Introduction

The deadline for filing the 2023/24 tax return is fast approaching.  The deadline for filing a paper tax return is 31 October 2024 and that for filing the tax return online is 31 January 2025.  Due to the freezing of various reliefs and allowances or their reduction and global movement of internationally mobile employees, a growing number of individuals who never had to file a tax return before, are now required to file a self-assessment tax return.

Although, there is a lot of information available online about when an individual is required to file a tax return, there is still confusion among many taxpayers whether a tax return is required under certain circumstances.  In this article, we will endeavour to answer some common questions to help taxpayers have a clear understanding of their tax return filing duties.

1. Question: Do I need to file a tax return if I received untaxed income or capital gains during the tax year, but HMRC have not asked me to file a tax return.

Answer: It is taxpayers’ responsibility to ensure that any untaxed income or capital gains are reported to HMRC, and the correct amount of tax is paid on it.  Therefore, even if HMRC do not ask you to file a tax return, depending on your personal circumstances, you may be required to file a tax return.  If you are required to file a tax return, but you are not registered to file a self-assessment tax return, you must notify HMRC by 5 October following the end of the tax year.  Therefore, the self-assessment registration deadline for the 2023/24 tax year is 5 October 2024.  Should you need our help with the registration, please feel free to contact us.

2. Question: My income for the 2023/24 tax year is below my personal allowance of £12,570.  Do I need to file a tax return?

Answer: This is a general misconception that if your income for the tax year is below your personal allowance, you won’t have a tax liability and therefore, a tax return is not required.  Below is a general criterion to determine whether a tax return is required even though the income is below the personal allowance.

• you are self-employed (unless this income, before expenses, is within the annual £1,000 trading allowance)
• you are a partner in a business
• you have property income exceeding certain limits.  You can read more about the self-assessment criteria for property income on our page Reporting property income
• you want to claim tax relief on employment expenses over £2,500 in a year
• you have capital gains tax to pay which hasn’t already been paid in-year
• you are a minister of religion – any faith or denomination
• you receive income from a trust or estate of a deceased person and further tax is due
• you receive foreign income (unless this is only dividend income and this, together with any UK dividend income, is less than the annual dividend allowance)
• you need to make a claim for relief under a double tax agreement, or a claim for the remittance basis (where it does not apply automatically)
• you are non-UK resident, and you have taxable income in the UK
• you have income from UK savings and investments of £10,000 or more (excluding those held in an ISA)
• You have income from UK dividends of £10,000 or more (excluding those held in an ISA)
• you have any other untaxed income of £2,500 or more
• you need to pay the high income child benefit charge

You can use HMRC’s tool to determine whether you need to file a tax return.

3. Question: I am resident in the UK, but I receive foreign income and make capital gains which are already taxed in the other country.  I don’t bring these funds to the UK.  Do I need to file a tax return in the UK and report my foreign income and gains in the UK?

Answer: Another general misconception is that if your foreign income or capital gains are taxed in the other country (mostly your home country), you do not need to report such income and gains in the UK and pay tax on them.  The correct and default position is that if you are resident in the UK, your worldwide income and gains are taxable in the UK.  This is however subject to the double tax relief and double tax treaty between the UK and the other country which ensures that you are not taxed twice on the same source.  For non-UK domiciled taxpayers, there might be other options available.  This area of taxation is complex; however, as cross border tax experts we can help you navigate your UK tax compliance requirements.

4. Question: HMRC have sent me a notice to file a tax return, but I don’t have any income or capital gains to report.  Shall I file a nil return?

Answer: If you do not have any income or capital gains to report for a tax year, you can contact HMRC on 0300 200 3310 and request them to cancel your tax return for the tax year.

5. Question: I am not resident in the UK, but I have UK income to report.  Can I use HMRC online software to file my tax return?

Answer: No, non-UK resident individuals cannot use HMRC online software to file a tax return because it doesn’t have a capability of including the residence pages on the tax return.  Non-UK resident individuals should therefore file a return on paper or alternatively use a commercial software to file their return.  We can help non-UK residents to file their UK return.

6. Question: Do I need to file a tax return if I am retired?

Answer: As long as you meet the criteria for filing a self-assessment tax return, regardless of your age or employment status, you are required to file a tax return.

7. Question: I am a full-time student; do I need to file a tax return?

Answer: As long as you meet the criteria for filing a self-assessment tax return, Regardless of your age, the type of your work you do and your nationality, you will need to file a tax return.

8. Question: My spouse who doesn’t have any other income solely owns a rental property, but I receive 100% income from the property in our joint bank account.  Can I report the rental income on my tax return?

Answer: No, your spouse will need to report the rental income on their tax return.  The fact that the rental income is paid into a joint bank account is irrelevant.

9. Question: I own 75% share of a rental property, and my wife owns the remaining 25% of the share.  Do we need to report our respective share of rental income on each of our tax returns?

