The current rates of CGT are 18% to the extent that any income tax basic rate band is available and 28% thereafter. The rate for disposals qualifying for Entrepreneurs’ Relief is 10% with a lifetime limit of £10 million for each individual.
CGT annual exemption
The CGT annual exemption is £10,900 for 2013/14 and will be increased to £11,000 for 2014/15.
CGT – Private Residence Relief
A gain arising on a property which has been an individual’s private residence throughout their period of ownership is exempt from CGT. There are deemed period of occupation rules which may help to provide an exemption from CGT even if the individual was not living in the property at the time. This may mean the individual is accruing private residence relief on another property at the same time.
The final period exemption applies to a property that has been an individual’s private residence at some time even though they may not be living in the property at the time of disposal.
For disposals on or after 6 April 2014 the final period exemption will be reduced from 36 months to 18 months. There may be exceptions for disabled individuals and long term residents in care homes.
CGT – non-residents and UK residential property
From April 2015 a CGT charge will be introduced on future gains made by non-residents disposing of UK residential property. A consultation on how best to introduce this will be published shortly.
Business roll-over relief
Roll-over relief allows CGT to be deferred on gains made on certain qualifying assets where the proceeds are used to purchase other qualifying assets within a specified period of time. With effect from 20 December 2013 a payment entitlement under the new EU Basic Payment Scheme for farmers will become a qualifying asset.
IHT nil rate band
The IHT nil rate band remains frozen at £325,000 until 5 April 2018.
IHT exemption for emergency service personnel
The Government will consult on extending the existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service to members of the emergency services.
Changes to the trust IHT regime
Certain trusts, known as ‘relevant property trusts’, provide a mechanism to allow assets to be held outside of an individual’s estate for the purpose of calculating a 40% IHT liability on the death of an individual. The downside is that there are three potential points of IHT charge on relevant property trusts:
- a transfer of assets into the trust is a chargeable transfer in both lifetime and on death
- a charge has to be calculated on the value of the assets in the trust on each ten-year anniversary of the creation of the trust
- an exit charge arises when assets are effectively transferred out of the trust.
The calculation of the latter two charges is currently a complex process which can take a significant amount of time to compute for very little tax yield. HMRC therefore wants to simplify the process and will consult on proposals to take effect in 2015.
Two changes will however be introduced in Finance Bill 2014:
- simplification of filing and payment dates for IHT relevant property trust charges
- income arising in such trusts which remains undistributed for more than five years may be treated as part of the trust capital when calculating the ten-year anniversary charge.
Part of the price of the tax simplification proposals will be that some planning techniques where an individual creates more than one relevant property trust will no longer work. For example, a nil rate band that may be currently available for each trust may, in future, need to be split between the trusts resulting in higher IHT charges.
In 2013 measures were introduced to restrict the use of liabilities to reduce IHT liability where loans were used to purchase assets which are excluded property for IHT purposes. A common situation which was blocked was the use of loans to purchase assets outside the UK which were held by a non-domiciled individual. A loophole has been spotted where a non-domiciled individual holds a foreign currency account in a UK bank. Such an asset is not chargeable to IHT but is not excluded property. That loophole will now be blocked by treating such an account as if it were excluded property.
Residential property held through a company
A range of measures exist to discourage the holding of residential property in the UK via companies and other non-natural persons. Specifically where the property has a value of at least £2 million:
- stamp duty land tax (SDLT) is payable at 15% on acquisition
- an annual tax on dwellings (ATED) applies at a fixed amount depending on value, and
- CGT at 28% is payable on a proportion of gains.
For SDLT the value limit is being reduced to £500,000 for acquisitions on or after 20 March 2014.
The Government will introduce two new bands for ATED. Residential properties worth over £1 million and up to £2 million will be brought into the charge with effect from 1 April 2015. Properties worth over £500,000 and up to £1 million will be brought into the charge with effect from 1 April 2016.
The related CGT charge on disposals of properties liable to ATED will be extended to residential properties worth over £1 million with effect from 6 April 2015 and for residential properties worth over £500,000 from 6 April 2016.
The Government is determined to drive out the use of so-called ‘envelopes’ for the ownership of residential property in the UK. The major group affected will be non-domiciled individuals who have historically used overseas companies to hold UK residential property.