December 2024 Tax Tips & News

Capital Gains: Investors’ Relief limit cut among changes revealed

One of the headline areas of tax reform in the Autumn Budget surrounded Capital Gains Tax. With rates altered by the Chancellor, it was one of the areas which attracted the most focus.

Since Rachel Reeves’ speech, the full details of the Budget have been released. As is always the case after a Chancellor’s Budget speech, many more details are subsequently published. In this case, more changes around CGT have emerged.

This included rules on Investors’ Relief (IR), which has had, up until now, a lifetime limit of £10 million of qualifying gains for an individual. But this has been cut to £1million. The measure was announced to apply immediately (from Budget day on 30 October) although it must be passed by MPs in Parliament first, as part of the Finance Bill 2024-25.

This relief allows for individuals to pay a lower rate of CGT when selling ordinary shares in an unlisted trading company, under certain circumstances or criteria. The cut to the limit is another element of raising revenue, officials stated, alongside the rises to CGT rates. However, less than 50 people will be affected in the 2025 to 2026 tax year, according to Government papers.

The second announcement came in a policy paper on Capital Gains on liquidation of a Limited Liability Partnership. HMRC said this particular move was about “tackling an avoidance scheme”, adding it will “increase trust in the tax system”.

This will affect members of a Limited Liability Partnership (LLP) who have contributed assets to a Limited Liability Partnership that is then liquidated.

HMRC’s policy paper stated: “This measure ensures that where a member of a LLP has contributed assets to the LLP, chargeable gains that accrue up to the contribution are charged to tax when the LLP is liquidated and the assets are disposed of to the member, or a person connected to them. The LLP will be liable in the normal way for gains from that time on their actual disposal of the asset.”

Both sets of changes will be included within The 2024-25 Finance Bill, due to come before Parliament soon. This bill’s purpose is to enact changes proposed in the Budget.

Changes to Alternative financing tax rules

Tax rules for individuals and companies using alternative finance are to change. The Government released plans for reform on the day of the Autumn Budget, with the aim of simplifying the tax treatment of alternative finance and, in particular, refinancing arrangements.

The objective of the policy is to “ensure a level playing field across conventional and alternative of finance,” the Government said.

In the policy paper, officials noted that these changes will ensure “where an existing asset is used as a means to raise finance using alternative finance, the tax outcome is broadly the same as conventional financing”.

The changes also connect to Capital Gains Tax. It means a disposal for CGT purposes “does not occur when a beneficial interest in an asset is transferred by an individual to an alternative finance provider as a condition of funding”, the HMRC papers stated, adding: “This outcome creates fairness and certainty for individuals as it ensures that they will not face a tax charge should they wish to use this form of finance.”

The paper continued: “Under the current tax rules, entering into certain types of alternative finance arrangements can result in tax consequences that do not arise under conventional financing. This issue mostly affects properties that do not qualify for Capital Gains Tax Private Residence Relief, such as rental properties, second homes and commercial properties.”

According to HMRC, the changes will benefit, in particular, people with religious beliefs that prohibit receiving and paying interest, because they can not use other financing products currently.

The Finance Bill 2024-25 will include amending the relevant parts of three existing pieces of legislation:

– The Taxation of Chargeable Gains Act (TCGA) 1992
– Income Tax Act (ITA) 2007
– The Corporation Tax Act (CTA) 2009

Christmas company parties – cause for cheer

With Christmas soon arriving, you may be planning a festive party for your employees or on behalf of the company you work for.

It sometimes surprises people to hear that your business can benefit from a tax-free allowance for throwing a yuletide bash.

You can spend up to £150 each year per employee for holding a Christmas party and you do not have to pay tax or national insurance on this.

The party must be open to all employees. For those of you with a business operating at multiple sites, HMRC has this to say: “If your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of them.”

And the other good news is that it could even be an online party, rather than in-person.

It’s also worth noting that it’s not just a Christmas social function that attracts this tax benefit. A party at another time of year could also count. A summer barbecue is another example specifically mentioned by HMRC. You could host a new year party, for example. The requirements state it has to be considered an ‘annual event’ to qualify.

It’s also worth noting the position regarding salary sacrifice arrangements. It’s not necessary to report how much parties are worth to each employee if they are a part of such a scheme.

Tax compliance rules for charities to change

Plans to change tax compliance rules for charities are moving forward, as the new Government picks up proposals for reform to prevent misuse.

The previous Government had created proposals to prevent donors from obtaining a financial benefit from their contributions and stop wrongful use of charitable investment rules.

The changes also included introducing sanctions for charities failing to meet their filing and payment obligations.

After a widespread consultation receiving responses from charities, law firms, businesses and other bodies, the new Government has announced it will move ahead with the plans, though it will modify the original proposals.

The government says it will publish draft legislation for consultation in 2025, before introducing the legislation later in the year.

This will include making changes to the Fit and Proper Persons test to “enable it to better address poor compliance with tax obligations”.

