Capital Gains Tax (CGT)

What is Principal Private Residence Relief?

What is Principal Private Residence Relief?

If you’re selling a property, Principal Private Residence Relief (PPR) needs to be on your radar. Talk to us about how PPR can reduce or eliminate your capital gains tax liability.

Paying capital gains tax (CGT) on the sale of a property asset can be a necessary but expensive liability. The good news is that Principal Private Residence Relief (PPR) is available and may help you reduce (or in some cases eliminate) that CGT cost.

Let’s take a look at the rules around PPR and how you qualify to make use of this relief.

How does Principal Private Residence Relief (PPR) work?

Principal Private Residence Relief ensures that any capital gain arising on a property that is your main or only residence is free of capital gains tax.

If you acquire a second property, you have two years from the time of acquisition to nominate which property should be treated as your principal private residence (main residence).

However, if you’re the owner and are absent from the property, gains related to that period (on a pro-rata basis) may be chargeable to CGT.

What are the main PPR rules?

Buying a property is a significant life event, where couples may well buy a property together, in both their names. If you’ve bought a house as a couple, it’s important to note the PPR rules.

  • A married couple or civil partners can only have one main residence between them. This rule only changes if you’re separated (either under a Deed of Separation or otherwise in circumstances where the separation is likely to be permanent).
  • If upon marriage or partnership registration the couple own different properties, and continue to use both, you have two years to nominate which property is to be treated as your main residence.
  • Provided that the property being sold was your main residence at some point, the final nine months of ownership is treated as a period of deemed occupation, regardless of any other factors.
  • Some other periods of absence (see below) may also be treated as periods of occupation when calculating PPR relief, subject to two conditions:
    • Firstly, the property must have been the only or main residence at some time before the period of absence.
    • Secondly, it must have been the only or main residence at some time after the period of absence, unless you were prevented from occupying it because of the situation of your place of work or due to a condition imposed on you by the terms of your employment. This second period requires actual occupation, not deemed occupation, as in, for example, the final nine months of ownership.
  • These other periods of absence include:
    • Any period for any reason not exceeding three years in total.
    • Any period without limit where you were employed or an office holder and where all the duties were carried out outside of the United Kingdom.
    • Any periods of absence up to four years in total where you could not live in the property because of the location of your place of work, or because of any reasonable requirement of your employer that they must live elsewhere.
    • Any or all of these conditions can apply, and in the case of periods where more than one condition applies, the time can be allocated against whichever is most beneficial. The period of deemed occupation can be claimed where the condition applies to the spouse or civil partner in the same way as if it applied to the individual, and is not affected by the actual use of the property – e.g. it can still apply even if the property was rented out.
Talk to us about PPR if you intend to sell your property

For many taxpayers, PPR relief is the main CGT relief that will affect them.

Where the property being sold has not been continuously occupied as the main residence throughout the period of ownership, application of the rules around deemed occupation can have a significant impact on the amount of CGT you end up paying.

It may be that your property situation is extremely straightforward – for example, you only own one property at any time, in which you live throughout your period of ownership. But for any other more complex property arrangements, it makes good sense to check with your accountant about any potential capital gains issues – and how they can be minimised.

Get in touch to talk through your property plans or visit our office to have free initial consultation without any obligations. Let’s find out how we can help from The Stan Lee for your CGT matters.

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Back to Tax Basics: What taxes will I need to pay as a director?

Back to Tax Basics: What taxes will I need to pay as a director?

Are you aware of the personal taxes you’re liable for as a company director? We’ve got the lowdown on self-assessment and capital gains tax – and can help you plan your wealth management as a director.

When you set up a new company, there are certain business taxes you’ll be liable for as a business. But have you also planned for the personal taxes you must pay as a director?

As a company director, it’s not just the company’s corporation tax that you have to pay. You also need to pay the requisite taxes on your own income. This might be dividends payments from the company’s year-end profits, or even the income you receive from any property, shares or investments you own.

Knowing which personal taxes to plan for

A fundamental distinction to understand is the difference between company assets/profits and your own personal money.

Money that’s been generated by your company will sit in your business bank account and can be seen as the cash assets of your business. But, as a director, this is not your money. It’s the company’s money. This cash only becomes yours once it’s been paid to you, either as a dividend, a loan or via a salary paid through the company’s payroll.

HM Revenue & Customs (HMRC) will charge the company corporation tax on the company’s earnings. But HMRC will also need to charge you income tax on the cash you’ve been paid as a director – and this means planning for these tax costs as part of your wealth management strategy.

