HMRC recently published a list of common capital gains tax mistakes made on tax returns. They also highlight a few misconceptions regarding the reliefs available. In this post we summarise some of the points made. It goes without saying that the RPGCC tax team are fully aware of these matters when submitting returns on behalf of our clients.
Common Capital Gains Tax mistakes – Annual Exempt amount (AEA)
Ensure that the correct AEA (also known as your tax-free allowance) is applied. The AEA reduced from £12,300 to £6,000 for individuals for disposals from 6 April 2023. This will need to be reflected on the 2023-24 Self-Assessment returns.
The AEA will be reduced to £3,000 for individuals for disposals from 6 April 2024. This will need to be reflected on the 2024-25 Self-Assessment returns.
Trustees have lower AEAs.
Common Capital Gains Tax mistakes and property disposals
UK residential property disposals
If you are a UK resident and you dispose of an interest in UK residential property and there is Capital Gains Tax to pay you will have to submit a UK Property disposal return and pay the Capital Gains Tax due within 60 days of completion.
This also applies if you are non-resident (and extends to commercial property disposals including the sale of shares in private property companies).
In most cases, a Self-Assessment return will also be required for the year.
Private Residence Relief (PRR)
Since 6 April 2020, if the property qualifies for PRR, the final exempt period of ownership that qualifies for relief in the majority of circumstances is only 9 months. This period should only be counted once in computing relief and should not be duplicated.
Lettings relief
Since 6 April 2020 letting relief has been restricted. It is only available if you qualify and have made a claim for Private Residence Relief on your main residence and you have let part of that main residence (whilst in occupation yourself e.g. taking in a lodger).
Letting relief does not apply where the whole of the dwelling house was let for a time.
Capital Gains Tax mistakes and Business Asset Disposal Relief (BADR)
HMRC offers the following pointers regarding the application of, and claims for, this relief – previously known as Entrepreneurs’ Relief.
The £1 million is a lifetime limit, not an annual limit.
Amounts claimed under the previously named ‘Entrepreneurs’ Relief’ are deductible from the lifetime limit.
Professional should be sought to determine the extent to which earnouts from deferred consideration attract BADR. The analysis is different depending on whether the deferred consideration takes the form of shares, loan notes or cash.
BADR is different from Investors’ Relief.
Capital Gains Tax mistakes and Investors’ Relief
Investors’ Relief (IR) is different to Business Asset Disposal Relief (BADR). The lifetime limit is £10m and is aimed at investors in unlisted companies which they or their family are not involved with.
If you are able to make a claim to BADR then you are highly unlikely to be able to make a claim for IR for the disposal of the same asset.
It is unlikely that a claim can be made if you or someone connected to you has or has ever been an employee of the company that you are disposing of shares in.
The guidance issued to advisors by HMRC can be viewed here. It is long and complex and we would always recommend that you seek professional advice before acting or refraining from acting.
If you require assistance completing your tax return or advice in respect of any area of Capital Gains Tax the RPGCC tax team are here to help. You can contact us on 020 7870 9050 or email us and a member of our team will get back to you as soon as they are able.
