Everfair Tax

Specialists in UK, US and Expatriate Tax.

2024 Autumn Budget – Income Tax and Capital Gains Tax

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Summary of Changes for Income Tax and Capital Gains Tax Affecting Individuals

The current non-domicile tax regime, including the remittance basis of taxation, will be abolished from 6 April 2025.  It will be replaced by a new “residence based” approach.  This note focuses on how the changes affect income tax and capital gains tax (“CGT”) for individuals.  Separate notes consider the impact on inheritance tax and offshore trusts.

New Residence Regime

From 6 April 2025 all UK residents will be taxed on the arising basis (worldwide income and gains), however, for individuals who have previously been non-resident for 10 years, a new regime will be available for the first 4 years of residence as determined by the statutory residence test).

In those 4 years, a taxpayer can claim to exempt from tax the foreign income and gains (“FIG”) arising.  A claim will need to be made each year and can include either or both foreign income and/or gains.  Unlike under the remittance basis regime currently in place, there will be no requirement to retain the exempted FIG outside of the UK, and the FIG can be brought into the UK in the same or future tax years.

Temporary Repatriation Facility

From 6 April 2025, a new temporary repatriation facility (“TRF”) will be introduced to encourage taxpayers to bring funds into the UK in respect of FIG that were not taxed in the UK in previous years as a result of a claim for the remittance basis.

Whereas before 6 April 2025, a remittance of such funds to the UK would attract an income tax charge of up to 45%, the TRF will allow taxpayers to designate FIG and be subject to a tax rate of 15% in the 2025/26 and 2026/27 tax years, and 15% in the 2027/28 year.  Once designated and the charge paid, the funds can be brought into the UK at any time, including after the TRF period of 3 years has finished.

Overseas Workday Relief

Currently, overseas workday relief (“OWR”) is available in the first 3 years of tax residence to resident but non-domiciled employees on overseas earnings (i.e. days worked outside of the UK as part of their employment) paid and kept outside of the UK. 

From 6 April 2025, with the ending of the non-domicile regime, the relief will be available for the first 4 years of residence.  As a key development, there will no longer be a requirement to retain the earnings offshore and so the relief will also be available for those who are paid into a UK bank account, or just want to use the earnings in the UK.

For the first time, OWR will have a limit on the amount to be claimed in each tax year.  The limit will be the lower of 30% of the employment income or £300,000, although the limit will not apply to those who are already claiming OWR by 5 April 2025 and are able to continue to claim in 2025/26 or a later tax year.

Capital Gains Tax Rebasing

UK resident taxpayers who are unable to use the new 4 year FIG regime outlined above, will be subject to CGT on foreign gains.

However, as a transition measure, and subject to conditions, those who have claimed the remittance basis by 5 April 2025, will be entitled to rebase foreign assets for CGT purposes to their market value at 5 April 2017.

The transitional measure is not available for those who have been UK domiciled or deemed domiciled in the UK prior to 6 April 2025.

CGT Rates

The CGT rates on all disposals (aligning with those previously in place for residential property) are now 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers, with the new rates coming into effect on Budget Day.

Where a claim for business asset disposal relief (“BADR”) is possible on a disposal after 6 April 2026, the rate is increasing from 10% to 14%.  The lifetime allowance will remain at £1m. 

The same rates of tax applicable where a claim for investors relief is available (on certain unquoted trading companies), although for investors relief there is a reduction in the lifetime allowance to £1m (previously £10m).

For those subject to CGT in respect of carried interest, the CGT rates are increasing to 32% from 6 April 2025.

Autumn Statement 2022

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With 2022 seeing record high inflation and the UK heading into recession, today’s Autumn Statement was always going to be a very tricky balancing act for our new PM Rishi Sunak and his Chancellor Jeremy Hunt.

With the previous mini budget resulting in market turmoil, followed by the subsequent reversal of most of the measures. There would understandably be a wish to tread carefully with today’s announcements. It had been confirmed in media rounds, undertaken by the Chancellor in the last few days, that taxes would need to rise to allow the country’s books to be balanced. But, there had been very few clear indications as to in what areas these rises may come and whether they would be direct or indirect taxation.

