The next tax year for 2020/21 heralds some changes to existing taxes for individuals and businesses. Here, Andrew Diver, head of tax at Beatons, looks at the highlights of these changes which were implemented on April 6.
Capital gains tax
Capital Gains Tax (CGT) is a tax on the increased value of a possession, such as a second home, during the time is has been in your ownership.
If a UK resident sells a residential property, they will have a period of 30 days to inform HMRC and pay any money owed.
The seller must submit a standalone tax return covering the Capital Gains Tax, which can no longer be included as part of a self-assessment return.
Failure to tell HMRC about any Capital Gains Tax within the 30-day timeframe will incur a penalty as well as interest on the sum owed.
Greener benefit rates
The government is continuing to promote greener business motoring and has introduced new emissions tests and reduced benefit rates for cleaner vehicles.
For most company cars registered from April 6, 2020, car benefit rates will be reduced by two percentage points for 2020/21 from the rates previously announced. All zero-emission models, regardless of when they were registered, will be subject to a 0% rate.
National Living Wage
On April 1, the National Living Wage (NLW) for workers aged 25 and above increased to £8.72 per hour – up 6.2%. This will lead to an additional £930 a year for a full-time worker being paid the NLW.
The national minimum wage has also increased. Workers in the aged 21 to 24 bracket were given an hourly rise from £7.70 to £8.20 and those aged 18 to 20 received an increase of 30p to £6.45 per hour.
The NLW was introduced by the government in 2016. It is a higher minimum wage rate for workers aged 25 and above.
It comes after the Conservatives pledged to increase the NLW to £10.50 per hour over the next five years if “economic conditions allow” at the party’s annual conference in September.
National Insurance
The threshold on which UK residents start to pay National Insurance (NI) increases from £8,632 to £9,500.
Earnings above this amount, for both employees and self-employed workers, are subject to 12% NI contributions.
It means the average full-time worker will see their tax bill cut by £104 per year, while the typical self-employed worker will see an extra £78 in their pocket.
Inheritance tax
Another change is to inheritance tax. The nil-rate band for inheritance tax for a relative to pass their family home to their direct descendants has increased to £500,000.
Since it was introduced in 2017, the family home allowance has increased every year. In the 2020/21 tax year, it has been raised to £175,000. That combined with the standard threshold of £325,000 means that families will not pay inheritance tax on estates worth less than half a million pounds.
Tax change for landlords
Mortgage tax relief for buy-to-let landlords has been gradually phased out over the past three years. Now, landlords will no longer be able to claim any tax relief on mortgage interest.
Instead, they will receive a tax credit which will be based on 20% of their mortgage interest payments.
Landlords who decide to sell their properties will also be affected by the new CGT rules that have been implemented.
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