In July 2022, the UK government published details of new legislation that will allow workers who save for their pension through a Net Pay Arrangement (NPA) to receive the same level of top-ups from the government as workers who save through a Relief at Source (RAS) scheme.

When the new legislation takes effect in April 2024, around 1.2 million workers will receive the government support they previously lost out on due to an anomaly in the system, which has been resulting in less take-home pay for those enrolled in these ‘net pay’ pension schemes.

This correction to the pension tax system means that lower earners could see up to a hundred extra pounds a year added to their take-home pay from the start of the 2024–2025 tax year. Read on to learn more about the previous situation, how it’s changing, and how this could affect your earnings.

How do Net Pay Arrangements work?

When an employee makes contributions to their pension directly from their salary, they should receive pension tax relief based on the rate of income tax
they pay on their earnings. So, basic rate taxpayers should receive 20%
relief, higher rate taxpayers can claim 40% relief, etc.

This means that if you were in the basic rate income tax band and paid £100
into your pension, for example, the tax relief should mean that the contribution only costs you £80 from your take-home pay. However, this depends on the type of pension scheme you’re enrolled in.

An NPA
earner would pay the £100 and likely wouldn’t receive the tax relief they should, instead receiving a marginal tax relief rate of 0%. Meanwhile, the pension schemes of RAS earners should automatically send a request to HMRC to receive a 20% top-up.

This issue mainly affects low earners whose taxable income is above the auto-enrolment amount of £10,000 a year but below the annual Personal Allowance
of £12,570.

The government is thereby taking steps to rectify the problem, giving HMRC the duty of making top-up pension payments
directly to eligible earners from 6th April 2024 once new IT system support is in place for this, regardless of the scheme individuals are registered with.

How will pension top-up payments work?

The Treasury provided an example to explain how the changes are going to work. In this scenario, two employees both earn less than the Personal Allowance (£12,570) and both pay £500 in pension contributions. However, Employee A uses an NPA scheme and Employee B uses an RAS scheme.

Employee A has the full contribution deducted from their earnings before paying tax, so they don’t have to use their Personal Allowance to pay the £500 out of their untaxed income. The rest of their earnings are taxed afterwards, but there is no income tax due – all £500 goes into their pension.

Meanwhile, Employee B has no income tax to pay because their earnings are below the Personal Allowance. The equivalent pension contribution is paid to their scheme as if basic rate tax (20%) had been deducted from the £500, so £400 goes into Employee B’s pension. Though they didn’t pay any tax on it, the RAS scheme provider can still claim £100 tax relief from HMRC, topping it up to £500.

So, while both employees have £500 in their pension, Employee A had the full contribution deducted from their earnings, while Employee B only had £400 deducted, leaving them with more take-home pay. However, Employee B will have used up more of their Personal Allowance
for the contribution.

From April 2025, the tax year after the new legislation takes effect in April 2024, Employee A could qualify for top-up payments on eligible pension contributions from the previous year. HMRC will have a system for identifying and notifying eligible earners like Employee A, and paying them a top-up of 20% of their contributions (so in Employee A’s case, £100 would go into their bank account).

Who will benefit from pension top-ups?

As mentioned, individuals saving into an occupational pension under a Net Pay Arrangement (NPA) while earning an annual income below the Personal Allowance are most likely to be affected by this legislation. HMRC will determine eligibility for top-up payments based on whether you contributed to an NPA pension scheme and if your total taxable income is lower than the Personal Allowance.

When the new measures come into force in April 2024, HMRC
will use the information it already has to identify eligible workers and contact them. These individuals will be invited to provide their bank details to receive their direct top-up payment – they won’t have to confirm their entitlement first.

The payments should be made as soon as possible after the end of the tax year in which qualifying pension contributions were paid – so, from April 2025 at the earliest. If HMRC contacts you about a top-up payment, you’ll have to confirm your details through a digital service so you can receive the money. It will go to your personal bank account rather than your pension, reducing your tax burden.