When the Chancellor finally stood up, the key announcements were as follows:

  • The threshold at which the 45p tax rate becomes payable to will reduce to £125,140 from April 2023. Higher earners can therefore expect to pay £1,200 more a year
  • The annual dividend allowance will fall from £2,000 to £1,000 from April 2023, and to £500 from April 2024
  • Similarly the Capital Gains Tax Annual Exempt Amount will reduce from £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024.
  • The income tax personal allowance threshold will now be frozen until 2028, rather than 2026 as previously announced
  • Main National Insurance and inheritance tax thresholds will also be frozen for further a two years, until April 2028
  • Previously announced increases in various stamp duty thresholds will now only be temporary and end in March 2025
  • Electric cars will pay road tax from April 2025
  • Energy profits levy rises to 35% from 25% with effect from January 2023 and will apply until March 2028.
  • This levy is also being temporarily extended to electricity companies at a 45% rate
  • In a welcome move to help those with lower income state pension payments and means-tested and disability benefits have also been confirmed to increase by 10.1%, in line with inflation
  • UK national living wage for people over 23 to increase from £9.50 to £10.42 an hour from next April

There was a clear theme that larger companies and those with higher levels of income have the broadest shoulders, and therefore should bear a larger portion of the burden of increased taxes. This is no real surprise, given the way in which the mini budget proposal of abolishing the 45% rate of tax was received. In what is likely to come as a relief to many, the return of capital gains tax rates being linked to income tax rates that had been widely predicted did not come about.

Taxation of Cryptocurrency

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What is cryptocurrency?

Cryptocurrency is a form of digital currency, which can be purchased in a variety of means; from exchange platforms such as Coinbase and Kraken, to some online banking platforms.

With the ever-growing nature of cryptocurrencies there will always be a new form or version of digital currency, such as NFTs. Some of the most well-known are: Bitcoin, Ethereum, Ripple and Luna – which has been hitting headlines for the losses it has created earlier this year.

Income Tax vs Capital Gains Tax

From a taxation perspective, cryptocurrency can be subject to both income and/or capital gains tax. The type of tax depends on the nature of how the income arises.

Both HMRC and the IRS have similar conditions in relation to when income tax is relevant to cryptocurrency.

If cryptocurrency is received as a payment for goods or services or could be considered a trade, under the badges of trade rules in the UK, its likely that it will be treated as self-employment income and liable to income tax rates and relevant national insurance contributions, or social security in the US.

If your cryptocurrency ownership is an investment, as opposed to a trade/earned income, then its likely treatment upon sale will be capital gains tax.

HMRC and the IRS have similar rules in relation to the sale of cryptocurrency outside of a trade/earned income. Capital gains tax will arise if the following disposals are made:

  • Selling cryptocurrency for any government issued currency, i.e. GBP, USD, EUR etc.
  • Trading cryptocurrency for another cryptocurrency or stablecoins; a digital currency pegged to a reserve asset such as GBP or USD
  • Spending cryptocurrency on goods and services, i.e. coffee/lunch
  • Gifting cryptocurrency

What about losses and how I can use them?

For those who have invested in assets/coins such as Luna and have experienced heavy losses, there are ways to utilise these against gains/other income.

The nature of the loss will dictate what it can be offset against, capital losses can be offset against capital gains, trade related losses have specific rules in the US and UK.

In both the US and UK, capital losses can be offset against gains in the same year, in theory reducing these to zero (or up the annual exemption in the UK). For US purposes, it is also possible to offset up to $1,500 against other income sources depending on your filing status and the amount of loss available/nature of loss (passive vs non passive). Any unused losses will generally be carried forward to use against future gains.

For Trade related losses, in the UK/US these are available to offset against other non-trade related income, however the concept of ‘worthless’ stock/shares could impact your ability to claim a loss. Luna as an example is worth practically nothing, but is not worthless, so would need to be sold to realise a loss.

