Tax planning considerations before 5 April 2020
PPR and Lettings relief
From April 2020, the availability of Principle Private Residence Relief (PPR) and Lettings relief will be reduced, with more taxpayers potentially subject to Capital Gains Tax (CGT) on disposal of their properties.
PPR relief exempt period
PPR relief shelters taxpayers from paying CGT on disposal of their main homes and covers not only the period of occupation, but an additional period before disposal. Currently, the final 18 months of ownership (‘exempt period’) is covered by PPR relief, regardless of occupation of the property. This changes for disposals after 5th April 2020 when the exempt period is halved to 9 months.
Changes to Lettings Relief
Lettings relief is available to taxpayers qualifying for PPR relief and can be claimed in addition to PPR relief when the property has been let to a third party.
Lettings relief can be used to reduce any chargeable gain resulting during the let period and is currently worth up to a maximum claim of £40,000 per person, which is doubled to £80,000 in the case of a married couple disposing of a joint property.
From April 2020, Lettings relief will only be available to owner-occupiers. Those who rent out their properties but no longer live there at the same time as their tenants will not be eligible for the relief and are likely to suffer a charge to CGT when the property is sold.
We’re urging those of you with a company or personal pension to review your position and, if relevant, consider making extra contributions to optimise the tax position. Currently, the annual allowance for individuals making pension contributions is £40,000. This amount is reduced for with adjusted income over £150,000 and settles at a minimum allowance of £10,000. It’s also worth considering the ‘Lifetime Allowance’ which permits up to £1,055,000 in total qualifying pension contributions without incurring a tax charge.
IHT Annual Exemptions
Individuals can gift up to £3,000 each tax year without any IHT implications. The unused balance from the prior year can be carried forward for one year, so up to £6,000 could be gifted IHT-free in the current tax year.
Transfers of assets to spouses and civil partners
Within a marriage or civil partnership, it may be worth considering transferring assets to maximise any unused tax-free allowances and the lower/higher rate tax bands. This could be in the form of income-generating assets or assets which could be sold resulting in a capital gain tax charge. Some tax reliefs are ‘use it or lose it’ so cannot be rolled forward into the next tax year but as ever, practical considerations should be made along with the tax angles. Be cautious if one party is non-UK resident for tax purposes.
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