Unfortunately, these payments will be taxable – but given the lower level of earnings, it’s unlikely to mean that recipients of top-up pension payments will end up paying any additional income tax.

The government estimates that a massive 1.32 million people will qualify for the top-up, with the average worker receiving an extra £53 a year. Around 200,000 low-income workers could receive an extra £100 a year. The vast majority of the beneficiaries are likely to be women, making up 75%.

Should you increase or reduce your pension contributions?

With the cost of living crisis continuing to worsen in the UK, it could be tempting to stop making pension contributions. While this might ease the strain on your finances in the short-term, it won’t help you in the future when it’s time to retire. Cutting back on contributions is likely to mean missing out on various tax reliefs and employer contributions, so you’ll be losing more money that way.

Realistically, most people won’t be contributing up to the Pensions Annual Allowance every year (set at £40,000 for the 2022–2023 tax year­, with unused allowances able to be carried forward from the last 3 years). Currently, around 84.2%
of income tax payers are on the basic rate, meaning the average UK income for most workers is somewhere between the thresholds of £12,571
and £50,270.

Even if you earn a little above the Personal Allowance
and part of your pension contributions already benefit from other tax reliefs, you could still receive a top-up payment for a proportion that doesn’t. It’s always a good idea to seek professional pensions advice to ensure you’re making smart investments in your future, so you’ll be able to get the most out of your retirement fund later on.

If you’re looking for accountants to help you with tax relief planning, you can always contact GBAC, accountants in Barnsley, by calling 01226 298 298 or emailing info@gbac.co.uk. For more details on the pension tax relief legislation changes, view the policy paper on ‘pensions relief relating to net pay arrangements’.

The government’s Help to Grow: Digital scheme, which offers discounts worth up to thousands of pounds on approved digital accounting software for UK businesses, is now expanding its reach.

Previously, only businesses with a minimum of 5 employees
were eligible for the scheme, but it’s now open to businesses with just 1 employee. This means that many more businesses with only one employee can now access discounts and support for digital services through the scheme.

This blog explains the latest Help to Grow: Digital
changes, who can access it, and which support services are available – plus some advice on why your business accounts should be going digital.

How is the Help to Grow: Digital scheme changing?

From 25th July 2022, all businesses in the UK with at least 1 employee can now join the Help to Grow: Digital scheme. This eligibility criteria extension means that around 760,000 more businesses can benefit for the first time, boosting the total number of eligible businesses to 1.24 million.

Additionally, new eCommerce software has been added to the scheme’s list of approved software. This allows businesses to access even more types of software to help them make online sales, manage their inventories, and reach new markets.

Registering for Help to Grow: Digital opens opportunities for discounts up to £5,000
on your choice of 30 types of software from 14 leading suppliers, including Digital Accounting, CRM (Customer Relationship Management), and now eCommerce software.

Though the service isn’t live yet, the government will also be launching advice platforms, so small-to-medium enterprises (SMEs) can receive one-to-one advice on adopting digital technology into their business operations. You can apply to take part in the pilot here.

Who can get a Help to Grow: Digital discount?

To access a 50% discount worth up to £5,000 (not including VAT) on approved software, businesses from any sector must meet all of the following criteria:

You can choose one software product from the list, which is split into three categories. The discount will then cover 12 months of core costs for the software, excluding VAT.

There are currently 14 approved technology providers, most of which offer multiple versions of their software packages to suit different needs. These include the following providers:

The type you need depends on how you want to grow your business – you can find guidance for this on the Help to Grow: Digital website. These software packages are designed to help with storing custom data, tracking and sharing financial information, and fulfilling online sales.

Should your business switch to a digital tax system?

Smaller businesses are less likely to have adopted digital technology due to the financial investment required, which leaves them falling behind other businesses with more resources. The Help to Grow: Digital discount helps small businesses like this to improve their operations and boost their growth.

Adopting new technology can allow businesses to become more innovative and break into new markets, becoming more profitable through increased productivity and cost-efficiency. This will also create more job opportunities across the UK, potentially adding billions to the British economy.