Answer: In case of a married couple, regardless of the share in the property, each spouse needs to report 50% rental income on their tax return.  However, an irrevocable and joint election can be made by both the spouses to receive the rental income in line with their share in the property.

10. Question: How can Spherical help me with my UK self-assessment tax return?

Answer: At Spherical we combine our knowledge and experience to help private clients i.e., individuals and their families with their income tax, capital gains tax and inheritance tax advisory and compliance needs.  We are known for our expertise in taxation of individuals including property taxes, cross-border taxation and income from trusts and estates.  However, each client requirements are different, and we would be happy to discuss your unique requirements with you.  Please get in touch via email at info@sphericaltax.co.uk or by calling our offices on 020 7859 4047.

Budget 2024/25

Introduction

Chancellor Jeremy Hunt delivered his ‘Budget for Long Term Growth’ on Wednesday 6 March 2024.  His speech promised ‘more investment, more jobs, better public services and lower taxes’.

Lowering taxes

The Chancellor made further changes to National Insurance contributions (NICs), following the cuts made in the Autumn Statement 2023.  The rates for NICs will be cut further for both employees and the self-employed from 6 April 2024.

There was also a cut in the higher rate of Capital Gains Tax on residential property disposals and the creation of a new ISA allowance to encourage investment in promising UK businesses.

The Chancellor has responded to pressure from business groups by raising the threshold for VAT registration to £90,000 and announcing his intention to extend Full Expensing to leased assets.

Making it possible

The Chancellor made his cuts possible with a series of tax-raising measures. These included a new regime for non-doms, the abolition of the Furnished Holiday Lettings tax regime and Multiple Dwellings Relief, alongside a new duty on vaping and an increase in tobacco duty.

Tax bands and rates

The basic rate of tax is 20%. For 2024/25 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.

The basic rate band is frozen at £37,700 until April 2028. The National Insurance contributions upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 for these tax years as well.

For 2024/25, the point at which individuals pay the additional rate of 45% is £125,140.

The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.

Scottish residents

The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from that paid by taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In 2024/25 a new 45% rate will be introduced, making six income tax rates which range between 19% and 48%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK.

Welsh residents

Since April 2019, the Welsh Government has had the right to vary the rates of income tax payable by Welsh taxpayers (other than tax on savings and dividend income). The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. For 2024/25 the Welsh Government has set the Welsh rate of income tax at 10 pence which has been added to the reduced rates. This means the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers.

The personal allowance

The income tax personal allowance is fixed at the current level until April 2028 at £12,570.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140.

The marriage allowance

The marriage allowance permits certain couples to transfer £1,260 of their personal allowance to their spouse or civil partner.

Comment

The marriage allowance reduces the recipient’s tax bill by up to approximately £250 a year. To benefit from the marriage allowance one spouse or civil partner must normally have no income or income below the personal allowance for the year. Since the marriage allowance was first introduced there are couples who are entitled to claim but have not yet done so. It is possible to claim for all years back to 2019/20 where the entitlement conditions are met. The total tax saving for all years up until 2022/23 could be over £1,000. A claim for 2019/20 will need to be made by 5 April 2024.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

Tax on dividends

Currently, the first £1,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). This will be reduced to £500 for 2024/25.

These changes will apply to the whole of the UK.

Dividends received above the allowance are taxed at the following rates for 2024/25:

• 8.75% for basic rate taxpayers
• 33.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers.

The Corporation Tax due on directors’ overdrawn loan accounts is paid at 33.75% and remains unchanged.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Pension tax limits

A number of changes were made to the tax regime for pensions for 2023/24:

• The Annual Allowance (AA) is £60,000.
• Individuals who have ‘threshold income’ for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of ‘adjusted income’ over £260,000, to a minimum AA of £10,000.
• No Lifetime Allowance (LA) charge.

The AA and threshold and adjusted income levels will remain the same for 2024/25.

As previously announced the LA of £1,073,100 will be abolished from 2024/25. Changes have been made to clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements.

Individual Savings Accounts

The government is freezing the limits on Individual Savings Accounts (ISAs) (£20,000), Junior Individual Savings Accounts (£9,000), Lifetime Individual Savings Accounts (£4,000 excluding government bonus) and Child Trust Funds (£9,000) for 2024/25.

The government announced that it is looking to introduce the UK ISA. This will have a new ISA allowance of £5,000 in addition to the existing ISA allowance, and will provide a new tax-free savings opportunity for people to invest in the UK.

High Income Child Benefit Charge

The High Income Child Benefit Charge (HICBC) is a tax charge that applies to higher earners who receive Child Benefit, or whose partner receives it.

The government is increasing the income threshold at which HICBC starts to be charged from £50,000 to £60,000 from April 2024. The rate at which HICBC is charged will be halved from 1% of the Child Benefit payment for every additional £100 above the threshold to 1% for every £200. This means that Child Benefit will not be withdrawn in full until individuals have ‘adjusted net income’ of £80,000 or more.

