July: Technical Tax Update

Posted: Jul 9, 2019

Read our latest technical tax update with information about the key, upcoming changes! 

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Capital Gains Tax – Property Disposals

Non-UK Residents

Since April 2015 if a non-UK resident sells a UK residential property, they are required to complete a Non-Resident Capital Gains Tax Return within 30 days of the sale (i.e. exchange of contracts). The return requires the CGT liability to be calculated and a payment on account of the full amount of the liability calculated within that time limit.

From April 2019 this has been extended to include non-residential property, such disposals having previously been exempt from UK CGT. This is also extended to ‘indirect disposals’, which applies when an individual makes a disposal of an entity (i.e. shares) that derives at least 75% of its gross asset value from UK land and the vendor has had a substantial interest (25% or more) at any time in the two years prior to sale.

UK Residents

Currently, where there is a sale of residential property, the disposal disclosure, and related tax is due by 31 January following the end of the tax year in which the disposal arises.

From April 2020, a CGT return will need to be submitted to HMRC within 30 days of the sale, with a payment on account of the full calculated CGT liability to be payable within the same time scale. Where there is no CGT chargeable, no return is needed.

It should be noted that HMRC have access to land registry records and are increasingly comparing these to tax records to ensure that Capital Gains are being reported by the seller. This is just an overview and the calculation of the base costs associated with these disposals can be very complex due to rebasing rules.

Income Tax – July Payments on Account

Individuals need to pay their second payment on account towards their 2018/19 tax liability by 31 July 2019.

However, it would appear that HMRC have had an IT glitch and not everyone who is due to make a payment will receive a demand. HMRC’s guidance, in this case, is that, if no demand is received, the taxpayer does not have to make payment however, more will become payable in January 2020.

A voluntary payment can be made, however, there is no guarantee that HMRC will retain the payment; if there is no liability recorded on the taxpayers' account, HMRC may seek to refund the payment. More info can be found by clicking here.

Corporation Tax – Corporate Interest Restriction (“CIR”)

From 1 April 2017, the UK introduced a new regime which imposes a restriction on UK corporation tax relief for funding costs. The new regime applies to groups with net UK interest expense in excess of £2 million.

Key Points: 

  • The aim of the rules is to restrict a group’s deduction for interest expense in line with its UK activities.
  • The regime allows deduction of up to £2 million of net UK tax interest expense (i.e. tax interest expense less tax interest income) by group members, subject to UK corporation tax without restriction.
  • The £2 million applies to the group as a whole, not each company.
  • For groups with interest expense over £2m, the basic position is that tax relief for net UK interest expense is capped at 30% of UK taxable earnings.
  • However, a higher cap can apply if the worldwide group’s net interest to earnings ratio in the UK is higher than 30% and an election is made to apply the ‘group ratio’.
  • The Group does not need to submit a CIR return to HMRC if there is less than £2 million net interest expense in a financial year.
  • If the Group is to deduct more than £2 million net interest expense, it must only submit a return if there is a restriction of interest deductions or the group wishes to apply the group ratio methodology.

Contact our tax team if you have interest deductions in excess of £2 million for an accounting period, as there are reporting requirements to be adhered to.

For any additional information on the topics addressed in this article, feel free to contact a member of our Tax Team by clicking here or by calling 0161 477 2474