Statistics show that, on average, users of Customer Relationship Management (CRM) software boost their productivity by 18%. Meanwhile, Digital Accounting software leads to an average increase in employee sales of 11.8%
over 3 years, and an average of 7.5%
for eCommerce software.

The government plans to continue expanding the Help to Grow: Digital service, with guidance available to help even the least tech-savvy small business owners to catch up with modern markets. If you’re not the best at computing and the thought of cloud accounting
sets your mind in a spin, why not contact GBAC, accountants in Barnsley, for help with going digital? Get in touch to find out what we can do for you.

Spouses or civil partners in the process of separating can find themselves faced with an expensive Capital Gains Tax (CGT) bill. This puts a lot of pressure on divorcing couples during an already difficult time, as they must meet tight deadlines for transferring assets.

To make things a bit easier for couples during their divorce settlements, the government is proposing that ex-spouses and ex-civil partners should be given up to 3 years to make ‘no gain, no loss’ asset transfers between themselves after they no longer live together.

The proposed changes could also see the introduction of special rules regarding formal divorce agreement asset transfers and Private Residence Relief (PRR). Here’s what you need to know about the current rules, and the changes that should take effect from 6th April 2023.

Previous CGT rules for divorce

According to the current legislation (Section 58 of the Taxation of Chargeable Gains Act 1992):

This means that while the separating couple are still living together, any transfers of assets between them can be made on a ‘no gain, no loss’ basis – treating the acquisition by the receiving partner as the same value as it originally cost the partner transferring it.

Once the couple have stopped living together, this treatment will only apply for the remainder of the tax year. After this point, any transfers will be treated as regular disposals for CGT purposes.

This can cause a lot of stress for the partner disposing of the asset, especially if it’s close to the end of the current tax year when the couple stops living together.

Proposed changes to CGT deadlines

In its second Capital Gains Tax report, the Office of Tax Simplification (OTS) looked into the ways that CGT rules
apply to divorcing individuals, and made recommendations for deadline extensions.

The government responded to their suggestions in November 2021, agreeing that the ‘no loss, no gain’ asset transfer window should be extended for disposals occurring on or after 6th April 2023.

To put this into action, the Finance Bill 2022-23
should introduce legislation that will allow:

It should also introduce special rules for separated individuals who leave the couple’s residence but maintain a financial interest in their former family home, who will have the option to claim Private Residence Relief (PRR) if the property is later sold on to a third party.

Similarly, individuals who transferred their financial interests in the former matrimonial home to their ex-partner will be entitled to a percentage of the proceeds of an eventual sale. They would therefore be eligible to apply the same tax treatment to those proceeds that would have applied before they transferred their interests to their ex-spouse.

Getting help with CGT during a divorce

These measures are expected to have a positive impact on households and families where a couple seeks to legally end a marriage or civil partnership. Extending the time period for transferring assets reduces the CGT
burden on individuals transferring matrimonial assets, allowing separating couples to focus on other considerations, including adjusting to a healthy post-separation family lifestyle.

However, you should bear in mind that even if your separation takes place after 6th April 2023, if you finalise it under a divorce order earlier than the extended deadline window, this will bring the ‘no gain, no loss’ period to an automatic end. For more details about these proposals and how they could affect you, click to read through the ‘Capital Gains Tax: separation and divorce’ policy paper.

You can also read our previous blog on the tax implications of no-fault divorce under the Divorce, Dissolution and Separation Act (2020) for information on new divorce laws. If you or your family find yourselves in need of professional tax advice, feel free to contact GBAC, accountants in Barnsley, for a consultation.

Late June is usually the time of year when HMRC
issues its annual taxpayer statistics, releasing the most up-to-date numbers and projections for the current tax year.

The new data from HMRC now reveals that there are more than 6 million people paying higher rate tax or additional rate tax in the UK – more than ever before.

