the profit, not the whole amount you receive from the sale.

Which assets attract Capital Gains Tax?

Several assets attract CGT. These assets could range from tangible assets, such as property, high-value personal possessions, business equipment, machinery, and vehicles, to intangible assets, including company shares or stock. If you sell a capital asset for a price exceeding its original purchase cost, you will be taxed on your sales profits.

What's the annual Capital Gains Tax allowance?

For the tax year 2024-2025, the yearly Capital Gains Tax allowance is £3,000. This signifies that you can gain up to £3,000 before you need to pay CGT. Any gains exceeding this limit will be taxed.

Are there different Capital Gains Tax rates?

CGT rates depend on your total taxable income and the asset type. Basic rate taxpayers pay 10% on most asset gains and 18% on residential property gains. Higher or additional rate taxpayers pay 20% on most asset gains and 28% on residential property gains.

When is Capital Gains Tax due?

CGT should be paid by January 31st, following the end of the tax year during which the gain occurred. Nonetheless, for residential property sales, CGT must be reported and paid within 60 days of sale completion.

How do I work out my Capital Gains Tax?

To work out your CGT, subtract the original purchase price (including allowable costs such as legal or improvement fees) from the selling price. The difference is your gain. If the gain goes over the annual exemption, you must pay CGT on the surplus at the appropriate rate.

Can I offset my losses against gains?

Absolutely. If you've made a loss from disposing of an asset, you can set off this loss against gains made in the same tax year or carry it forward to offset against future years' gains. However, it’s always best to seek specialist tax advice to discuss this further.

Do I pay Capital Gains Tax on gifts?

Yes, potentially. Transferring assets between spouses or civil partners is usually exempt. However, gifts to others, including family members, may trigger a CGT liability if the asset's value increases.

What's Private Residence Relief (PRR)?

PRR exempts you from paying CGT on the sale of your primary home. You may need to pay some CGT if you've used a part of your home for business or haven't lived there throughout ownership.

How do I report and pay my Capital Gains Tax?

You can report and pay CGT through the HMRC online service or include it in your Self-assessment tax return. For residential property sales, you should use the HMRC online service to report the gain within 60 days of the sale.

What are the available reliefs for Capital Gains Tax?

Several reliefs are available, including Private Residence Relief, Business Asset Disposal Relief, Investor's Relief and Gift Hold-Over Relief for business assets' gifts or shares in a trading company.

Can I defer Capital Gains Tax?

You can defer CGT by reinvesting the gain into certain qualifying investments like the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS). The tax is deferred until the new investment is sold.

What is Inheritance Tax (IHT)?

Inheritance Tax is levied on a deceased person's estate, which includes property, money, and possessions. It usually applies if the estate's value is above a certain threshold.

When is Inheritance tax charged?

You are liable to pay Inheritance Tax in the UK for two reasons:

On the making of a gift to a transferee other than an individual (e.g. a Trust, a company or other ‘non-natural’ entity). This is known as a Chargeable Lifetime Transfer (CLT) and is usually charged at 20% of the value of the asset transferred, over and above the available nil rate band (currently £325,000).

On death where the value of the deceased estate may be liable to IHT, subject to any available reliefs and exemptions. Tax on the death estate is charged at 40% of the estate's value, which takes into account any transfers made chargeable or otherwise in the preceding seven years.

What's the current Inheritance Tax threshold?

The Nil Rate Band, the standard IHT threshold, currently stands at £325,000. Any estate value above this is generally taxed at 40%. Additional allowances like the Residence Nil Rate Band (RNRB) could increase this threshold.

How can I mitigate my Inheritance Tax liability?

Several strategies exist to minimize IHT, such as using annual gift allowances, donating to charity, allocating assets in trusts, or optimizing the RNRB. Effective estate planning is vital here.

What is the Residence Nil Rate Band (RNRB)?

The RNRB is an extra allowance that is applied when your main residence is passed on to direct descendants. As per the current legislation, the RNRB can add an extra £175,000 to the threshold.

Are gifts subject to Inheritance Tax?

Gifts given more than seven years before the donor's death are mostly exempt from IHT. Gifts given within seven years of death may be subject to IHT, subject to certain exemptions.

What does the "seven-year rule" in Inheritance Tax mean?

The 7-year rule defines the timeframe in which gifts can be considered for IHT. Gifts made within 3 years of death are taxed at 40%; this rate reduces if the gift was made between 3 and 7 years before death.

Can I transfer my entire estate to my spouse or civil partner tax-free?

Yes, any assets transferred to a spouse or civil partner are exempt from IHT. Moreover, their unused IHT allowance can be passed on, effectively increasing the threshold for the surviving partner.

How does Inheritance Tax interact with trusts?

Trusts are a useful tool for IHT planning, but the rules are intricate. Assets in a trust may be outside your estate for IHT purposes. Professional advice is crucial when dealing with trusts.