As a director, you’ll need to plan for:

  • Self-assessment income tax – self-assessment is the way that directors and self-employed people pay their income tax and National Insurance contributions (NICs). In addition to any tax and NIC collected monthly via PAYE as part of your normal payroll, with self-assessment, you must complete an annual personal tax return and submit this to HMRC. You then have to pay two ‘on account’ payments of tax and NICs.
  • Paying your self-assessment tax – paying your self-assessment tax bill is generally done by making two payments on account – one by the 31 January in the relevant tax year and one by the 31 July following the end of the tax year. If needed, a final ‘top up’ payment may be required at the end of January, following the end of the tax year. Through this system, not only does the company pay tax on its profits, but you also pay income tax when you take any of the remaining after-tax profits out of the business as dividends.
  • PAYE income tax – if you pay yourself a salary through the company’s payroll, this income will be taxed at source via the pay-as-you-earn (PAYE) system. The PAYE system will deduct your income tax and National Insurance (NI) contributions via your in-house payroll and this will then be paid directly to HMRC. This income will need to be accounted for in your self-assessment tax return, but you’ve already paid the income tax that is due on this salaried income.
  • Capital gains tax – capital gains tax (CGT) is a tax you pay on ‘gains’ you’ve made during the tax year. CGT is paid on the profit you make when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. So, for example, if you sold your business at a profit, you’d be liable for any gain (increase in value) that you’d made on selling the company. The rate of CGT that you pay will depend on your own income tax band and the nature of the gain that you’ve made. Reliefs are available, including the Business Asset Disposal Relief.

Learn more about the basics of directors’ personal tax

If you’d like to have a chat about your self-assessment or capital gains liabilities, please do contact us. The earlier you plan for these taxes, the more you can mitigate their impact.

Get in touch if you have any questions about your tax and let’s find out how we can help you from the The Stan Lee.

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The Autumn Budget 2022 at a Glance

The Autumn Budget 2022 has a significant to you and your business as it has huge number of changes on tax matters once the Mini Budget 2022 became questionable. While people are suffering from living costs, the Government takes many steps in this budget. In this article, the writer will note the summary of key tax matters relevant to you and your business.

Income Tax Allowance and Rates for Individuals

  • The basic, higher, and additional income tax rates will remain at 20%, 40% and 45% respectively for 2023/24 tax year
  • The basic and higher rate thresholds remain at the current level of £12,570 and £50,270. However, the additional income rate thresholds will reduce from £150,000 to £125,140 from April 2023
  • The personal allowance will remain frozen at £12,570 until 6 April 2028

 National insurance (NI) Contributions

  • The employment allowance is set at the current level of £5,000
  • The Health and Social Care Levy is no longer going ahead and the temporary NIC increase of 1.25% has been removed from 6 November 2022
  • The national insurance thresholds for all classes will be maintained at the current level until April 2028

National Minimum Wage

  • From April 2023, the hourly national minimum will increase to £10.42 (aged 23 or over), £10.18 (aged between 21 and 22), £7.49 (aged from 18 to 29), £5.28 (16-17 years old) and £5.28 (apprentice rate)   

Dividend Allowance and Tax Rates

  • The annual dividend allowance for individual will reduce from £2,000 to £1,000 from April 2023 and a further reduction to £500 from April 2024
  • The dividend tax rate will remain at the current level of £8.75%, 33.75% and 39.35% respectively for the basic, higher, and additional taxpayers

Corporation Tax

  • From April 2023, the companies with profits over £250,000 will pay tax at 25% and small companies with profits up to £50,000 will pay tax at the current rate of 19%
  • Companies with profits between £50,000 and £250,000 will pay tax the main rate reduced by a marginal relief providing gradual increase in the effective corporate tax rate

Annual Investment Allowance

  • Annual Investment Allowance (AIA) has been confirmed at a permanent rate of £1 million from April 2023

Annual Exemption Reduction of Capital Gains Tax (CGT)

  • The annual exemption of capital gains tax for individuals will reduce from £12,300 to £6,000 from April 2023 and then further to £3,000 from April 2024

Inheritance Tax (IHT)

  • The thresholds will remain at the current level (until April 2028) for Inheritance tax nil-rate band (£325,000) and residence nil-rate band (75,000)
  • Without IHT liability, qualifying estates can continue to pass on up to £500,000 and qualifying estate of a surviving spouse or civil partner can continue up to £1m

Stamp Duty Land Tax (SDLT)

  • The cut of Stamp Duty Land Tax (SDLT) will remain in place until 31 March 2025. On 23 September 2022, the government increased the nil-rate threshold of SDLT from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold paid by first-time buyers from £300,000 to £425,000
  • The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000. This will now be a temporary SDLT reduction which will remain in place until 31 March 2025

Disclaimer: The above information is just as a general information that might help you. However, we highly recommend having expert advice suited for your circumstances. The Stan Lee and its author are not liable if you rely on this and have any consequences.