So, what are the reasons behind this record-breaking increase in higher-band taxpayers, and what does this mean for your personal finances?

Record numbers of higher rate and additional rate taxpayers in 2022

The latest data on UK taxpayers has received more attention than this type of release usually would for a few reasons. Here is a summary of the important points:

⦿ Firstly, the number of people paying income tax
jumped by 4% (1.3 million) for the 2022-2023 tax year, which is the biggest increase in 18 years (since 2004-2005).

⦿ Secondly, the number of higher rate taxpayers
saw an even larger increase of 16% (750,000), which is the highest increase ever in more than 30 years of HMRC collecting UK tax data.

⦿ Thirdly, the number of additional rate taxpayers grew by 12% (66,000), up to 1.75% of all taxpayers compared to the 0.75% when this tax rate was first introduced in 2010-2011.

When you add together all the higher rate taxpayers
and additional rate taxpayers in the UK, it totals over 6.1 million people. This means that more than 1 in 6 income tax payers are paying more than the basic income tax rate (20%) on their annual earnings.

These increases are partially a result of tax rate
and tax allowance freezes, plus the skyrocketing inflation rates
in the UK. The thresholds for the Personal Allowance, higher rate income tax, and additional rate income tax were frozen last year and will remain the same until 2025-2026.

Meanwhile, inflation rates are rapidly outpacing official predictions, pushing up the cost of living and causing workers to seek pay rises in order to keep up with the prices of necessities. If you’re one of the many people pushed into a higher tax band this year, you’re probably wondering what you can do to ease the effect on your personal finances.

Are you making the most of higher rate tax relief?

We’ve already reported on the rising number of higher rate taxpayers, with predictions suggesting that around 1 in 5 (19%)
of taxpayers likely to become part of the higher rate or additional rate tax bands by the 2024-2025 tax year, and looked at some recommendations for higher rate tax relief.

However, here’s another rundown on what you can do to help ease your income tax liabilities, and help yourself in the future. The following tax perks can benefit all kinds of working, retired, low-income, and middle-income families and individuals, so you shouldn’t overlook them.

⦿ Tax-free Childcare – if you are in employment and pay for childcare, you could receive up to £2,000 a year per child
to help with the costs of approved childcare services.

⦿ Marriage Allowance – partners in a married couple can share their tax-free Personal Allowance (£12,570) if one partner transfers £1,260
of their allowance to the other.

⦿ Pension Credit – people over State Pension
age who are on a low income could receive a top-up, bringing weekly income to £182.60 or £278.70
(for single individuals or joint partners respectively).

⦿ Cost of Living Payment – recipients of certain low-income benefits are eligible for a tax-free, non-repayable payment of £650 (in two lump sums of £326 and £324).

⦿ Pension Tax Relief – most people automatically receive ‘relief at source’ on private pension contributions, but if you don’t, you could claim additional pension tax relief through a Self-Assessment Tax Return (depending on your earnings and income tax band).

Looking for professional higher rate tax advice?

While the Treasury seems to be winning with increased tax revenue, it’s not the best news for people already being hit hard by the UK’s cost of living crisis. There’s even talk of new tax cuts being introduced through the Autumn Budget 2022, if not sooner.

In the meantime, anyone who has become a higher rate taxpayer or been pushed into the even higher additional rate tax band
this year should be doing as much as possible to maximise the income tax reliefs available to them.

If you’re struggling to stay on top of your taxes and balance your finances, you could benefit from the services of a professional tax consultant. With advice from trained accountants like our team at GBAC, you could get help accessing all the tax reliefs you’re entitled to.

Recent headlines have been bringing marginal tax rates back into the spotlight. The tapering of Personal Allowances combined with rapid inflation seems to create a higher tax rate of 60%.

However, the 60% tax rate isn’t really new – it’s been around in some form since the 2010-2011 tax year. It’s not a glitch in personal allowance legislation, as suggested by The Times. At the time, the legislation was designed specifically to raise more revenue while maintaining the £150,000 threshold for the newer 45% additional tax rate.