What happens if my estate is mostly property-based?

When most of your estate is in property, beneficiaries might find it difficult to pay IHT. Potential solutions include taking out a life insurance policy, using business or agricultural property reliefs, or selling assets.

What is Business Property Relief (BPR)?

BPR allows for a reduction or elimination of IHT on the transfer of qualifying business assets, such as private company shares or business interests, potentially significantly reducing IHT liability.

Can life insurance mitigate Inheritance Tax?

Yes, life insurance policies can be used to cover the IHT liability without adding to the estate's value.

Is there any relief for agricultural property?

Agricultural Property Relief (APR) can provide up to 100% relief from IHT under specific conditions.

How do I assess my estate for Inheritance Tax?

Valuing your estate involves adding up all assets and subtracting any debts, liabilities, and funeral costs.

How do I pay Inheritance Tax?

Inheritance Tax must be paid within six months of the person's death. Options include using estate funds or setting up an instalment plan for less liquid assets.

Can I gift my home to my children to avoid Inheritance Tax?

While gifting your home can be part of IHT planning, rules are strict. If you continue living in the property without paying market rent, the property may still be considered part of your estate.

What if I don't pay or underestimate Inheritance Tax?

Nonpayment or underpayment of IHT can result in penalties, interest charges, and potential legal action.

How do charitable donations impact Inheritance Tax?

Donations to registered charities are exempt from IHT. Furthermore, if 10% or more of your estate is left to charity, the tax rate on the remainder of your estate can be reduced.

What records should I maintain for Inheritance Tax?

Keeping records of gifts, asset valuations, and any interactions with HMRC is crucial.

Does UK Inheritance Tax apply to overseas property?

Yes, for UK-domiciled individuals, IHT applies to all worldwide assets, including overseas properties.

Will IHT rules change in the future?

Changes to IHT rules can occur due to shifts in government policy. Regular reviews and updates of estate planning strategies with an accountant are recommended.

Do I need to file a tax return?

You need to complete a Self-Assessment tax return if you are self-employed, have income from property, are a company director (unless it's a non-profit), have foreign income, receive dividends, or have a high income (over £100,000).

What are the UK tax year dates and filing deadlines?

The tax year in the UK runs from April 6th to April 5th of the following year. The deadline for filing self-assessment tax returns is January 31st.

What happens if I miss the deadline?

If you miss the deadline, you’ll face an initial penalty of £100. Further penalties include £10 per day for up to 90 days after three months, 5% of the tax due after six months, and an additional 5% after 12 months. Interest is also charged on late payments.

What tax information do I need to provide?

You will need to provide details of your income, expenses, and other financial information on your tax return.

What is my Unique Taxpayer Reference (UTR) number?

Your UTR is a unique identifier assigned to you by HM Revenue and Customs (HMRC).

Is my PAYE code correct?

You may need to check the accuracy of your PAYE (Pay As You Earn) tax code, as it impacts the deductions from your salary.

What is Marriage Allowance?

Marriage Allowance allows you to transfer £1,260 of your Personal Allowance to your husband, wife, or civil partner, reducing their tax by up to £252 in a tax year.

Who Can Benefit from Marriage Allowance?

You can benefit from Marriage Allowance if you're married or in a civil partnership and your partner pays Income Tax at the basic rate. As the lower earner, you can transfer part of your Personal Allowance to your partner, reducing their tax bill and saving you money as a couple.

Can I Backdate My Claim?

Yes, you can backdate your claim to include any tax year since 5 April 2020 when you were eligible for Marriage Allowance.

What is Stamp Duty Land Tax (SDLT)?

Stamp Duty Land Tax is a tax applied to the purchase or transfer of property or land in England and Northern Ireland. If your business is buying a freehold, leasehold, or land over a certain value, you'll need to pay Stamp Duty Land Tax to HM Revenue & Customs (HMRC) within 14 days of the transaction.

How is Stamp Duty Land Tax calculated for commercial properties?

The rules around Stamp Duty Land Tax are different for commercial and residential properties. For instance, commercial properties don’t attract any Stamp Duty Land Tax for the first £150,000 of the property’s value; a 2% tax is levied on the next £100,000, and any amount over £250,000 is taxed at 5%.

How does Stamp Duty Land Tax work for leasehold properties?

For leasehold properties, Stamp Duty Land Tax is calculated on both the premium paid for the lease and the net present value (NPV) of the rent over the lease term.

How does Stamp Duty Land Tax work for mixed-use properties?

Properties with both residential and commercial elements are considered ‘mixed-use’. For these types of properties, Stamp Duty Land Tax is calculated at the commercial property rates.

Are there any Stamp Duty Land Tax surcharges?