Conclusion 

From both the UK and US tax perspectives, the nature of the transaction will determine whether or not a taxpayer will pay income or capital gains tax.

With the growing emergence of cryptocurrency, both HMRC and the IRS are taking steps to track cryptocurrency to ensure correct reporting.

HMRC now have a data sharing program with all UK exchanges and through this has transaction data dating from 2014 to the present. Letters to investors regarding reporting and payment of taxes is a matter of when rather than if.

The IRS has also enforced that all major exchanges must complete Know Your Customer (KYC) checks. This is as a result of the IRS winning court cases with the likes of Coinbase and Kraken, forcing them to share customer data. Taxpayers and the IRS will also begin receiving 1099 Forms which will indicate income earned and any taxes paid. Exchanges such as Coinbase will send its US customers 1099-MISC forms where there are crypto gains of over $600, and the individual is a US customer.

UK Spring Budget 2022

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The Chancellor Rishi Sunak delivered todays Spring budget under the backdrop of inflation being revealed to have risen to 6.2%. The highest rate of inflation for 30 years. This had been made worse by rising fuel prices and will result in significant increases to the cost of living. There is also recognition of the situation in the Ukraine. The impact the ongoing conflict may have, as well as the relatively slow growth being seen in our own economy. In addition to the need to reduce the level of debt built up during the last two years to fund COVID measures.

Inflation, Growth and Debt Repayments

To make his point, during his statement the Chancellor referenced these cumbersome estimates from the Office for Budget Responsibility on inflation, growth and debt repayments.

  • Inflation forecast to average 7.4% this year
  • UK growth expectation downgraded to 3.8% this year
  • UK to spend £83bn on debt interest in the next year

In line with the relatively low expectations of change ahead of today’s announcement, there were relatively small immediately effective measures to ease the burden of the cost of living were set out. There was however the promise of a 1% cut in income tax rates before the end of the current parliament in 2024 first cut to the basic rate of income tax in 16 years – from 20% to 19% – by the end of Parliament in 2024

Despite the economic picture painted and other indications given in advance as to the limited ability to make sweeping cuts that would have an immediate impact a shout of ‘is that it?!’ could clearly be heard from the Labour benches and there has been disappointment expressed at the fact that the proposed heath and social care level and subsequent NI rate increase were not scrapped as had been hoped for.

What you need to know

Here therefore are the key take aways from today’s Statement:

  • A cut to the basic rate of income tax. From 20% to 19% – by the end of Parliament in 2024
  • Fuel duty will be cut by 5p a litre from 18:00 GMT until March 2023
  • The National Insurance threshold will be raised by £3,000. Meaning people must earn £12,570 per year before paying income tax or NI. It’s a tax cut for 30 million people worth over £330 a year, says Sunak
  • VAT will be scrapped on home energy-saving measures such as insulation, solar panels and heat pumps
  • The Household Support Fund for local councils to help the most vulnerable will be doubled to £1bn from April
  • Retail hospitality and leisure sectors will have a 50% discount in business rates up to £110,000
  • Employment Allowance will increase to £5,000. Claiming it is a tax cut worth up to £1,000 for half a million small businesses.

How do double taxation agreements work?

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A double taxation agreement is designed to do exactly what it says – prevent double taxation.

It is a treaty between two countries which sets out who gets the main right to charge tax on particular types of income and capital gains.

The other country to the treaty can still potentially charge tax on that income and gains but it would have to allow a credit from the tax that would usually be due for the tax already paid in the other country. Generally this means that you end up paying whichever is the higher of the tax due in the two countries.

Sometimes the agreement does specify that a particular type of income or gains is only taxable in one of the two countries, an example being pension income or a lump sum from a pension scheme in that country. However even then there is usually a part of the agreement that says when the income or gains is not subject to tax in the country with the main taxing rights for example through a claim to the remittance basis, then the other country can still charge tax as there is no double taxation.