Non-UK domiciled individuals

From 6 April 2025, the current remittance basis of taxation for non-UK domiciled individuals will be abolished and replaced with a residence-based regime. Individuals who opt into the new regime will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for the last ten years. Anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains.

The government will also introduce the following transitional arrangements for existing non-UK domiciled individuals claiming the remittance basis:

• an option to rebase the value of capital assets to 5 April 2019
• a temporary 50% exemption for the taxation of foreign income for the first year of the new regime (2025/26)
• a two year Temporary Repatriation Facility to bring previously accrued foreign income and gains into the UK at a tax rate of 12%.

The government will also reform Overseas Workday Relief for employment duties carried out overseas.

Inheritance Tax (IHT) is currently a domicile-based system. The government announced the intention to move to a residence-based system, subject to consultation, but no changes to IHT will take effect before 6 April 2025.

National Insurance contributions

The Chancellor has previously announced major changes to the National Insurance contributions (NICs) system.

Employees and NICs

Following the Autumn Statement in 2023 the government cut the main rate of Class 1 employee NICs from 12% to 10% from 6 January 2024. The government has further cut the main rate of Class 1 employee NICs from 10% to 8% from 6 April 2024.

The self-employed and NICs

The self-employed generally have to pay two forms of NICs: Class 2 and Class 4.

Firstly, the government will amend Class 2 self-employed NICs from 6 April 2024. This means that, from 6 April 2024:

• Self-employed people with profits above £6,725 will continue to get access to contributory benefits, including the State Pension, through a National Insurance credit, without paying NICs.
• Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension will continue to be able to do so.

Secondly, the government will cut the main rate of Class 4 self-employed NICs from 9% to 6% from 6 April 2024.

Extension of NICs relief for hiring veterans

The government is extending the employer NICs relief for businesses hiring qualifying veterans for a further year from April 2024 until April 2025. This means that employers will continue to pay no employer NICs up to annual earnings of £50,270 for the first year of a qualifying veteran’s employment in a civilian role.

National Living Wage and National Minimum Wage

The government has accepted in full the recommendations of the Low Pay Commission and announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2024. In addition, from 1 April 2024 the NLW will be extended to 21 and 22 year olds. The rates which will apply from 1 April 2024 are as follows:

The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.

Taxable benefits for company cars

The rates of tax for company cars remain frozen for 2024/25. Future car benefit rates have been announced for 2025/26 to 2027/28:

• For 2025/26, the rates for emissions under 75gm/km increase by 1%.
• For 2026/27, the rates for emissions under 75gm/km increase by a further 1%.
• For 2027/28, the rates for emissions under 75gm/km increase by a further 1%.

The charge for electric cars will rise from 2% to 5% over that period.

For cars with emissions of 75gm/km and above, there will be a 1% rise in 2025/26 only, subject to a maximum of 37%.

From 6 April 2024 the figure used as the basis for calculating the benefit for employees who receive free private fuel from their employers for company cars remains £27,800.

Company vans

For 2024/25 the benefit remains £3,960 per van and the van fuel benefit charge where fuel is provided for private use remains £757. If a van cannot in any circumstances emit CO2 by being driven, the cash equivalent is nil.

Capital Gains Tax rates

The Capital Gains Tax (CGT) rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter.

Higher rates apply for certain gains, mainly chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief. These rates are changed from 18% and 28% in 2023/24 to 18% and 24% in 2024/25.

There is still potential to qualify for a 10% rate on gains up to £1 million under Business Asset Disposal Relief and £10 million under Investors’ Relief.

CGT annual exemption

The government has announced that the CGT annual exempt amount will be reduced from £6,000 to £3,000 from 6 April 2024.

Inheritance Tax nil rate bands

Despite much speculation before the Budget, Inheritance Tax (IHT) has not been abolished. The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2028. An additional nil rate band, called the ‘residence nil rate band’ is also frozen at the current £175,000 level until 5 April 2028.

Changes to Agricultural Property Relief and Woodlands Relief

To ensure compatibility with EU law, action was taken many years ago to expand the scope of Agricultural Property Relief (APR) and Woodlands Relief to property located in the European Economic Area. Following Brexit, this measure reverses those changes and also removes APR from property in the Channel Islands and Isle of Man. Broadly, the changes take effect from 6 April 2024.

Environmental land management and ecosystem service markets

The government is undertaking significant reform of agricultural policy and spending in England.

At Budget 2023, the government published a consultation exploring elements of the tax treatment of environmental land management and ecosystem service markets. Following consideration of the responses, the government has decided:

• to extend the existing scope of APR from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, Devolved Administrations, public bodies, local authorities, or approved responsible bodies and
• not to restrict APR to tenancies of at least eight years.

The VAT registration threshold

After many years of having been frozen, the government will increase the VAT registration threshold from £85,000 to £90,000 and the deregistration threshold from £83,000 to £88,000 from 1 April 2024. The government has stated that these new thresholds will be frozen but has not stated for how long.