A charity manager or trustee who “persistently fails to comply with the charity’s tax obligations, including timely filing of returns,” will not pass the Management Condition.

In the latest statement on the proposals, officials noted: “This will provide a proportionate approach by addressing the risk but giving charities the opportunity to correct it before sanctions are applied.”

HMRC says managers will get the chance to “rectify their non-compliance but if this is not done it may require the manager to be removed which may ultimately result in the withdrawal of tax reliefs”.

There will be an education programme and communications campaign to flag up the new rules and to help charities understand how to comply correctly.

The Government also indicated it would tackle the problem of donors from obtaining a financial benefit from their donation by altering the Tainted Charity Donation rule, with the aim of implementing changes from 2026.

December Questions and Answers

Q: I own a second home worth £400,000, which I bought for £250,000 and I have shares valued at £50,000, which I purchased for £40,000. How will the recent Capital Gains Tax changes in the Budget impact what I owe if I sell these assets now compared to if I had done so before the changes were made?

A: You’re right to identify that Capital Gains Tax has changed in the latest Budget. The simple headline answer is that selling now would result in a slightly higher CGT liability (compared to before the announcement) because of the increased rate on investment gains.

We can see from your figures that you’ve gained £150,000 on your property. You needn’t worry about property though in terms of CGT rises. Residential property rates are not changing, so you won’t be losing out in that regard by selling now rather than before the Budget.

But with £10,000 gains on your investment assets, you will be liable to pay HMRC a bit more due to the increased rate on investment gains.

The main rates of CGT have been raised. The lower rate increases from 10% to 18%, while the higher rate rises from 20% to 24%.

For 2024 to 2025 you get a tax-free allowance of £3,000. This hasn’t changed.

In order to accurately work out what CGT you’d need to pay, we’d also need to know some other key details – i.e. what your other income and salaries are. CGT rates depend on your income tax band – hence the lower and higher rates mentioned above.

Please get in touch with our team if you’d like to delve into the detail of your CGT obligations.

Q: I’m an investment manager and part of my compensation comes from carried interest. I’ve heard about changes announced in the Autumn Budget 2024. What do these changes mean for me, and how will they affect my tax position?

A: There were indeed changes announced in the Budget relating to Capital Gains Tax (CGT) on carried interest.

For those reading this not familiar with carried interest, this tax break enables private equity fund managers to pay a reduced rate of tax on their earnings.

As a result of the Chancellor’s Autumn Budget, the CGT rate on carried interest is rising to a flat 32%, effective for any carried interest payments arising on or after April 6, 2025.

The existing rules meant carried interest was taxed at 18% for basic-rate taxpayers and 28% for higher- and additional-rate taxpayers. Those rates are being replaced with a single rate of 32%, meaning most individuals in your position will see an increase in their CGT liability on carried interest.

So, depending on the amount of carried interest you receive, you’ll need to factor in the increased rate when calculating your post-tax income from April 2025 onwards. If carried interest is a significant part of your compensation, you may want to review your financial plans to ensure you’re prepared for this change.

If you’d like to discuss the finer details of how this will specifically impact your tax position or explore planning strategies, please get in touch with our team.

Q: Me and my wife started a small enterprise earlier this year and by the nature of what we sell, our business is very much seasonal; Christmas is going to be our busiest time. So, we’ve been recruiting new employees on temporary contracts. But we were surprised when one of our first starters said we should be paying into a pension scheme for her, even on this short term basis. Is this right?

A: It is possible that your new seasonal or temporary staff might be eligible for automatic enrolment into a workplace pension. Even staff on variable hours and pay, and only working for a few days could be eligible. It depends on the details of their earnings and it’s down to you as the employer to investigate and check if they do qualify.

It’s certainly a serious matter because employers who fail to comply, ultimately, risk being fined.

The Pensions Regulator gives a useful indication of what’s required, stating the following: “You must assess your staff to work out who to put into a scheme based on their ages and how much they earn. If you employ family members they will need to be assessed too. Any staff that are aged between 22 to State Pension Age and earn over £192 a week, or £833 a month, must be put into a pension scheme which you must pay into.”

It’s also worth looking into ‘postponement’ for any staff working for you under three months. This “pauses the duty to assess those staff until the end of the three-month postponement period”, HMRC says.

For more help with this and any tax-related issues with your seasonal business, give our team a call.

December Key Dates

19^th

– For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you’ll owe HMRC.

22^nd

– Deadline for employers operating PAYE to pay HMRC. This is also the quarterly deadline for businesses that pay per quarter.

30^th

– Deadline for submitting online Self-Assessment Tax Returns for people who pay their self-employment earnings tax bill through their PAYE tax code. Only those who owe less than £3,000 in tax from Self-Employment are eligible for this.

31^st

– Deadline for filing the Company Tax Return (CT600) for companies with an accounting period ending 31 December 2023.
– The Annual Accounts filing deadline for companies with a year-end of 31 March 2024 to file their accounts with Companies House.