02 October 2020
Is now a good time to sell?
Following the chancellor, Rishi Sunak’s announcement detailing his Winter Economy Plan, he also announced that he was cancelling the Autumn Budget as this is not the right time to be outlining long-term plans and that it is right to focus on the here-and-now which reflects the recent resurgence of the COVID-19. In the last few months, many of us believed that the chancellor would implement measures to attempt to recoup by aligning the rates of tax on capital gains with income tax rates. Currently, the rates of tax are as follows:
| Income tax: | |
| First £37,500 taxable at | 20% |
| Between £37,500 and £150,000 at | 40% |
| Over £150,000 at | 45% |
| Capital gains tax rates as follows: | |
| Residential property | 18% or 20% depending on the level of your income |
| Assets other than residential property | 10% or 20% depending on the level of your income |
Disposal of qualifying business assets may be taxable at 10% if Business Asset Disposal relief is available (formerly known as Entrepreneurs Relief). For a 40% tax payer, the potential increase in capital gains tax could be either 12% (residential property) or 20% on other assets. As an example, Frank is a 40% tax payer and sells a buy to let property, realizing a gain of £50,000. After the annual exemption of £12,300 there is a gain chargeable to tax of £37,700. As things currently stand, Frank would pay capital gains tax of £10,556 but if capital gains tax rates are aligned with income tax rates, his bill increases to £15,080. Given that the Budget has been postponed until next spring, now is a great opportunity to consider the sale of assets which are likely to give rise to gains. Please remember that sales of residential property now have to be reported to HMRC within 30 days of completion and there are penalties for late filing. The process involves setting a new log-in with HMRC which can eat into the 30 days available so we recommend getting as much information together as soon as you make the decision to market the property. The postponement has given us all a reprieve to take tax saving action and it may also be an opportunity to review your wider financial position, including your financial adviser where appropriate. If you would like to explore this opportunity further, please do get in touch with your usual Haines Watts contact.
Author
Helen Gale
Head of Tax - Senior Associate