Stamp Duty Land Tax changes

A number of changes are made to the Stamp Duty Land Tax (SDLT) regime. These include the following:

• The abolition of Multiple Dwellings Relief, broadly from 1 June 2024 but subject to transitional rules, for purchasers of residential property in England and Northern Ireland.
• Changes to First-Time Buyer Relief to extend it to individuals buying a new residential lease via a nominee or bare trust for transactions with an effective date (usually the date of completion) on or after 6 March 2024, but subject to transitional rules.
• Public bodies in England and Northern Ireland will be removed from the scope of the 15% SDLT higher rate charge where the effective date of transaction (usually the date of completion) is on or after 6 March 2024.

Simplification measures

The government has announced a package of measures that supports its ambition to simplify and modernise the tax system, which includes the following:

• To simplify the process for employees claiming tax relief on their expenses, and for HMRC to automatically process claims, the government is designing a new, online service for employees to claim tax relief on all of their expenses in one place.
• The government will mandate the reporting and paying of income tax and Class 1A NICs on benefits in kind via payroll software from April 2026.
• The government will legislate to introduce a route for people to apply for National Insurance Credits for parents and carers for tax years where they have not claimed Child Benefit, to ensure that people do not miss out on their State Pension entitlement.

Other changes

• The alcohol duty freeze will be extended until February 2025.
• The temporary 5p cut in fuel duty rates will be extended until March 2025 and the planned inflation increase for 2024/25 will not take place.
• A new duty on vaping products will be introduced from 1 October 2026. The government will also introduce a one-off tobacco duty increase from the same date.

Should you need to discuss any of the changes that will be applicable from the 2024/25 tax year, please feel free to get in touch with us on 020 7859 4047 or via email at info@sphericaltax.co.uk

Introduction

Trusts have long been a vital component of estate planning in the United Kingdom, offering individuals a flexible and efficient way to manage and distribute their assets. However, the taxation of trusts is a multifaceted subject that demands a nuanced understanding to navigate successfully. In this comprehensive guide, we will delve into the intricacies of trust taxation in the UK, shedding light on key concepts, regulations, and recent developments.

Understanding Trusts

A trust is a legal arrangement in which assets are transferred by a settlor to trustees who hold and manage those assets for the benefit of specific individuals or entities, known as beneficiaries. Trusts serve various purposes, including wealth preservation, succession planning, and charitable giving.

Taxation Overview

The UK tax system treats trusts as separate entities, distinct from the individuals involved. Consequently, trusts are subject to their own set of tax rules. The taxation of trusts involves several key elements, including income tax, capital gains tax (CGT), and inheritance tax (IHT).

Income Tax

Trusts are subject to income tax on any income they generate. The tax rate may vary depending on the type of income and the type of trust. There are two main categories of trusts concerning income tax: discretionary trusts and interest in possession trusts.

Discretionary trusts have the flexibility to distribute income to various beneficiaries at the trustees’ discretion. The income is taxed at the trust rate, which can be more favorable than individual tax rates. However, there is an additional tax known as the ’10-yearly charge,’ which applies every 10 years.

Interest in possession trusts, on the other hand, designate a specific beneficiary who is entitled to receive the trust’s income. The income is usually taxed at the beneficiary’s individual tax rate.

Capital Gains Tax

Trusts are also subject to capital gains tax when they sell or transfer assets that have increased in value. Like income tax, the rate of capital gains tax varies depending on the type of trust and the nature of the asset. Trustees can use the annual CGT exemption to offset gains up to a certain threshold.

Inheritance Tax

Inheritance tax is a significant consideration in the context of trusts, particularly when assets are transferred into or out of a trust. Transfers into trusts are subject to immediate inheritance tax, while transfers out of trusts may trigger tax charges depending on the circumstances.

There are different types of trusts with distinct inheritance tax implications, such as bare trusts, where the beneficiary has an immediate and absolute right to the trust assets, and discretionary trusts, where the trustees have the discretion to distribute assets among a class of beneficiaries.

Recent Developments and Regulations

The landscape of trust taxation in the UK is dynamic, with changes and updates occurring regularly. Staying informed about recent developments is crucial for individuals involved in trust management. As of the last update in 2022, there have been discussions and consultations about potential reforms to the trust tax regime, aimed at simplifying the rules and enhancing transparency.

One notable change is the introduction of the Trust Registration Service (TRS), requiring certain trusts to register and provide details of their beneficial ownership. This initiative is part of a broader global effort to combat money laundering and enhance tax transparency.

Practical Considerations

Navigating the taxation of trusts in the UK requires careful planning and consideration of various factors. Here are some practical tips:

Seek Professional Advice

Given the complexity of trust taxation, seeking advice from tax professionals and legal experts is essential. They can provide tailored guidance based on individual circumstances and help optimise tax efficiency.