US treaties also contain an extra specific carve out known as the savings clause allowing US citizens to be taxed as if the treaty did not exist in most cases. What this means that even if the treaty says the income is only taxable in the UK on a UK resident, it is also taxable in the US but the US would have to give credit for the UK tax due on the same amount. In that way double taxation is still avoided.

In the more unusual circumstances where an individual is considered resident for tax purposes in both countries then before the treaty can even be considered you will need to determine where the person is resident for this purpose. This is done using a four part test set out in the agreement and you go through the four tests in order, stopping when one of the tests is met. The tests include where you have a home, where you main social, family professional and economic ties are (known as the centre of vital interests), where you physically spend more of your time and which country you are a national of.

Double taxation agreements are very useful to avoid being taxed twice on the same income in two places but can be difficult to understand and need to be applied correctly to get the right outcome.

The UK in particular are looking more and more closely and claims to foreign tax credits to ensure they are allowable under the terms of the various double tax agreements they have entered into.

Inheritance Tax Rate and Capital Gains Tax UK Rate 2021 | Actions you can take:

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Following on from our recent blog, as promised, we’re sharing some actionable next steps for you regarding the potential changes to the Inheritance Tax Rate and also, Capital Gains Tax UK rate.

If you’d like to read this article later, download the PDF here:

We previously published an article regarding the potential changes to the Inheritance Tax Rate and also, Capital Gains Tax UK rate in 2021. This will be announced in the March budget. In preparation for that, this is a practical guide to what actions you can take to minimise the impact of any changes.

Of course, these changes are at present rumours and recommendations, and there is no confirmation about what will happen in March, but it never hurts to be prepared.

So, what are the next steps?

Capital Gains Tax Rate UK 2021

It has been suggested that income tax rates will be raised to as much as 45% and it is likely the CGT will increase to match it. To reduce your Capital Gains Tax bill here are some practical steps.

  1. Use your £12,300 allowance which cannot be carried forward to future years. A married couple can therefore raise £24,6000 a year with no CGT liabilities.
  2. Use your annual ISA allowance which currently sits at £20,000. All personal CG are tax-free if on ISA investments.
  3. Don’t sell assets later in life as this could mean that Capital Gains Tax will be due as well as Inheritance Tax.
  4. Consider setting up an all-in-one fund for multi-assets as the fund can sell holdings and therefore won’t be liable for CGT.
  5. Ensure any losses are offset against gains which can reduce the amount of CGT owed.
  6. Manage taxable income through pension contributions or charitable donations.

Inheritance Tax Rate 2021

The nil-rate band of £325k is likely to change in the March budget as well as changes to rules regarding unused pension pots. However, these practical steps could help you lower the amount of Inheritance Tax your beneficiaries will be liable for.

  1. You can leave everything to your spouse, or civil partner in your will without there being any Inheritance Tax. You are also able to pass on unused tax allowance to them.
  2. Give gifts whilst you are alive to loved ones. There are of course some caveats and if you’re not certain, give Everfair a call. But each person can give away £3000 of gifts each year without it being added to your estate. If you don’t use your allowance one year it carries over the next.
    1. Additionally, you can give £1,000 as marriage or civil partnership gifts which increases for grandchildren, great-grandchildren or your own children.
    2. You are also able to give random gifts of £250 to individuals as long as you have not gifted them something else in the same tax year.
  3. Leave part of your estate to charity as this means it will be exempt from Inheritance Tax. If this in turn brings your estate value to less than £325k then that will also be exempt.
  4. Write pensions and life insurance policies in trust. If this is the case then any pay-outs are not considered as part of your estate. Instead they will be passed to your beneficiaries and won’t be liable for Inheritance Tax.
  5. Bequeath your house to your children, stepchildren or grandchildren which will include an additional allowance of £175,000.

If you want help in regard to identifying which of these steps will be relevant to you and your situation as well as implementing any of them, please give us a call or email and one of our advisors will be very happy to share some practical, unbiased and professional advice.

