Key areas to consider when completing a return
HMRC Agent update 119 highlights many simple errors in relation to Capital Gains Tax.
These errors can lead to checks into self assessment returns resulting in:
HMRC recommends that reading the Capital Gains Summary notes as well as the relevant helpsheets for Capital Gains Tax when filling in the capital gains pages of the self assessment tax return can eliminate some of these common errors.
HMRC Capital Gains Manual explains these rules in more detail. Following are some of the key areas which members should watch out for when completing a CGT return.
Annual Exempt Amount (AEA)
Ensure that the correct AEA (also known as your tax-free allowance) is applied.
The AEA reduced from £12,300 to £6,000 for individuals for disposals from 6 April 2023. This will need to be reflected on the 2023 to 2024 self assessment returns.
The AEA will be reduced to £3,000 for individuals for disposals from 6 April 2024. This will need to be reflected on the 2024 to 2025 Self Assessment returns.
Trustees and executors have different AEAs so you should consult the guidance on Capital Gain tax rates and allowances on GOV.UK.
UK residential property disposals
If you are a UK resident and you dispose of an interest in UK residential property and there is CGT to pay you will have to:
This also applies if you are non-resident. There are additional filing requirements for non-residents.
In some cases a self assessment return will also be required for the year. You can find more information on when to report and pay your Capital Gains Tax.
Private Residence Relief (PRR)
Since 6 April 2020, if the property qualifies for PRR, the final exempt period of ownership that qualifies for relief for the majority of circumstances is now only nine months.
This period should only be counted once in computing relief and should not be duplicated. Read further information on Private Residence Relief.
Letting relief
Since 6 April 2020 letting relief has been restricted. It is only available if you qualify and have made a claim for Private Residence Relief on your main residence and you’ve let part of that main residence.
Letting relief does not apply where the whole of the dwelling house was let for a time.
Business Asset Disposal Relief (BADR)
The £1m is a lifetime limit, not an annual limit.
Amounts claimed under the previously named ‘Entrepreneurs’ Relief’ are deductible from the lifetime limit.
The £1m lifetime limit applies to deferred gains brought into charge. Earnouts from deferred consideration based on the Marren v Ingles principles are not considered as ‘business assets’ so BADR is not available.
BADR is not the same as Investors’ Relief. If you are claiming for BADR you should check that you have completed the boxes on the Self Assessment return for BADR and not Investors’ Relief.
More information is available at Business Asset Disposal Relief (Self Assessment helpsheet HS275).
Investors’ Relief (IR)
Investors’ Relief (IR) is different from Business Asset Disposal Relief (BADR). The lifetime limits and the qualifying conditions are different.
If you’re able to make a claim to BADR then you’re highly unlikely to be able to make a claim for IR for the disposal of the same asset.
It is unlikely that a claim can be made if you or someone connected to you is or has ever been an employee of the company that you’re disposing shares in.
More detailed information can be found on Investors’ Relief (HS308).
Members’ Voluntary Liquidation
If a person receives or becomes entitled to receive a capital distribution from a company, made by a liquidator during the course of a winding up, the amount is chargeable to tax under section 122 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992).
The date of the distribution is the date the person receives, or becomes entitled to receive, the distribution.
The date of distribution is not the date the liquidation is finalised.
HMRC guidance is available on distribution made in winding up.
Gift Hold Over Relief
When making a claim to GHO, whether in your self assessment return or at another time, the HS295 or equivalent form must be completed and included.
Useful resources
ACCA guide on How to maximise BADR when establishing a personal company