However, The Sunday Telegraph wasn’t wrong to suggest that at least a million people could find themselves paying 60% income tax
within the next few years. In this blog, we’ll go into detail about the 60% income tax rate, explaining who is affected and what you can do to avoid it.

What is the 60% income tax trap?

Every worker in the UK is entitled to a Personal Allowance of money that they can earn tax-free. Anything over this amount – which is £12,570 for the current tax year – is taxed at either the 20% basic rate, the 40% higher rate, or the 45% additional tax rate. The amount of income tax you pay depends on the amount you earn above the respective tax thresholds.

However, what many people may not be aware of is that there’s a tapering scale that chips away your Personal Allowance if your annual income exceeds £100,000. For every £2 you earn above this, you lose £1 of your tax-free allowance. This means that if your earnings reach £125,140, you’ll have lost the entire Personal Allowance left – which works out as a 60% tax rate.

Here’s an example of how the 60% income tax trap
could affect an employee in 2022-2023:

Of course, if Sandra received any bonuses totalling £25,140
or more (£12,570 multiplied by two), then she would lose all of her Personal Allowance. Though it doesn’t happen too often or to too many people, employees can be caught out by things like bonuses, company benefits, and earning additional income from other sources at the same time as their primary salary.

How to avoid the 60% income tax rate

While relatively few people previously fell into the 60% income tax sinkhole, this number is likely to increase over the next couple of years due to soaring inflation rates. If you would rather not pay more than the 40% higher rate on earnings between £100,000 and £125,140, there are some things you can do to reduce the risk of being pushed into this tax trap.

For example, if you’re due a bonus at work but the extra earnings would send you into the 60% tax territory, you could ask for a non-cash bonus instead. Many employers often run ‘salary sacrifice’ schemes that allow you to swap some of your salary for tax-free benefits – like a company car, private health insurance, or childcare payments.

Similarly, you could increase your pension contributions
either through a salary sacrifice scheme or by making additional personal contributions. This reduces your taxable earnings below the danger zone, whilst also having the benefit of increasing your retirement funds.

Currently, the maximum for annual pension contributions
that can still receive tax relief is £40,000. However, this only applies if you earn less than £150,000 a year – anything higher will have tapered contributions until £210,000, at which point you can only contribute £10,000 a year with tax relief.

Another way to reduce your income tax liability is to make charitable donations using Gift Aid. This obviously doesn’t have the same personal benefits as contributing to your own pension, but you’ll be giving something back to society and helping to make the world a slightly better place.

Get professional income tax advice

The newspaper articles we mentioned earlier highlighted the fact that since the £100,000 threshold for tapering the Personal Allowance hasn’t changed since 2010, but the Personal Allowance
itself has almost doubled in that time, there is now an income band where £25,140
could be caught out by a 60% tax charge.

The only good piece of news is that you might be able to claim the same rate of tax relief on pension contributions or Gift Aid donations if you are snared by the 60% income tax trap. Tax rules in the UK are updated frequently and are often confusing for many, but one way to make sure you mitigate or avoid tax sinkholes like this is to get professional advice.

Tax consultants like ourselves at GBAC, accountants in Barnsley, are always up to date with the latest tax legislation, and have the necessary expertise to help you evaluate your individual income circumstances and calculate the most efficient tax relief options for you. If you could benefit from our tax planning advice, or need help with a Self-Assessment tax return, be sure to get in touch with our team.

With strikes and cancellations affecting trains and planes across the UK and Europe this summer, employers need to be prepared in case an employee can’t travel to work or gets stuck overseas.

While the disruption is frustrating enough for holidaymakers, the knock-on effect on employers is also causing strain – from rescheduling annual leave to having to operate with absent employees.

If your business hasn’t experienced this type of scenario before, you might be unsure about your company policy regarding these situations. So, what are your options if staff can’t get to work?

This blog explains what you should know from the perspective of employment law.

