End of Tax Year 2014/15 personal tax planning
2) Capital Gains Tax
Following on from my first article on income tax, this one looks at Capital Gains Tax (CGT) and summarises some of the areas which should be considered. Currently, CGT is charged at either 18% for basic rate taxpayers or 28% for higher rate taxpayers.
Everyone is allowed an annual exemption of £11,000 for the 2014/15 tax year. If you are planning a series of capital disposals in the next few months, then depending on the total gains, consider some disposals before and into the new tax year 2015/16 so you can benefit from annual exemptions for both tax years. Married couples and civil partners can transfer assets between them with no tax implications. Transfers should be considered, before a sale, to obtain two annual exemptions as well as shifting the gain to the spouse with a lower CGT rate of 18%.
Nobody wants to make a loss on the sale of an asset, but if you do, then at the very least, the loss should be utilised in the most efficient way to reduce your CGT liability. Losses can be used to offset capital gains in the same tax year and it is also possible to carry forward any unutilised losses indefinitely for offsetting against future capital gains. A capital loss can also be claimed on an asset that is virtually worthless. Where the asset is of 'negligible value' by 5th April 2015, the capital loss can be used in 2014/15.
Depending on the item of sale, another point to consider is Entrepreneurs Relief (ER), which is available on the first £10m of qualifying gains within an individual’s lifetime. ER is a relief on CGT meaning tax will be charged on any gains at 10% instead of 18% or 28%. As with most reliefs, there are a number of conditions that have to be satisfied, so if you are planning to sell your business than it is vital to plan ahead and make any necessary corrective changes.
For those planning to move abroad in the near future, now is the time to start planning, and if possible, leave before the start of the new tax year. The length of time abroad and long term plans can affect your UK residency status, potentially an effective way to save tax. Non-residents are not subject to UK income tax on income that arises outside the UK or CGT on most assets sold. If you are planning to emigrate in the near future, than this gives you an opportunity to consider your options and timing of disposals.
With regards to UK residential property, a major change will come into effect for disposals after 5th April 2015. Prior to this, non-residents can dispose of UK residential property without fear of UK CGT. From 6th April 2015, taxpayers can choose between using the property’s 6th April 2015 value as a base cost or apply a time apportionment of the entire gain. The most favourable method will not be apparent until the property is sold, which may be years away and it would be advisable for non-residents to obtain a 6th April 2015 valuation for future use while evidence is easily available.
If you already have non-resident status, then it is important to keep a close eye on your status to ensure you are compliant with the statutory residence test. If you are deemed to be a resident then this could trigger significant tax liabilities.
For further advice on CGT, please contact our landlord specialist Shakeel Butt.