There are quite a few changes to be aware of this month as new legislation kicks in across a number of financial areas.
If you pay Capital Gains Tax on any buy-to-let, business premises, land or inherited property you’ll need to read our article below as thresholds and exemptions have altered significantly. If you earn more than £100,000 it might be beneficial to book a tax planning meeting to discuss how you can offset any income above that level. You might be able to mitigate your personal allowance reductions in a number of ways. Please do get in touch if this is something you’d like to discuss. Some positive news from the new First Minister for Scotland is the announcement of his prioritisation to tackle child poverty. Humza Yousaf is allocating £15m to help support childcare provision in Scotland. Our final article summarises the pension tax reforms that came into effect from 6 April. If you’d like to talk about your own pension position, please contact us.
Our newsletter finishes, as usual, with a few diary dates for the upcoming period 1st May to mid June.
Tax when you sell property
The annual exempt amount applicable to Capital Gains Tax (CGT) has been reduced to £6,000 (from £12,300) for the new 2023-24 tax year.
CGT is normally charged at a simple flat rate of 20% and this applies to most chargeable gains made by individuals. If taxpayers only pay basic rate tax and make a small capital gain, they may only be subject to a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT.
A higher rate of CGT applies to gains on the disposal of residential property (apart from a principal private residence). The rates are 18% for basic rate taxpayers and 28% for higher rate taxpayers.
Most people are aware that they do not usually have to pay CGT when they sell their qualifying residential property used wholly as a main family residence. However other sales of property that are not a principle private residence (PPR) will be subject to CGT.
- buy-to-let properties
- business premises
- inherited property
The deadline for paying any CGT due on the sale of a residential property is 60-days. This means that a CGT return needs to be completed and a payment on account of any CGT due should be made within 60-days of the completion of the transaction. This applies to UK residents selling UK residential property where CGT is due.
There are various reliefs available from CGT for the sale of qualifying business assets.
Losing your personal income tax allowance
If you earn over £100,000 in any tax year your personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age. This means that any taxable receipt that boosts your income over £100,000 will result in a reduction in personal tax allowances. Accordingly, your personal Income Tax allowance would be reduced to zero if your adjusted net income is £125,140 or above.
Your adjusted net income is your total taxable income before any personal allowances, less certain tax reliefs such as trading losses and certain charitable donations and pension contributions.
For the current tax year if your adjusted net income is likely to fall between £100,000 and £125,140 you would pay an effective marginal rate of tax of 60%.
If your income sits within this band you should consider what financial planning opportunities are available in order to avoid this personal allowance trap by reducing your income below £100,000. For example, by giving gifts to charity, increasing pension contributions and participating in certain investment schemes.
A higher rate or additional rate taxpayer who wanted to reduce their tax bill could make a gift to charity in the current tax year and then elect to carry back the contribution to 2022-23. A request to carry back the donation must be made before or at the same time as the 2022-23 Self-Assessment return is completed and filed, i.e., by 31 January 2024.
Scottish government announces new childcare initiatives
Scotland’s new First Minister Humza Yousaf has announced a new £15 million investment to help tackle child poverty. This investment will see thousands more low-income families benefit from free school age childcare.
Existing services for eligible families in areas of Dundee, Clackmannanshire, Glasgow and Inverclyde will be expanded, with new services set up in other communities across Scotland.
The money will also enable local football clubs to apply for funding totalling £2 million to support the provision of after school and holiday activities clubs, in a joint initiative with the Scottish Football Association.
There will also be nine other projects that will receive a share of the £15 million funding to continue offering childcare services in 2023-24.
The First Minister said:
‘This £15 million investment is part of our work to build a system of year-round school age childcare – fully funded for those who need it most.
Scotland already has the most generous childcare offer anywhere in the UK. All three and four-year-olds and eligible two-year-olds are entitled to 1,140 hours a year of funded Early Learning and Childcare (ELC). We are working with partners to progress our childcare offer even further, with plans to expand ELC to one-year-olds and more two-year-olds.’
Take advantage of new pension tax reforms
The new pension tax reforms that were announced in the recent Spring Budget took effect from 6 April 2023. The old £40,000 cap on annual pension contributions has been increased by 50% to £60,000, with effect from 6 April 2023. Tax relief for contributions to pension schemes is given at a taxpayer’s marginal rate of Income Tax and is subject to the increased underlying limits. Taxpayers will continue to be able to carry forward unused annual allowances the last three tax years if they have made pension savings in those years.
The lifetime allowance was the maximum amount of pension and/or lump sum that benefits from tax relief. The lifetime allowance was removed from 6 April 2023 and will be fully abolished in a future Finance Bill. Both of these changes are intended to incentivise older employees to continue in work whilst continuing to build additional pension savings.
In addition, the adjusted income threshold for the Tapered Annual Allowance increased from £240,000 to £260,000 on 6 April 2023. Those earning over £260,000 (from 6 April 2023) will see their £60,000 annual allowance tapered. For every complete £2 income exceeds £260,000 the annual allowance is reduced by £1. The annual allowance cannot be reduced to less than £10,000 (2022-23: £4,000). The Money Purchase Annual Allowance also increased to £10,000 (2022-23: £4,000) from 6 April 2023.
The maximum amount that most individuals can claim as a Pension commencement lump sum (PCLS) was historically based on a cap of 25% of the available lifetime allowance. In the current tax year, there remains a PCLS upper monetary cap of £268,275 (based on 25% of the 2022-23 lifetime allowance). Any individuals who already had a protected right to take a higher PCLS will continue be able to do so.
Tax Diary May/June 2023
1 May 2023 – Due date for corporation tax due for the year ended 30 July 2022.
19 May 2023 – PAYE and NIC deductions due for month ended 5 May 2023. (If you pay your tax electronically the due date is 22 May 2023).
19 May 2023 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2023.
19 May 2023 – CIS tax deducted for the month ended 5 May 2023 is payable by today.
31 May 2023 – Ensure all employees have been given their P60s for the 2022/23 tax year.
1 June 2023 – Due date for corporation tax due for the year ended 31 August 2022.
19 June 2023 – PAYE and NIC deductions due for month ended 5 June 2023. (If you pay your tax electronically the due date is 22 June 2023).
19 June 2023 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2023.
19 June 2023 – CIS tax deducted for the month ended 5 June 2023 is payable by today.