Commuters affected by bus and rail strikes

As most people in the UK will know, rail workers participating in industrial action have reduced train services to just 1/5 of their normal capacity in recent weeks.

In some places, there are no trains running at all – and people might not even be able to turn to bus services, as bus companies are also going on strike this summer.

The ongoing strikes are a result of unions attempting to resolve disputes over inadequate pay and working conditions, with employees wanting more job security in the face of soaring inflation.

It’s not just limited to the UK, though – both British and international European airlines have also seen strikes affect their flights, while lengthy queues and delays have also been holding things up at the Dover port and the Eurotunnel as a result of staff shortages and post-Brexit regulations.

As inconvenient as they are, there’s usually enough notice given of an impending strike for people to make alternative plans. If you’re lucky enough to operate a hybrid working model, with employees able to work from home on some days and work in person on others, then it might be as simple as allowing affected employees to work from home on strike days (with advance notice).

If working in person is a requirement and it’s not possible for an affected employee to work from home, you can expect their journey to work to be longer and/or costlier than usual. If you don’t want to deal with lateness or absences from this, you may have to take further steps like rearranging shifts or finding out if employees working the same hours might be able to carpool, for example.

Holidaymakers stranded by flight cancellations

Flight disruptions have also been dominating the headlines for the last few months, as under-staffed and over-booked airlines struggle to recover from the pandemic. The aviation industry was one of the worst hit when COVID-19 shut everything down, and now that demand for international travel is returning, airlines are finding that they don’t have the staff to service all of the flights they’ve sold.

This has resulted in chaos involving dramatically long delays, a rise in lost luggage, and consistently last-minute cuts and cancellations. Many holidaymakers have spoken to publications about their struggles with sudden flight cancellations leaving them stranded abroad, missing work and school.

This is obviously trickier than an employee being unable to catch a bus or train, as there are other options in such a scenario. When it comes to an employee being stuck in another country until they can catch another flight home, it can be much harder for an employer to manage the situation.

What can employers do if workers are stranded abroad?

The first option is to ask the employee if they want to take the extra day (or days) out of their annual leave. This allows them to extend their holiday and still receive pay, even if you were expecting them back on the previously agreed date. It’s not ideal, and it depends on the employee having leftover annual leave
allowance, but it’s the easiest route.

If taking more annual leave isn’t possible, they might ask to take unpaid leave instead. They can then get on with making alternative arrangements to get home without having to worry so much about being absent from work. Employees don’t actually have a legal right to unpaid leave, so granting such a request is at the employer’s discretion.

On the off-chance that the employee’s job can be done remotely, and they have the equipment they need with them there, then the employee might prefer to work from wherever they are. However, most people don’t take their work laptop on holiday with them, and clocking in from a hotel room is probably the last thing on their mind when they’re busy stressing over booking another flight home.

Before you take any action, be sure to check your company’s policy thoroughly for any provisions relating to emergency situations – does your business allow time off in lieu, or does the employee’s contract allow flexible working so they can make up the lost hours later?

It’s best for employers to act as sympathetically as possible, as disciplinary action for out-of-control circumstances could turn working relationships sour – and an unfair dismissal could see your business facing an Employment Tribunal
case.

Employer obligations to staff with transport challenges

While a good employer always does their best to work with employees to resolve issues like this, some things come down to the employee’s contract and the overall company policy. For example, if flights get cancelled and a staff member wants to cancel and rearrange their annual leave, you don’t necessarily have to allow it. Similarly, you won’t technically be obligated to allow unpaid leave.

Of course, there are some exceptions where you would be obligated to pay the employee as normal. If they were travelling on a business trip on your company’s behalf when they got stuck abroad, it would be unfair to expect them to use annual leave or take unpaid leave. On the other hand, it’s likely they’ll have their work equipment with them, and be able to work remotely for the time being.

You can find the UK government’s guide to holiday entitlement here, explaining the legal obligations of employers and the rights of employees regarding time off work.

If you need any help with managing payroll, including holiday pay, or if you’d like to upgrade your cloud accounting services
to facilitate remote working, be sure to contact GBAC, accountants in Barnsley.

