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What does the crystal ball reveal?

By Aaron Hemmington

Hawsons Chartered Accountants

AS a tax adviser I am often asked for predictions about how tax policy and legislation may develop.

The most popular predictions I have been asked to make recently relate to capital gains tax (CGT) on property and business sales.

This can be a bit like gazing into a crystal ball but in the first instance let’s look at recent developments and announcements to see if they give an indication of future changes.

One such announcement relates to the payment window for CGT on the sale of residential property. The payment date is currently the 31 January following the end of the tax year in which the property is sold. The government is proposing that CGT on all residential property sales is paid within 30 days of the sale of the property from April 2020. A 30-day payment window already applies to the disposal of UK residential property by non-residents so it could be inferred that the process for administering the new rules will follow the process used for non-residents. This involves the individual calculating the gain before filing a return and submitting the payment within 30 days of the sale. Alternatively, the government may seek a payment on account via a flat withholding tax with the taxpayer then finalising the position via their tax return and making a balancing payment or repayment claim as appropriate. Furthermore, HMRC may require solicitors to withhold and pay over tax from the sale proceeds.

Following on from the point regarding non-residents the government have announced that CGT on non-residents will be extended so that it will apply to gains on all UK immovable property from 1 April 2019.

This can be seen as part and parcel of an attack on property investment which has begun in the last few years. This has included the SDLT surcharge for additional residential properties, the restriction of tax relief for mortgage interest as well as a 28 per cent rate of CGT on residential property sales by individuals compared to the 20 per cent rate applied to other assets.

Given that many landlords with large property portfolios have been considering incorporating their property businesses in order avoid the mortgage interest restriction and higher CGT rates, the chancellor may move to impose a 28 per cent rate of corporation tax on residential property gains realised by companies compared to the 19 per cent rate that currently applies. A 28 per cent rate already applies to gains realised by corporates on residential properties that fall with the ATED regime so this is a strong possibility. Furthermore, the announcement in the budget that indexation relief for companies will be frozen from 31 December 2017, could be the beginnings of the chancellor’s attack on companies owning property. This is because the freezing of indexation relief will largely impact companies which invest in property.

Finally, the other popular question I am asked is whether Entrepreneurs Relief (ER) will be abolished. Where certain conditions are met ER provides individuals with a 10 percent rate of CGT in relation to gains on qualifying share and business disposals up to lifetime limit of £10 million. Given that this relief is a big incentive to people starting and growing business I do not envisage that it will be abolished. If anything, the lifetime limit could be reduced. When it was originally introduced in 2008 the limit was just £1 million of lifetime gains.

For more information regarding the Capital Gains Tax changes please contact Aaron Hemmington at Hawsons Chartered Accountants on 01604 645600, email or visit www.hawsons.co.uk

Companies mentioned in this article

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