Regular Review of Trust Structures

The tax landscape is subject to change, and so are individual circumstances. Regularly reviewing trust structures ensures they remain aligned with current regulations and best serve the objectives of the settlor and beneficiaries.

Utilise Tax Reliefs and Exemptions

Understanding and utilising available tax reliefs and exemptions is crucial for optimising the tax efficiency of trusts. This includes exemptions such as the annual CGT exemption and reliefs like the spouse exemption for inheritance tax.

Consideration of Multiple Taxes

Trustees must be mindful of the interplay between income tax, capital gains tax, and inheritance tax. A decision that may be tax-efficient in one aspect could have implications in another. A holistic approach is necessary.

Conclusion

The taxation of trusts in the UK is a multifaceted subject that demands careful consideration and expert guidance. Understanding the nuances of income tax, capital gains tax, and inheritance tax within the context of trusts is crucial for effective trust management and estate planning. With the ever-evolving landscape of tax regulations, staying informed about recent developments and seeking professional advice is paramount. Trusts remain powerful tools for individuals seeking to safeguard and distribute their assets, and a strategic approach to taxation is key to unlocking their full potential.

This article provides a comprehensive guide on capital gains tax in the UK. 

Introduction

Capital gains tax (CGT) is an important component of the UK tax system that applies to the profit gained from the sale of assets. This article aims to provide a comprehensive overview of capital gains tax in the United Kingdom, including its purpose, calculation, rates, allowances, exemptions, and potential strategies for minimising tax liability.

Understanding Capital Gains Tax

Capital gains tax is a tax levied on the profit made from the disposal of assets, such as property, investments, and personal possessions, that have increased in value. The purpose of CGT is to ensure that individuals and businesses contribute their fair share of tax when they realise gains. It is important to note that CGT does not apply to some assets, such as a primary residence that qualifies for principal private residence relief.

Calculation of Capital Gains Tax

CGT calculation involves subtracting the asset’s original cost from the final sale proceeds. The resulting amount is the chargeable gain, which is then subject to tax at the applicable rates. However, individuals and businesses can claim various reliefs, allowances, and deductions that can reduce their overall tax liability.

Capital Gains Tax Rates and Allowances

As of the 2021/2022 tax year, there are three different rates for capital gains tax in the UK, depending on the taxpayer’s income level

Standard Rate

Basic rate taxpayers are subject to a CGT rate of 10%, while higher and additional rate taxpayers face a rate of 20%.

Residential Property

For gains arising from the sale of residential property and certain carried interest, the rates are increased to 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers.

Reduced Rate

Entrepreneurs’ relief, now known as business asset disposal relief, offers a reduced CGT rate of 10% for eligible business assets, subject to certain criteria. The lifetime limit for business asset disposal relief is £1,000,000. Additionally, individuals are entitled to an annual exempt amount (£6,000 for the 2023/2024 tax year), which means that they can realise gains up to this threshold without being subject to CGT.

Exemptions and Reliefs

There are several exemptions and reliefs available that can help reduce or eliminate capital gains tax liability in the UK.

Principal Private Residence Relief

Individuals are exempt from CGT on gains made from the sale of their main residence, provided certain conditions are met.

Annual Exempt Amount

As previously mentioned, individuals have an annual exempt amount that allows them to realise gains up to the threshold without incurring CGT.

Business Asset Disposal Relief

This relief, previously known as entrepreneurs’ relief, allows individuals to benefit from a reduced CGT rate of 10% on the disposal of qualifying business assets, subject to specific requirements. The lifetime limit for the business asset disposal relief is £1,000,000.

Gift Holdover Relief

This relief allows individuals to defer CGT when gifting assets to someone else, with the gain arising only when the recipient disposes of the asset. This can be claimed when gifting a business asset to an individual or a company or an asset into a trust.

Roll-over Relief

Roll-over relief allows individuals to defer CGT when selling an asset and using the proceeds to acquire another qualifying asset.

Losses

Capital losses can be offset against gains, potentially reducing or eliminating the capital gains tax liability.

Strategies for MinimiSing Capital Gains Tax Liability

There are several legitimate strategies that individuals and businesses can employ to minimise their CGT liability.

Timing of Asset Disposal

Timing the sale of assets strategically can help reduce overall CGT liability by utilising annual allowances effectively. Spacing out asset sales over multiple years can also ensure that gains fall within lower tax brackets.

Tax-Efficient Investments

Investing in tax-efficient schemes, such as Individual Savings Accounts (ISAs), EIS Shares, SEIS Shares and Venture Capital Trusts (VCTs), can provide opportunities for tax relief and deferral of capital gains tax.

Utilising Spousal and Family Transfers

Transferring assets between spouses, civil partners, and family members can help utilise multiple annual exempt amounts and potentially reduce overall tax liability.

Utilising Offsetting Losses

Capital losses can be offset against capital gains, reducing the taxable gain. Careful planning can help identify opportunities to offset gains with realised or carried-forward losses.