Yes, additional surcharges could apply to businesses purchasing additional residential properties or to non-UK resident companies purchasing properties.

What is Multiple Dwellings Relief (MDR)?

Multiple Dwellings Relief is a potential reduction on Stamp Duty Land Tax for businesses purchasing multiple residential properties in a single transaction.

Can my business qualify for Stamp Duty Land Tax Reliefs or Exemptions?

Several reliefs and exemptions, such as group relief, charity relief, and acquisitions by public bodies, are available that could potentially exempt your transaction from Stamp Duty Land Tax.

How can my business plan for Stamp Duty Land Tax?

Businesses can consider factors such as property structure and transaction timing, as both of these can significantly impact your Stamp Duty Land Tax liability.

How do I file and pay for Stamp Duty Land Tax?

Businesses are required to file a Stamp Duty Land Tax return with HMRC and pay the tax within 14 days of the transaction completion.

What should I do if I disagree with HMRC’s Stamp Duty Land Tax assessment?

If you believe an error has been made in HMRC’s SDLT assessment, we can advocate on your behalf with HMRC and request an appeal.

Will my prices increase if I become VAT-registered?

VAT registration does impact the cost for your customers, so this can be an important part of your decision on whether to register for VAT. However, as long as your customers are VAT registered, then they can claim back this VAT.

What is the VAT rate in the UK?

The standard rate for VAT in the UK is currently set at 20%. This rate increased in January 2011, before which it was set at 17.5%. However, not every product or service will be entitled to a full VAT rate of 20%. The standard rate for VAT is applicable to most goods and services. This typically includes what is perceived as luxury items, hence why products like ice cream, sweets and potato chips fall under the regular VAT rate, despite other food items being zero-rated.

Certain items are subject to a reduced VAT rate of 5%. These include sanitary products, household energy supplies, and children's car seats.

Certain products and services are classified as 'zero rate' in terms of VAT, meaning they are not subject to any VAT. This category includes most food items, children's clothing and books. Even though these items are not taxed, you are still required to record them for your VAT return as zero-rate commodities.

How is VAT calculated?

VAT calculations can be complex. The correct VAT rates need to be applied to both input and output VAT in compliance with HMRC regulations. It’s important to ensure accuracy as this will avoid potential penalties.

When is the VAT payment due?

The deadline for your VAT payments is one calendar month plus seven days after your VAT accounting term ends. For instance, if your VAT accounting cycle finishes on 31st July, you should ensure that your VAT payment is made by 7th September. This deadline encompasses both the submission of your VAT return as well as the actual payment to HMRC. However, if this due date happens to land on a weekend or a bank holiday, you need to ensure you have paid before the due date.

Can VAT be claimed on staff entertainment?

Yes, VAT charges can be deducted from employee entertainment. However, certain restrictions do apply, so it’s important to have a VAT specialist assess this.

Are VAT surcharges tax deductible?

VAT surcharges are not tax deductible in the UK because they are considered penalties for non-compliance rather than regular business expenditures. The HM Revenue & Customs (HMRC) disallows the deduction of penalties, fines, or interest from taxable income as they stem from the failure to fulfil legal responsibilities, not from business operations. Permitting such deductions would essentially lessen the penalty's effect, countering its intention as a pushback against non-compliance.

What are VAT disbursements?

VAT disbursements are costs which a business covers for a client, such as court fees or travel expenses. The client is the one responsible for the cost and the exact amount is passed on without any extra charges. Invoices require separate itemisation, and no input tax is claimed. It’s imperative to report VAT disbursements accurately.

What is the Vat 652 form?

A VAT 652 form is used to correct errors on a previously submitted VAT return. We sometimes have to complete this form if we take on a new client and realise that errors have been made in their previous VAT returns. HMRC tend to be more understanding than if this is discovered years down the line, then you might risk an investigation. It’s much better to tackle this head-on.

What if I forget to put through a VAT deductible expense?

If the error is less than £10,000, we can just put it through in the next VAT return, but if the error is over £10,000, then we complete a VAT 652 form.

Should I de-register for VAT?

If your turnover is below £88,000, you can de-register from VAT. However, although it can be tempting to de-register, especially if your turnover is fluctuating, there can be many pitfalls of deregistering. The main loss is that you can’t claim your VAT back. It’s best to have a VAT specialist advise you on how much money you are potentially saving versus the additional accountancy costs. Our Management Accounts service is a great way to create a business plan with budgeting and forecasts so that you can have a better idea of your projected income and, therefore, whether it’s worth de-registering.

Which products are VAT-exempt?

Certain products and services are not subject to VAT, which means that you aren’t required to charge VAT on these items or include them in your VAT-taxable revenue. VAT-exempt items include insurance, professional training, property, medical equipment, dental services, and postage stamps. As legislation is always changing, it’s always best to discuss this with a VAT specialist.