When you dispose of a private residence and make a profit from its sale, you won’t have to pay Capital Gains Tax (CGT) on it if the property was your main residence throughout the time you owned it – known as the ‘period of ownership’.

But what exactly qualifies? How do you know whether you’re liable to pay Capital Gains Tax or not, and how do you calculate such an exemption? Let’s look at some examples, and run through the basics of Private Residence Relief for CGT.

HMRC takes couple to First-Tier Tribunal

Recently, the First-Tier Tribunal came up with a favourable interpretation of the ‘period of ownership’. The case covered a married couple who purchased and rebuilt a house over 2.5 years, who then moved in, but sold the house on 1 year later for a profit of £500,000+ per spouse.

When this couple claimed Private Residence Relief on their total gains, HMRC argued that they weren’t eligible for the full exemption, since they hadn’t lived in the house from the time it was originally purchased. The case went to a First-Tier Tribunal to decide which party was in the right.

Though HMRC might appeal the decision, the Tribunal sided with the couple. This is because the natural reading of the law is that the ‘period of ownership’ applies to the house being sold – and since the original house had been demolished, it wasn’t possible for the couple to have lived in it from when they purchased the land 2.5 years before they moved into the new finished house.

Therefore, the couple’s gains from the sale of the house a year after moving in were fully exempt.

What is Private Residence Relief?

Normally, you must pay Capital Gains Tax (CGT) on any profits you make upon disposing of:

However, you could be entitled to a full CGT exemption if you meet the following conditions:

If you don’t meet the conditions for a full exemption, you may still be eligible for partial CGT relief., but you’ll have to complete the Capital Gains Tax summary part of your tax return. However, you won’t be entitled to any Private Residence Relief if you purposefully acquire a dwelling to make a profit on its disposal, or if you sell the garden/grounds separately to your disposal of the home.

What is the ‘period of ownership’?

For the purposes of Private Residence Relief (PRR), the ‘period of ownership’ begins when you acquire the dwelling and ends when you pass ownership of it to someone else. This period starts on the date of acquisition, or on 31st March 1982
if you acquired the dwelling before this date.

It can seem complicated, but if you sell a property that wasn’t always your main dwelling, you’ll have to split the gains to calculate the portion that’s eligible for CGT relief. This means multiplying the profit by a percentage equal to the total period of ownership (excluding the period of absence).

However, a ‘period of absence’ could still qualify for PRR under certain conditions. For example:

1) You buy a home in 1998, but due to refurbishment requirements, you cannot move in until a year later. This dwelling then remains your primary home until you decide to sell it in 2018. You’re then entitled to full Private Residence Relief.

2) You buy a home in 2000, but your employer requires you to work away from home for a few years, so you don’t return to live in it as your main residence until 2003. You remain in this primary dwelling until you sell up in 2020. You’re also entitled to full Private Residence Relief.

In any case, the absences must not last for more than 3 years in total, or your PRR eligibility will be affected. You’ll usually be allowed to count up to 24 months
of non-occupation after acquisition as actual occupation if you were unable to live in the house due to building work or other alterations.

Regardless of how a property is used in the final 9 months of ownership, it should still qualify for CGT relief, as long as it was your primary dwelling before that.

How does Private Residence Relief work?

Homeowners who dispose of their main dwelling receive Private Residence Relief, meaning they don’t have to pay Capital Gains Tax on any gains made when disposing of the residence.

If you sell a secondary home that isn’t your main residence, but you did live in full-time at some point, you may be eligible for partial relief instead of the full exemption.

People with an additional dwelling that might be eligible for PRR – such as a house or flat that you use as a holiday home or rent out during your absence – need to decide which residence they want to nominate as their main home that can then be fully exempt from CGT.

They’ll have 2 years to nominate the main home that they spend the most time living in, or else HMRC will decide for them, based on voter registration, vehicle registration, and similar factors.

