Tax shorts: need-to-know information

posted on January 31, 2020in the Blog Category

Tax shorts: need-to-know information

A U-turn on pensions for high earners? 

There have been many stories in the press about GPs and senior hospital doctors refusing to take on extra shifts and additional responsibilities due to the additional tax they are required to pay on the extra pension contributions paid by the NHS.

A number of solutions have been put forward. There are now strong rumours that the tapering of the annual pension allowance for those with income over £150,000 may be abolished or amended for all taxpayers, not just those working in the NHS.

Listen out for a possible announcement in the Spring Budget, together with other changes to pension tax relief.

Is inheritance tax set to be simplified?

Another announcement to listen out for in the Spring Budget is whether the Chancellor acts on the recommendations of the Office of Tax Simplification (OTS) regarding inheritance tax (IHT). As reported in an earlier newsletter, the OTS suggested simplifying IHT on lifetime gifts including reducing the period of potential exemption from 7 to 5 years. Such a change would mean that the donor would only be required to survive for 5 years following a gift for the transfer to be exempt from IHT.

The OTS also suggested that the conditions for Business Property Relief might be tightened up by aligning the rules with the definition of a trading company for CGT. This relief currently provides 100% relief on the transfer of shares in an unquoted company.

The suggested change would mean that more transfers of shares would potentially be liable to IHT and may require a careful review of your plans if you are looking to pass on your business.

Property sale tax set to change in April

If draft legislation issued for consultation is enacted in the next Finance Act there will be important changes to private residence relief for disposals after 5 April 2020.

Firstly, the exemption for the final period of ownership will be reduced from 18 months to 9 months. This applies where a former main residence is disposed of and is intended to give relief where the owner has moved to another main residence until the former residence is sold i.e. “bridging”.

Note that for many years this additional allowance was 36 months that led to a tax planning strategy referred to as “second home flipping” which HMRC are seeking to counteract.

The second change will be the abolition of letting relief except for situations where the taxpayer lives with the tenant. This generous relief currently provides an exemption of up to £40,000 per owner where the former main residence is rented out.

As a result of these two proposed changes you might want to consider disposing of a property before 6 April 2020 if you were planning to take advantage of these CGT reliefs.

AvatarWritten By: Mandi Mottershead

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