Professional Advice

Seeking advice from tax professionals, such as accountants or tax advisers, can help individuals and businesses navigate the complexities of capital gains tax and identify suitable strategies for minimising tax liability.

Capital gains tax is a significant aspect of the UK tax system, impacting individuals and businesses that realise gains from the sale of assets. Understanding the principles of CGT, including calculation, rates, allowances, exemptions, and available reliefs, is crucial for taxpayers aiming to minimise their tax liability. By staying up to date with current legislation and seeking professional advice when needed, individuals and businesses can make informed decisions and optimise their overall tax position.

At Spherical, our experts can help UK and non-UK resident clients with their capital gains tax planning and meeting compliance requirements. Please feel free to contact us on 020 7859 4047 or via email at info@sphericaltax.co.uk

Capital Gains Tax FAQs

1. What is Capital Gains Tax?

Capital gains tax is a tax levied on the increase in value of certain assets when they are sold, gifted or otherwise disposed of. In other words, it is a tax payable on the gain made from selling an asset, for example, a residential property, shares, land, commercial shop or in some cases cryptocurrencies.

2. How Much is Capital Gains Tax?

Capital gains tax is payable on the gain after using the previously unused capital losses, annual exempt amount and relief. Capital gains tax on the sale of a residential property is 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers. CGT rate for the sale of other assets is 10% for a basic rate taxpayer and 20% for a higher and additional rate taxpayer.

3. How to Avoid Capital Gains Tax?

There are many legitimate ways in which the capital gains tax can be reduced or even completely eliminated. Reliefs like gift relief, roll-over relief, principal private residence relief, and re-investment relief are some of the reliefs that can help you reduce or eliminate capital gains tax.

4. Who Pays Capital Gains Tax?

The person who is making the disposal of the asset is responsible for paying capital gains tax. In the UK, individuals, companies and trusts pay capital gains tax.

5. When Do You Pay Capital Gains Tax?

On the sale of the residential property, the capital gains tax is payable within 60 days of the completion. For all other assets, capital gains tax is payable by 31 January following the end of the tax year.

Introduction

As we get close to the second payment on account deadline for self assessment tax return, it is essential for taxpayers in the UK to turn their attention to start preparing their 2022/23 tax returns. The deadline for filing the tax year for the 2022/23 tax year is 31 January 2024. This article aims to inform and guide individuals on the process of filing their UK tax return for the year 2022/23, providing tips and resources for a smooth and hassle-free experience.

Understanding Your Obligations

Before you dive into the tax return process, it’s important to understand who is required to file a self assessment tax return in the UK. If you fall into any of the following categories, you need to file a tax return:

1. Self-employed individuals and partnerships
2. Company directors
3. Individuals receiving income from investments or property
4. Individuals notified by HMRC to file a tax return
5. Individuals who have received income from abroad that is liable to the UK tax
6. Any individual with tax due on gains from the sale of assets (e.g., shares, property)

Gathering the Required Documents

Next, gather all the necessary paperwork and documentation needed to complete your tax return accurately. The documents you may need include:

1. P60: This document outlines your income, tax deductions, and National Insurance contributions from your employer and student loan (if applicable).
2. P11D: If you receive additional benefits from your employer, such as a company car or private medical care, you’ll need this form.
3. Self-employment records: If you’re self-employed, ensure you have all your financial records, including invoices, receipts, and business expenditure documents.
4. Investment and property income: Keep records of all income earned through investments and properties, including interest and rental income.
5. Bank statements: These will help you track your income and expenses throughout the year.
6. Gift Aid donations: If you made charitable donations, you’ll need documentation to claim any tax relief.
7. Any other relevant receipts or invoices: Hold on to any receipts or invoices that may help to lower your tax liability, such as education expenses or job-related costs.

Utilising HMRC Tools and Resources

HMRC provides excellent resources and online tools to support taxpayers through the tax return process. One of the most important tools is the Self-Assessment Tax Return service, available on the government’s website. It allows taxpayers to complete their tax returns online, simplifying the process and ensuring accuracy.

Additionally, HMRC provides helplines and webinars to provide further guidance and support. They also offer a variety of tax calculators and forms that can help individuals calculate their tax liability accurately.

Consider Professional Assistance

While the tax return process may seem straightforward, it can become complex for individuals with certain circumstances or those lacking familiarity with UK tax laws. Seeking assistance from a qualified tax adviser or accountant can offer peace of mind, ensuring your tax return is filed correctly and any potential tax savings are maximised.

Important Deadlines and Penalties

To avoid any unwanted penalties or fines, it’s crucial to submit your tax return on time. The deadline for filing your tax return online for the tax year 2022/23 is 31 January 2024. Filing late can result in automatic penalties, so it’s in your best interest to meet this deadline. Remember, it’s never too early to start preparing your return to avoid last-minute stress.

