Inheritance tax (IHT)
IHT is currently charged at 40% on the proportion of an individual’s estate exceeding the ‘nil-rate band’ of £325,000. Married couples and registered civil partners can pass any unused nil-rate band to one another on death.
A residence nil-rate band (RNRB) now applies in addition to the nil-rate band, allowing a current or former ‘family home’ to be passed wholly or partially tax-free on death to direct descendants.
The RNRB rates are set as follows:
There is a tapered withdrawal of the RNRB for estates valued at more than £2m, at a withdrawal rate of £1 for every £2 over this threshold.
IHT: changes to RNRB
The RNRB is intended to make it easier to pass on the family home to direct descendants without an IHT charge. A new measure introduces minor technical amendments to the RNRB relating to downsizing provisions and the definition of ‘inherited’ for RNRB purposes. These amendments clarify the working of the downsizing rules, and provide certainty over when a person is treated as ‘inheriting’ property.
This measure will ensure that the RNRB is working in line with the original policy intent, meaning that it cannot be claimed outside of the intended scope and removing any uncertainty for taxpayers.
Capital gains tax (CGT)
|Higher rate/additional rate||20%||20%|
Higher rates (18%/28%) may apply to the disposal of certain residential property and carried interest.
Entrepreneurs’ Relief and Investors’ Relief
The first £10m of lifetime qualifying gains for each relief are charged at 10%. Gains in excess of the limit are charged at the rates detailed above.
Entrepreneurs’ Relief: minimum qualifying period extension
A new measure increases the minimum period throughout which certain conditions must be met to be eligible for Entrepreneurs’ Relief from one year to two years.
This measure affects individuals who dispose of all or part of their business, individuals who dispose of shares in their personal company on or after 6 April 2019, and trustees who dispose of trust business assets.
It will have effect for disposals on or after 6 April 2019, except where a business ceased before 29 October 2018. Where the claimant’s business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group), before 29 October 2018, the existing one year qualifying period will continue to apply.
Entrepreneurs’ Relief: definition of a ‘personal company’
A new measure adds two new tests to the definition of a ‘personal company’.
Both conditions, as well as the existing ‘share capital’ and ‘voting rights’ conditions must be met throughout the specified period. The new conditions require the individual to be beneficially entitled to at least:
- 5% of the company’s distributable profits
- 5% of its assets available for distribution to equity holders in a winding up.
The measure has effect for disposals on or after 29 October 2018.
Taxing gains made by non-residents on UK immovable property
This measure is intended to ensure equal treatment between UK residents and non-UK residents on disposals of UK immovable property.
It extends the scope of the UK’s taxation of gains accruing to non-UK residents to include gains on disposals of interests in non-residential UK property.
It also extends the charge on gains on disposals of interests in residential property to diversely held companies, those widely held funds not previously included, and to life assurance companies.
The measure also taxes non-UK residents’ gains on interests in UK property rich entities (for example, selling shares in a company that derives 75% or more of its value from UK land).
The measure will have effect for disposals made on or after 6 April 2019. Anti-forestalling measures are in place.
CGT payment window
UK residents will be required to make a payment on account of CGT following the completion of a residential property disposal. The new legislation will also replace and extend the existing reporting and payment on account rules for non-UK residents.
The above changes to the legislation will apply to disposals by non-UK residents on or after 6 April 2019. For UK residents the changes will have effect for disposals on or after 6 April 2020.
CGT private residence relief: reform of ancillary reliefs
From April 2020 the government will make two changes to private residence relief. The final period exemption will be reduced from 18 months to nine months. There will be no changes to the 36 months that are available to disabled persons or those in a care home.
Lettings relief will be reformed so that it only applies in circumstances where the owner of the property is in ‘shared-occupancy’ with a tenant.