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Capital Gains Tax (CGT) on Residential Property for Individuals

Capital Gains Tax (CGT) on Residential Property for Individuals

Capital Gains Tax (CGT) on Residential Property for Individuals

You may have a question; “Should I have to pay Capital Gains Tax (CGT) when selling my residential property?” The short answer is that it depends on your personal circumstances. Read on CGT affairs in this article related to residential property that owned by individuals.

What is Capital Gains Tax (CGT)?

Capital Gains Tax applies to several common assets: property, shares, bonds, precious metals and so on when you dispose of them either in the form of sale, gift, exchange, or transfer. However, you should declare the CGT to HM Revenue and Customs whether you make profits or losses on the disposal.

Individuals have tax free annual allowance (also known as “annual exemption”) of £12,300 (currently) for their capital gains. However, the CGT rate depends on individual income level and the size of the gains. Moreover, the rate of the CGT is different from residential property than any other chargeable assets.

The CGT Matters When Selling a Residential Property

If you are selling a residential property in the UK and used to live in the property as main home, generally no capital gains tax is payable. However, you might face a CGT bill on the profits you make from second home or buy-to-let property disposal.

On the residential property, the basis rate taxpayers pay CGT at 18% on their gains. However, you need to pay at 28% if you are higher or additional rate taxpayers in the UK.

Moreover, you have the reporting and paying CGT requirements on the residential property. If your total taxable gains are above the tax-free allowance, you should report and pay the CGT within 60 days (from 21 October 2021) of the sale completion date. Failure to meet the deadline, you may face paying interest charges and penalty as well.    

How to Reduce the CGT Bill Legitimately?

You should have a plan in place first and discuss with your tax advisors who can support on your CGT matters. Here are some points that might be useful for your plan to reduce the CGT bill lawfully:

  • Use the available spouse tax free allowance
  • Take time carefully and consider delaying the sale to get CGT allowance in the next tax year
  • Nominate the property as your main residence where possible to have PPR relief
  • Deduct all available allowable costs, not only the purchase price (legal fees, agent fees, stamp duty, costs involved for property improvement or extension).

How can The Stan Lee help on CGT?

At The Stan Lee, we offer the CGT computation and the return submission to HM Revenue & Customs at reasonable fees. You will get the other ad hoc services related to the CGT. Please call us and let’s find out how we support for your CGT affairs.

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Seven ways to reduce your capital gains tax bill

Seven ways to reduce your capital gains tax bill

Seven ways to reduce your capital gains tax bill

Do you know what capital gains tax is? Capital gains tax is the tax you pay on the profit you make when you sell an asset that is increased in value. Below are seven ways you can reduce your capital gains tax bill.

1. Tax-free allowance

One way to help reduce your capital gains tax bill is to make sure you use up your tax-free allowance every year. This means you only pay capital gains tax on your overall gains above your tax-free threshold which is currently £12,300 and £6,150 for trusts.

2. Crystallise losses

Another solution is to ‘crystallise losses’ in shares and funds that may have decreased in value as capital losses. These can be carried forward and set against future gains. For example, a gain of £25,000 minus a loss of £10,000 is a net gain of £15,000. By crystallising any losses in the same tax year, you can help to reduce your tax bill.

3. Maximise your pension

One smart way is to maximise your pension contributions. By contributing towards your pension it will provide income tax relief at the marginal rate and with the right advice and planning, you can help to increase your higher rate threshold which means the tax on any capital gains is limited to a maximum of 18 per cent.

4. Share option scheme

If your current place of work has a share option scheme or incentive plans these do not attract income tax or national insurance and are worth considering. Be mindful that depending on how well the shares perform it can trigger a capital gains tax liability.

5. Venture capital trusts

Did you know that investment in a venture capital trust will provide you with 30 per cent income tax relief up to a maximum investment of £200,000 per year? For you to receive this tax break you need to retain the VCT for at least five years – any gains when they sell are tax-free.

6. Partner’s CGT exemption

Another way to help reduce your capital gains tax bill is to use your partner’s capital gains tax exemption. By moving assets between you and your partner, it will not incur a tax charge, so it would seem a sensible solution to make the most of this benefit, especially when one person in the couple is a higher-rate taxpayer.

7. ISA allowance

Finally, there is your ISA allowance which many people still do not take advantage of. The current allowance is £20,000 and all personal capital gains are tax-free on ISA investments. It might be worth speaking to a financial advisor who can help make sure you make the most of your ISA allowance.

If you need help reducing your capital gains tax bill then speak to the team at The Stan Lee. Their tailored services include advice on capital gains tax payment, consulting on which assets are exempt from capital gains tax and finding the relevant opportunities to save your tax including available tax reliefs.

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