Financial advice

TAX & ACCOUNTANCY TIPS

Dean Flood www.rowlandhall.co.uk

Disposal of certain trading assets may however qualify for Entrepreneur’s Relief which can reduce the CGT rate to 10% irrespective of the overall earning of the individual."

Brexit continues to dominate the political and economic landscape, so we are somewhat discretely moving into the new tax year which is an opportunity to consider some reminders on the tax regime moving forward.

Personal tax rates and exemptions

The basic parts

For 2019/20, the basic personal allowance (the amount that can be earned without incurring income tax) rises to £12,500. Beyond that, the basic rate tax band increases to £37,500, meaning that higher rate tax should only apply to earnings over £50,000.

A further higher rate of tax of 45% applies for income over £150,000.

The more complex parts

For households where you or your partner receive Child Benefit, or someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep, there is a restriction on the benefit received if either you or your partner has income in excess of £50,000. The benefit is restricted at a rate of 1% for every £100 earned over £50,000, so that by £60,000 all of the benefit is removed. This assessment is either addressed through the taxpayers coding (PAYE) or via a charge within the individual’s tax return. Alternatively, the recipient of the benefit can elect to cease receiving the benefit.

For a taxpayer that earns £60,000 in 19/20 and is in receipt of Child benefit for 2 children, this creates an effective tax rate of 57.9% in 18/19 for the final £10,000 of income. For those earning in excess of £100,000 in 19/20, the personal allowance is restricted by £1 for every £2 earned over that amount. Therefore, an individual earning £125,000 has no personal allowance. This creates an effective tax rate of 60% for the top £25,000 earned.

These effective tax rates are substantial and way beyond what most would consider to be the higher rates of tax. There are ways of mitigating these charges including making personal pension contributions which would be offset before these calculations are made.

Capital Gains Tax

In 2019/2020, the first £12,000 of capital gains will be exempt from CGT. Thereafter the CGT rate is 10% for basic rate tax payers and 20% for higher rate tax payers. There are however special rates that apply to the disposal of certain residential properties being 18% and 28% for the respective tax bands. This will exclude residential properties which are the taxpayer’s principal private residence.

Disposal of certain trading assets may however qualify for Entrepreneur’s Relief which can reduce the CGT rate to 10% irrespective of the overall earning of the individual.

It should be noted that CGT is normally payable by the 31st January following the tax year of calculation. With effect from April 2020, HMR&C are introducing a new 30 day payment requirement for CGT on residential property disposals (excluding principal private residences). It is the taxpayer’s responsibility to attend to this so if you have an anticipated transaction of this nature, make sure you pre-warn your tax advisor as it is not a process that a conveyancing solicitor will be required to address.