Insights

Welcome to A New Tax Year: 2019/2020 What You Need to Know

Have a read of our handy summary of everything you need to know about the changes coming in to play from 6 April 2019 and beyond.  Emma Boyle, our tax manager, and the private client team are on hand to guide you through how these changes may affect you and any planning that could be beneficial to optimise your tax position.

Income tax

2018/2019 saw the first year for the new tax bands for Scottish taxpayers and the updated thresholds are detailed below.

• The 2019/2020 personal allowance will increase to £12,500.
• The first £2,050 above the personal allowance will be taxable at 19%, 20% up to £12,445, 21% up to £30,930 and then the higher rate of 41% on earnings up to £150,000 where the additional rate of 46% will apply.

• Dividend allowance remains at £2,000 with dividends then taxable at 7.5% up to £37,500, 32.5% up to £150,000 and 38.1% thereafter.
• The married couples allowance is available to married couples born on or after 6 April 1935 where one individual is a non-taxpayer (earning less than £12,500 in 2019/20) and the other is a basic rate 20% taxpayer (income between £12,500 and £43,430).  The allowance allows the non-taxpayer to transfer £1,250 of his or her personal allowance to their husband, wife or civil partner, reducing their tax liability by up to £250.  The claims can also be backdated as far back as 6 April 2015.
• For those who run rental properties the next phase out of finance costs restrictions (including mortgage interest) come into place. Deductions of finance costs from property income will be restricted to 25% of annual costs incurred.  The remaining 75%  of the costs will be subject to a basic rate deduction at 20% based on the lower of:

1. Finance costs not deducted from income tax
2. Profits of the rental property in the year
3. Your total income (excluding savings income and dividend income) that exceeds the personal allowance

Capital Gains Tax

There are no significant changes to CGT for 2019/2020, with the only notable changes being to entrepreneurs’ relief and investors’ relief.  The significance of 2019/2020, is that this is the last year before the reporting and payment obligations change in relation to UK residents disposing of UK residential property, including changes to the relief available on disposing of your main residence and lettings relief for let properties.  These changes could therefore prompt some careful planning during 2019/2020, especially for those in two minds whether to sell or let properties given the current market conditions.  

From 6 April 2019

• The CGT Annual Allowance increases to £12,000.
• The CGT rates remain at 10% and 20% other than for residential property (not considered your main residence) where rates of 18% and 28% apply.
• The scope of UK CGT for non-UK residents will be extended to include all disposals of UK property (not just residential property) as well as assets deriving at least 75% of their value from UK land; this could include the disposal of shares in property rich companies, if you hold a substantial interest, being 25% or more, at any time in the 2 years before the sale. The effect is that all CGT disposals of UK property must be reported to HMRC within 30 days of disposal and the tax must also be paid by this date.
• These new non-resident reporting and payment rules can be complex with various reliefs and exemptions potentially available, if you have any questions on this please get in touch.
• Prior to 6 April 2019, for entrepreneurs' relief (CGT rate of 10%) to apply on disposal of shares in a personal company, an individual must have held at least 5% of the ordinary share capital, at least 5% of the voting rights, and entitlement to at least 5% of profits and assets on a winding up, throughout the 12 month period prior to disposal. From 6 April 2019 the holding period requirement increases to 24 months.
• Investors' relief was introduced from 6 April 2016 and applies CGT at 10% on disposals of shares in unlisted trading companies or the holding company of a trading group. Unlike entrepreneurs' relief there is no minimum qualifying percentage shareholding.  The relief applies to shares held for at least three years and therefore 2019 will be the first year investors may make a claim on qualifying disposals.

From 6 April 2020

• Currently for UK residents, the reporting and payment of CGT arising on second homes and additional residential properties remains the same, with any capital gains tax due by 31 January following the end of the tax year of disposal. For example a disposal made on 10 May 2019 should be reported, and any tax paid by 31 January 2021.  However from 6 April 2020, UK residents (including trustees and executors) who make a gain on disposing of UK residential property (including sales and gifts to family members or other connected parties) must submit a residential property return within 30 days of the completion of a disposal of UK residential property and make a payment on account of any tax due.
• The new residential property reporting and payment rules can be complex with various reliefs potentially available, if you have any questions on this please get in touch.
• It should be noted that changes to the exemptions available on disposal of a main residence also come into place from 6 April 2020. Where there is a gap in occupancy of a main residence, the exemption for the deemed final period of ownership will be reduced from 18 months to 9 months. 
• There will also be changes to letting relief which will be restricted to situations where the owner is in shared occupancy with the tenant. It will therefore no longer be available to individuals who simply rent out a property which was previously their main residence. Again, the final period exemption will be reduced to 9 months.

Inheritance Tax

• The residence nil-rate band for property passing to a direct descendant increases from £125,000 to £150,000 and therefore, when combined with the standard nil rate band of £325,000, each individual now potentially has a total tax free allowance of £475,000 where the residence nil-rate band and standard nil-rate band apply in full. This means married couples could potentially leave assets worth up to £950,000 free of inheritance tax (ignoring any other reliefs or exemptions).

Please contact us for any advice on your own personal Inheritance Tax Position.