With everyone feeling the effects of coronavirus at the moment, what’s changing in the world of tax as 2020/21 begins seems somewhat churlish.
Given the Government is splashing the cash to deal with COVID-19, it looks certain that huge tax changes will be announced in the autumn.
So right now, it feels very much like 2020/21 will be the calm before the storm as the Government tries to claw back the spring spending.
That’s for another day and for now, a small amount of tax changes have kicked in that have the potential to catch you out.
Entrepreneurs’ relief
Arguably the biggest tax change for 2020/21 affects business owners who are looking to sell up this year.
The tax break usually enables self-starters to pay a lower capital gains tax rate of 10% on any profits they make from selling their business.
Evidence suggested this incentive did not tempt enough people to start their own business, so the lifetime limit has been reduced from £10m to £1m.
The relief has been retained on the first £1m of eligible gains, although an entrepreneur’s previous qualifying gains must be taken into account.
If they’ve already exceeded £1m from selling a previous business, or the sale takes them over this limit, they pay capital gains tax at 20%.
Capital gains tax
As mentioned in last month’s blog, three significant changes to capital gains tax have taken effect this month.
The change with the most potential to catch people out surrounds the 30-day payment window.
This specifically applies to the sale of second properties, such as buy-to-let or holiday homes.
Once the sale is completed, a residential property tax return must be filed – and at capital gains tax paid – within 30 days.
Previously, any tax owed would need to be paid between 10 and 22 months from the completion of sale.
Pensions
Given the coronavirus crisis, it’s fitting that senior clinicians can contribute more into their pension pots in 2020/21.
Both measures that determine if the tapered annual allowance kicks in have increased by £90,000 each.
Threshold income is up to £200,000 from £110,000 a year, and adjusted income has increased to £240,000 a year from £150,000.
That means the taper, which reduces income by £1 in every £2, does not kick in until annual income exceeds £240,000.
The annual pension contributions allowance stays at £40,000, while the lifetime pension value limit rises to £1,073,100 for 2020/21.
Off-payroll working in the private sector
The saga that is off-payroll rules extending to the private sector no longer goes ahead as previously planned for 2020/21.
Shortly after the controversial rules got the green light to extend to the private sector this month, a 12-month delay was announced.
Ministers rightly felt that private-sector contractors and organisations have enough on their plates with COVID-19 without having to worry about this.
However, this is only a stay of execution. Off-payroll rules, as it stands, will extend to the private sector from April 2021.
Residence nil-rate band
Radical reforms to inheritance tax proved to be nothing but hot air. The only change here is one that’s already been announced.
The final £25,000 increase to the family home allowance has taken effect for 2020/21, taking the total residence nil-rate band to £175,000 per person.
This sits on top of the existing £325,000 nil-rate band, and can be shared between spouses or civil partners, offering a potential allowance of £1m.
All future annual increases to the residence nil-rate band will be determined by the Consumer Prices Index rate of inflation.