Tax changes, DAC6, VAT domestic reverse charge
[1:40] Changes to Private Residence Relief (PRR)
Private Residence Relief is a relief from capital gains tax for individuals on the disposal of their home. Fairly recently, HMRC published its consultation response and also released draft legislation to change very specific aspects of the rules.
Changes we are expecting to see:
- Reduction in the final period exemption from 18 months to 9 months
- this exemption helps if you are trying to sell your main house but buy a new house and move in before you sell your old house.
- if you sell that first property within a specific amount of time after moving out, the final period exemption, there may be no exposure to CGT.
- this reduction to 9 months represents a real reduction in the relief.
Capital Taxes insight article
Weekly Tax update 16 July 2019
- Lettings relief – can reduce CGT payable on the sale of a property
- the relief available is a reduction of up to £40,000 on the taxable gain arising on sale
- under new rules, you’ll need to be in shared occupancy to benefit from lettings relief
- this change applies from 6 April 2020 and will impact taxpayers who let out their property before the rules change but sell it after
Further changes being introduced from April next year:
- Reporting property sales – changes to reporting deadline for sales of some residential property by UK residents. From April 2020 reporting can be required within 30 days of completion with tax payable at the same time.
[10:00] Changes to Entrepreneurs’ Relief - reduces the rate of capital gains tax to 10% on the disposal of business assets or shares in a trading company.
Two recent changes:
- Stricter eligibility rules - to extend the period over which the qualifying conditions must be satisfied from one to two years. This applies for disposals after 6 April 2019.
- New guidance on meaning of ordinary share capital. Previously to qualify for entrepreneurs’ relief on the disposal of shares in a trading company, an individual must have owned at least 5% of the ordinary share capital and, be able to exercise at least 5% of the votes. Two additional economic interest measures now apply for disposals after 29 October 2018, at least one of which must be satisfied.
What should business be doing about these changes now?
- important for shareholders and businesses to review their ownership and debt structures to understand the impact on their tax position - particularly where there are preference shares, multiple classes of shares, preferential rights on exit or employee related shares.
- Entrepreneurs need to understand the complexity of this relief.
[16:15] Tax implications on inheritance tax (IHT)
The Office of Tax Simplification’s report on inheritance tax
What are the recommendations?
- Lifetime gifting – there are currently various exemptions
- recommend consolidating the annual and marriage gift exemptions, and potentially also the regular gifts out of income.
- Recommend reviewing the level of the small gift exemption.
- CGT uplift on death – currently assets can be sold shortly after death without any CGT being due. The recommendation is to remove the CGT uplift where a relief or exemption applies and replacing it with a form of holdover relief.
- Business property relief (BPR)
- level of trading required for the BPR test is lower than it is in other tests within the CGT rules, for example entrepreneurs’ relief, and the proposal is to consider whether it is appropriate for BPR to be set at a similar level
The OTS Second Report on the Design of IHT in a nutshell
[23:52] Tax round-up
- VAT domestic reverse charge – major change on how VAT is collected in the building and construction industry. It shifts the responsibility of paying VAT along the supply chain to the main contractors. Delayed start until Oct 2020
- New reporting requirement: DAC6 – draft regulations – designed to tackle cross boarder tax avoidance. Action needs to be taken now to collect information on potentially reportable arrangements.
- Tribunal Hargreaves Lansdown tax case – Hargreaves Lansdown will need to deduct 20% tax from loyalty payments it made to investors. Other platforms which offer discounts to investors through rebates will be disappointed by the result of the case.
If you have a podcast query, Please contact:
Media & Advertising Assistant Manager
This episode was recorded on 28/08/2019
This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.
Please remember the value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.
The Pulse from Smith & Williamson
Tax changes, DAC6, VAT domestic reverse charge
Broadcast on Smith & Williamson at 09:00, 28th of SEPTEMBER 2019
Available online from 10:00 on the same day .
Entrepreneurs' relief - avoiding the pitfalls
Entrepreneurs’ Relief reduces the rate of capital gains tax to 10% on certain disposals of business assets. The new rules impose stricter tests of eligibility, it's important to consider the capital and debt structures of a business to avoid losing this valuable relief.
International tax reporting changes: Directive on Administrative Cooperation 6 and the Mandatory Disclosure Rules
The Directive on Administrative Cooperation 6 (“DAC6”) is a response to the OECD’s Mandatory Disclosure Rules aiming to strengthen tax transparency across the EU and counter aggressive tax planning. On 31 December 2020, HMRC confirmed that the application of DAC6 will be severely limited in the UK to align with the OECD’s Mandatory Disclosure Regime (“MDR”). This means that only those arrangements that meet Hallmark D of DAC6 will need to be reported in the UK. DAC6 continues to apply in full across the EU.
VAT and the reverse charge – tough times in the construction sector
Those involved in property contracting may be grimly aware of some important VAT changes due to be introduced with effect from 1st October of this year. However, it seems many are still blissfully unsuspecting of the changes about to hit.