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Nov 202018

Capital Gains Tax

tax planning

If you have sold an asset that has increased in value, then Capital Gains Tax will be due. It is the gains that you will pay tax on and not the amount of money received. When Capital Gains Tax is due, it is more than often, when a house has been sold. Although Capital Gains Tax will be due when you have sold a painting, stocks and shares, sale of a business etc…


So, for example, if you have bought a house for £120,000 and sold it for £190,000 then Capital Gains Tax will be due on £70,000. You do not pay any Capital Gains Tax if you have sold a house that is your main home and residence. You also do not have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.

 

Your tax-free allowance also known as the Annual Exempt Amount for Capital Gains for this current tax year (2020/2021) is £12,300.


You do not pay Capital Gains Tax on assets you give or sell to your husband, wife, or civil partner, unless,

 

If they decide to sell later, they may have to pay tax on any gain. Their gain will be calculated on the difference in value between when you first owned the asset and when they sold it. They should keep a record of what you paid for the asset. 


The rules have changed from April 2020.


 If you sell a house, you must report and pay any tax due within 30 days of selling. Before you had until your next self-assessment to report and pay. If you have not reported and paid any gains within 30 days of selling, HMRC can charge penalties and even interest on any late payments.

 

You will have to register and you’ll need a Government Gateway user ID and password to set your account up or sign in. If you do not have a user ID, you can create one the first time you sign in.


You will need the following information at the ready,

  • Property address and postcode
  • Date you got the property
  • Date you exchanged contracts when you were selling or disposing of the property
  • Date you stopped being the property’s owner (completion date)
  • Value of the property when you got it
  • Value of the property when you sold or disposed of it
  • Costs of buying, selling or making improvements to the property

 

Once you have an account you can sign in at any time to report Capital Gains Tax on UK property or see any returns you have already sent.

 

Once you have sent your return to HMRC, you will be notified on how much you owe in Capital Gains Tax, how to pay and when to pay by.


How much do I pay?


Rates on Capital Gains varies. If you are a higher rate taxpayer you will pay,

  • 28% on your gains from residential property
  • 20% on your gains from other chargeable assets

If you are a basic rate taxpayer, the rate depends on the size of the gain and your taxable income.


  1. Work out your taxable income
  2. Work out your taxable gains
  3. Deduct your annual exempt amount from your taxable gains
  4. Add this to your taxable income
  5. Work out which tax rate you pay

If the amount falls within the basic income tax band (£12,501 to £50,000 for 2020/2021) you will pay,

  • 18% on your gains from residential property
  • 10% on your gains from other chargeable assets

 

You will pay the higher taxpayer rate for any amount above the basic tax rate.


Example

Your taxable income (your income minus your personal allowance and any income tax reliefs) is £15,000

 

You sell a house for £200,000 which you bought for £170,000 for a gain of £30,000

 

Deduct your Annual Exempt Amount which is £12,300 (for tax year 2020/2021) leaving you with a chargeable gain of £17,700

 

Your basic rate band remaining after your taxable income above is £22,500 (£37,500 - £15,000)

 

As the £17,700 is fully within the basic rate band, this is taxed at 18% which means you will have to pay £3,186 in Capital Gains Tax.


You need to collect records to work out your gains and fill in your tax return. You must keep them for at least a year after the Self-Assessment deadline. You will need to keep records for longer if you sent your tax return late or HM Revenue and Customs (HMRC) have started a check into your return. Businesses must keep records for 5 years after the deadline.

 

The new 30-day rule can make things stressful but being organised and keeping records will help a lot. If you are struggling with Capital Gains Tax, give us a call on 02920 653 995 to see how we can assist you.

Oct 201711

The Flat Rate Scheme VAT

tax planning

There has been a change in the VAT Flat Rate Scheme since April 2017. The government are concerned that some businesses are using the scheme to pay less VAT than appropriate. Read our blog to be reminded of the rules and regulations.

 

The Flat Rate Scheme is designed to simplify your records of sales and purchases. It allows you to apply a fixed flat-rate percentage to your gross turnover to arrive at the VAT due.

 

The scheme is for businesses with a turnover no more than £150,000 a year, excluding VAT. The Flat Rate Scheme is a simpler method of working out the VAT you have to pay to HMRC. The flat rate percentage you use depends on your business sector. The correct sector is the one that most likely describes what your business will be doing in the coming year. Click here to find out your sector percentage https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

 

From 1 April 2017 the flat rate changes if you’re a limited cost business. The flat rate percentage will be 16.5% regardless of your sector if you are a limited cost business. You’re a limited cost business if the amount you spend on relevant goods including VAT is either, less than 2% of your VAT flat rate turnover or greater than 2% of your VAT flat rate turnover but less than £1000 per year.

 

You will also get a 1% discount if it is your first year as a VAT registered business. If you’re unsure about your VAT and would like to discuss, then please don’t hesitate to contact us.

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