Conclusion

The annual process of filing your UK tax return can be a daunting task for many individuals. However, with proper preparation, organisation, and the utilisation of HMRC’s resources, the process can be streamlined and manageable. If you need extra support, don’t hesitate to seek professional assistance. By meeting the deadlines and taking the necessary steps, you can successfully complete your 2022/23 UK tax return and maintain compliance with the tax laws.

FAQs:

Q: Who is required to file a tax return in the UK?

A: In the UK, individuals are required to file a tax return if they fall under any of the following categories: self-employed individuals, directors of limited companies, those receiving income from abroad, trustees, and individuals with complicated tax affairs.

Q: When is the deadline for filing a UK tax return?

A: The deadline for filing a UK tax return is 31 October following the end of the tax year for paper returns and 31 January for online returns.

Q: How can I file my UK tax return?

A: There are two ways to file a UK tax return: paper filing and online filing. Paper filing involves completing a physical tax return form (known as a SA100) and sending it to HMRC by post. Online filing, on the other hand, can be done using HMRC’s online services or through commercial software.

Q: What documents and information do I need to file a UK tax return?

A: When filing a UK tax return, you will need various documents and information, such as personal details (including National Insurance number), P60 or P45 forms, records of self-employment income, details of any rental income, bank and building society statements, dividend vouchers, and other relevant documents related to income and expenses.

Q: What expenses can I claim on my UK tax return?

A: The expenses that can be claimed on a UK tax return depend on individual circumstances and the nature of one’s income. Common expenses that may be claimed include business expenses (for self-employed individuals), travel and accommodation expenses, professional fees and subscriptions, and the cost of working from home. It is recommended to consult HMRC guidance or seek professional advice to determine the specific expenses applicable to your situation.

Q: Are there penalties for late filing or errors on a UK tax return?

A: Yes, there are penalties for late filing or errors on a UK tax return. The penalties can vary depending on the circumstances and behaviour of the taxpayer. If you fail to file your tax return by the deadline, you may face an initial penalty, followed by additional penalties for further delays. Errors or inaccuracies in your return may also result in fines. It is important to meet the deadlines and ensure the accuracy of your tax return to avoid penalties.

Q: Can I get help with filing my UK tax return?

A: Yes, several options are available for getting help with filing your UK tax return. HMRC provides online guidance, resources, and helplines to assist taxpayers. Additionally, you can seek the assistance of a qualified accountant or a tax adviser.

How we can help?

We are qualified and expert tax advisers who understand tax legislation and are up to date with ever-changing tax laws. We can help you with your self assessment tax return and ensure that it is compliant and you are not paying a penny more in taxes than you are required to.

Tax relief on pension contributions in the UK is a valuable incentive for people to save for their retirement. The government provides tax relief to encourage people to save for their own future, rather than relying on state pensions. In this article, we will explain what tax relief is, how it works, and the benefits it provides to UK citizens.

What is tax relief on pension contributions?

Tax relief is the amount of tax that you don’t have to pay or get back from the government. It is provided by the government and is intended to encourage people to save for their retirement. When you make contributions to your pension plan, the government offers tax relief on some or all of your contributions, depending on how much you pay into your pension and your personal tax circumstances.

How does tax relief on pension contributions work?

The amount of tax relief you receive on your pension contributions is based on the rate of income tax you pay. For example, basic rate taxpayers receive 20% tax relief, while higher and additional rate taxpayers receive 40% or 45% respectively.

If you are a basic rate taxpayer and you pay £100 into your pension, the government will add £20 of tax relief, making your total pension contribution £120. If you are a higher rate taxpayer, which is someone who pays between £50,271 and £125,140 per year, you will receive 40% tax relief. So, for a £100 contribution, you would receive £40 tax relief from the government.

There is one important condition attached to tax relief on pension contributions. You can only receive tax relief on contributions up to the annual allowance, which is currently £60,000. This means that if you contribute more than £60,000, you will not receive tax relief on the excess amount. However, you may be able to carry forward unused allowance from the previous three years.

It is also worth noting that if you are a higher earner, you may have to pay a reduced annual allowance.

What are the benefits of tax relief on pension contributions?

There are several benefits to receiving tax relief on your pension contributions. Here are some of the key advantages:

1. Boost your pension savings

Tax relief provides an automatic boost to your pension savings, making it easier to build up a retirement nest egg. The more you contribute to your pension, the more tax relief you receive, which means you can accumulate more retirement savings over time.

2. Reduce your tax bill

Tax relief also helps reduce your tax bill by decreasing the amount of income tax that you pay. This is done by expanding your basic rate and higher rate tax bands.

3. Retirement planning

By providing tax relief on pension contributions, the government is encouraging people to take responsibility for their own retirement planning. It is a way of incentivising UK citizens to start saving early and regularly for their future, rather than relying solely on state pension schemes.

4. Employer contributions

Employer contributions to a workplace pension scheme also receive tax relief. This means that you can benefit from both your own contributions, and those made on your behalf by your employer. It is a useful way to maximise your retirement savings potential.

