Background
As the tax year is nearing its end, taxpayers should take stock of their personal tax affairs to ensure that all relevant allowances have been used where applicable, and that they are fully prepared for the inevitable changes to rates, thresholds, exemptions in the new year. By doing this, taxpayers can minimise their liabilities as well as understand whether a larger than normal liability is on the horizon as a result of any changes.
Three important points to consider are listed below which may affect a large proportion of taxpayers however there are many more changes coming into effect so it is important that taxpayers keep on top of any planning that should be considered before the end of the tax year.
Capital Gains Tax Changes
Annual Exemption
Firstly, the annual exemption for individuals was reduced from £12,300 to £6,000 from April 2023 with a further reduction to £3,000 due in April 2024. The annual exemption is broadly the amount of capital gains an individual can have before they start paying CGT. If an individual’s net gains are below the annual exemption, no CGT is payable. If they are above the annual exemption, gains in excess of that will be subject to CGT.
The reduced annual exemption for 2023/24 means that more taxpayers may be required to pay CGT on smaller disposals than in previous years.
Tax Rate
As announced in last week’s budget, the higher rate of capital gains tax on residential properties will reduce from 28% to 24% from April 2024.
Reporting Requirements
The second CGT change relates to reporting disposals on a Self-Assessment tax return regardless of whether a liability arises. If CGT is due, it goes without saying that this must be reported on a tax return. However, even if no CGT arises, HMRC have confirmed that the reporting threshold is now set at £50,000 for 2023/24 and 2024/25 so if proceeds of sale exceed that amount, the disposal must be reported on the relevant Self-Assessment return. If there is more than one disposal in the year, the aggregate proceeds are used.
A review of disposals should be carried out prior to the end of the tax year to consider if these changes will impact on CGT payments and reporting requirements.
CGT reporting – reminder
Finally, just a reminder that where CGT is due on residential UK property disposals, the CGT needs to be paid and reported within 60 days of completion on a separate CGT return. Penalties and interest will be issued by HMRC where these returns are submitted late.
The one exception to the requirement to file a CGT return is where the Self Assessment return is filed within 60 days of the transaction completing. In this situation, the legislation is written so that a separate CGT return is not required and the later 31 January tax payment deadline for the CGT payment will apply.
Dividend Allowance
Since April 2018, taxpayers receiving dividend income have not had to pay tax on the first £2,000 of dividend received each year. This allowance has meant that many individuals with small shareholdings have not had to bear the administrative burden of completing tax returns to declare small amounts of dividend income.
From 6th April 2023, the £2,000 allowance was reduced to £1,000 and it will be halved again from 6th April 2024 to £500. It is important that taxpayers are aware of this change because HMRC will not write to inform them that they need to start completing returns. The onus is on the taxpayer to recognise that their dividend income exceeds the allowance and make preparations to file a return and declare the income.
For taxpayers who regularly receive dividends over the allowance, they will notice an increase in their tax liabilities for 2023/24 as a result of the reduced allowance. For additional rate taxpayers, this increase could be as much as £393.
Higher Interest Rates
Savings interest has been paid without the deduction of tax for some time now and that change coincided with HMRC giving taxpayers a personal savings allowance (PSA).
This means that a basic rate taxpayer can receive up to £1,000 in interest without having to pay tax on it. The allowance is reduced to £500 for higher rate taxpayers and is reduced to NIL for additional rate taxpayers. For the vast majority of taxpayers, this meant that tax would rarely be due on their interest.
The PSA is not changing in itself and will continue at the current rates as outlined above. However, interest rates have been continually increasing with the Bank of England trying to control inflation and increasing the base rate. Therefore taxpayers will have been receiving more interest than they have done for a long time. The knock-on effect of this is that it is much more likely that interest will exceed the PSA and tax will be due on the income which may result in larger tax liabilities for 2023/24 and subsequent tax years.
If as a result of these changes you need to register for Self-Assessment, or if you would like to discuss any year end planning, please speak to your usual contact or our Tax Director, Jenny Marks.
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