Changes to Capital Gains Tax UK 2021 – how they’ll affect you:

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Capital Gains Tax UK & Inheritance Tax threshold UK in 2021 – what’s ahead? We’ll share our professional recommendations with you now. You can read now, or download the below PDF copy of this information, so that you can read in your own time.

How might Capital Gains Tax UK changes affect me, and what does it mean for the Inheritance Tax threshold UK?

Capital Gains Tax UK changes are coming. A recent report from the UK Office of Tax Simplification (OTS) following a review of the Capital Gains Tax (CGT) has outlined some recommended changes to Capital Gains Tax. The second part of the report is due in 2021.

Changes to UK CGT are likely to be an attractive option to the Chancellor as he looks at ways to reduce the borrowing taken to fund Covid 19 support measures. Here, we’ll share an executive-level breakdown of the changes, followed by a brief overview of how, in our experience, we feel this could impact you.

So, what are the changes to Capital Gains Tax UK?

Well, the report outlines eleven potential changes to the CGT which could raise a substantial amount for the government in increased tax revenue.

The main changes suggested are:

  • CGT rates should be more closely aligned with income tax rates. This could see some current CGT rates double
  • A new relief should be introduced to take account of inflation
  • There should be more flexibility in how capital losses are used
  • If capital gains tax rates are not aligned with income tax, changes should be introduced to the taxation of share based rewards for employees and small business owners, to increase the extent to which these are subject to income tax
  • The annual exempt amount could be reduced from £12,300 per annum to between £2,000 and £4,000 – a dramatic decrease
  • This should however, be combined with a wider exemption for personal effects, taking them out of the charge to CGT
  • A CGT uplift should no longer be applied to assets exempt from IHT, and in fact potentially all inherited assets. Instead beneficiaries will pay CGT based on the price that the asset was purchased for originally. If the uplift on death is removed, the recommendation was that there should also be a greater ability for assets to be gifted CGT-free during lifetime, with again the recipient taking on the original purchase price of the asset
  • There should also potentially be a flat rebasing of all assets for CGT to their value in the year 2000
  • The report also recommended a reassessment of CGT reliefs as the OTS believe the Business Asset Disposal Relief and Investors’ Relief are not working. The suggestion is that the former should be replaced with a different scheme with its basis in retirement and the latter be scrapped.

We’ll now share how exactly these changes to Capital Gains Tax UK will affect you

The long and short of it is that, should these changes in CGT be taken forward by the UK Chancellor, many people could end up paying more in tax to the UK government.

Second-Home Owner and/or soon-to-inherit?

This is likely to be the case if you are set to inherit considerable assets, have an investment portfolio and/or a second home.

An increase in the CGT rate (to align with income tax rates) will no doubt result in a much higher liability being faced by those who choose to sell assets which have increased in value.

Coupled with a reduction in the annual exemption, this could present challenges for those looking to efficiently supplement pension income in retirement with funds from an investment portfolio.

The changes to how the CGT and IHT work together could also end up costing you more in tax pay-outs. Currently if you inherit an asset and sell it, the CGT is based on the difference in value between receiving and selling said asset. However, this will be changed, and it will become the difference between the date it was bought and the time it was sold. If this is no longer the case, there is potentially a double taxation issue to deal with, as both IHT and CGT will now be due in respect of the same asset.

Business Owner or Entrepreneur?

For business owner’s Business Asset Disposal Relief / BADR (otherwise previously known as Entrepreneurs Relief), is to be replaced with a system focused on retirement. This is likely to mean an introduction of an age limit, as well as increasing the holding period from two-to-ten years to ensure only those who have spent years building their businesses will actually benefit from the relief. For many entrepreneurs this will be an unwelcome follow on blow from the reduction in the level of this relief from £10 million to £1 million in April this year.

Our recommended next steps for you

If you are confused about what you need to do regarding these potential changes, or just want some impartial, sensible advice on the best course of action then speak to our professional tax specialists at Everfair today.

Allow us to find the right tax solution for your personal circumstances and set your mind at rest that you are doing the right thing for you, your family and your financial future. ,,https://www.everfairtax.co.uk/contact