Conclusion:

Tax relief on pension contributions is an important incentive in the UK to encourage people to save for their retirement. It provides a valuable financial boost to your pension savings, helps reduce your tax bill and encourages people to take responsibility for their future retirement planning. Make sure you take advantage of this incentive when making pension contributions and seek professional advice if you are unsure about how much you can contribute and benefit from tax relief.

FAQs:

Here are some FAQs about pension schemes and pension contributions in the UK:

Q: What is a pension scheme?

A: A pension scheme is a type of savings plan designed to provide an income in retirement. It requires regular contributions from the member, as well as possible contributions from their employer and the government.

Q: What types of pension schemes are there?

A: There are two main types of pension schemes in the UK: defined benefit and defined contribution. Defined benefit schemes provide a guaranteed income based on factors such as your salary and length of service. Defined contribution schemes involve contributions being invested to build up a retirement pot, and the amount you have at retirement depends on market performance and how much you have contributed.

Q: Can I have more than one pension scheme?

A: Yes, you can have multiple pension schemes. For example, you may have a defined benefit scheme with your current employer and a defined contribution scheme from previous employment. You can also have a personal pension if you are self-employed or if your employer doesn’t offer a pension scheme.

Q: How much should I contribute to my pension scheme?

A: The amount you should contribute depends on your income, retirement goals, and other financial commitments. As a rough guide, experts recommend contributing at least 10-15% of your income to your pension scheme, including any employer contributions.

Q: Is my employer required to contribute to my pension?

A: If you are enrolled in a workplace pension scheme, your employer is required to contribute a minimum amount. The current minimum contribution is 3% of your qualifying earnings, which will rise to 5% in April 2021.

Q: Can I contribute more than the minimum to my workplace pension?

A: Yes, you can contribute more than the minimum required by your employer. This can help to boost your retirement pot and may have tax benefits, depending on your circumstances.

Q: What tax benefits are there to contribute to a pension?

A: Contributing to a pension can have tax benefits, as your contributions are deducted from your taxable income. This can bring you into a lower tax bracket and reduce your overall tax bill. However, there are limits to how much you can contribute tax-free each year and over your lifetime.

Q: Can I withdraw my pension contributions before retirement?

A: In most cases, you cannot withdraw your pension contributions before reaching the age of 55. There are some exceptions, such as serious ill health or if you have a protected pension age.

How we can help?

If you are a basic rate taxpayer, 20% tax relief is automatically applied to your pension contributions. However, if you are a higher rate or additional rate taxpayer, you may need to submit a self assessment tax return to claim additional relief.

We can help you plan your pension contributions by providing tax advice in relation to your pension contributions.

Feel free to get in touch by filling in the form below or by calling 020 7859 4047.

As the world becomes more connected and globalised, international transactions and investments are becoming increasingly common. However, with the expansion of these activities comes a challenge to avoid double taxation, which occurs when the same income or profits are taxed in two different countries.

The UK has recognised the complexity and unfairness of double taxation and has established Double Taxation Treaties (DTTs), otherwise known as Double Taxation Agreements (DTAs), with over 130 countries. The main purpose of these DTTs is to eliminate double taxation by establishing clear rules for tax jurisdiction, residence, and relief.

The importance of DTTs in UK taxation cannot be understated. These agreements provide a framework that enhances the investment climate in the UK, giving foreign investors the confidence and certainty they need. Without these treaties in place, businesses and investors may become reluctant to invest in the UK, fearing that their income and profits will be subject to taxes in both their home country and the UK.

In addition to preventing double taxation, DTTs establish rules to eliminate tax evasion and ensure compliance with tax laws. These rules outline the obligations of both countries regarding the disclosure of financial information, and they also specify which country has the right to tax specific types of income, such as dividends, royalties, and capital gains.

DTTs also have the important role of reducing withholding taxes on dividends, interest, and royalties. By reducing tax rates, these treaties lower the cost of cross-border transactions, encourage foreign investments, and promote international trade.

Furthermore, DTTs play a crucial role in preventing tax disputes and uncertainties between countries, as they provide a clear definition of tax responsibilities and boundaries. Having a DTT in place minimises the risk of companies being subject to different interpretations of the same law by different countries. This enables companies to plan and carry out their business activities with more certainty and predictability.

In conclusion, Double Taxation Treaties play a key role in promoting foreign investment, trade, and business in the UK by eliminating double taxation and providing a framework for tax jurisdiction and relief. They also contribute to reducing withholding taxes, preventing tax disputes, and ensuring compliance with tax laws.

As much as double tax treaties are helpful and work for the benefit of taxpayers, understanding and applying the correct meaning of a treaty can be complex. At Spherical, our specialist tax advisors based in our Wimbledon office can help you plan your taxes in light of a relevant double tax treaty.

Feel free to call us on 020 7859 4047 to discuss your requirements.