If a property has been your only/main residence at any point, the last 9 months of ownership will not be liable for CGT
– so, if you move out of your house into a new one before selling the old one, you’ll have up to 9 months to sell the original home before it becomes liable for CGT.

Essentially, you don’t have to pay Capital Gains Tax
when selling a main dwelling for any time that you spent officially living in that residence. Whether you lived in the house or not during the last 9 months, or even rented it out, you can still receive Private Residence Relief for that time.

That said, if you sell a primary residence while letting out a part of it, you’ll only be eligible for PRR on the part of the home you actually occupied.

How to calculate Private Residence Relief

Depending on your situation, this is the main formula you should follow for calculating PRR:

Alternatively, you can multiply the total gain (£) by the percentage of ownership (%) – for example, if you only live in 70%
of the property, or you have a 50/50 split with a spouse.

Need help with Capital Gains Tax on private residence disposal?

While the case mentioned earlier in this article suggests that there’s some tax-planning scope allowed for anyone with a plot of land who can build a house on it and live there before selling up to claim Private Residence Relief, it’s important to remember that First-Tier Tribunal
decisions don’t set a legal precedent. You should still consult the PRR guidance provided by HMRC.

Or, if you still find the rules around periods of ownership for Private Residence Relief to be confusing, and need help calculating your Capital Gains Tax exemptions and submitting your CGT tax returns, why not hire a professional tax consultant? The experts at GBAC, Barnsley accountants, are on hand to take your call on 01226 298 298, or respond to email enquiries sent to info@gbac.co.uk.

‘No fault’ divorce went from a legal possibility to a reality in April 2022. Though there have been no connected changes to tax rules, this type of divorce still has financial implications for the divorcees.

Now that ‘no fault’ divorces allow estranged couples in England and Wales to end their marriage without having to assign blame, each person has more time to focus on finances and tax efficiency.

Here’s what you need to know about the tax implications of no fault divorces in England and Wales.

What is a no fault divorce?

Under the previous divorce laws in England and Wales, couples had to prove that their marriage had broken down. Unless a couple had been separated for at least 2 years before applying for divorce, the person filing was required to assign blame for the breakdown to their spouse’s behaviour.

Even if the couple were in mutual agreement over the separation, one would still have to make allegations about the other’s behaviour to validate the divorce application. This often leads to emotional finger-pointing, forcing children to witness mud-slinging arguments, and even spouses contesting the divorce purely out of vindictiveness – trapping people in unhappy relationships.

The Divorce, Dissolution and Separation Act (2020), in force since 6th April 2022, removes the need for apportioning blame for misconduct during the marriage. This makes communication easier and allows individuals to focus on the more practical decisions relating to the divorce proceedings.

The new laws allow people to apply for divorce in a more straightforward way:

With a minimum timeframe of 26 weeks (6 months) for proceedings, the law allows enough time for applicants to change their mind if they want to reconcile, or to sort out important administrative arrangements regarding children and shared property if they don’t.

A couple will still be treated as married for tax purposes until the Final Order is issued after 26 weeks. Depending on the time of year that proceedings start, and possible administration delays, this means that the transferring of assets from a divorce might be pushed into the next tax year.

Which taxes are affected by no fault divorces?

There are no new tax regulations for no fault divorces, so tax concerns are essentially the same as divorces under previous laws. Transferring assets through divorce settlements is not usually subject to Income Tax, and maintenance payments generally come from income that’s already been taxed.

However, if you receive income-producing assets from your former spouse, any income generated from such shares, bonds, or dividends is likely to have taxable interest from the date of its transfer.

When it comes to property, such as a shared family house, the departing spouse is considered a resident. If the home is transferred or sold as part of the divorce when the spouse leaves, Private Residence Relief (PRR) could apply. This means it’s likely that no Capital Gains Tax (CGT) or Stamp Duty Land Tax (SDLT) will be payable if the transfer occurs within the last 9 months of ownership.

As for Inheritance Tax (IHT), asset transfers from a divorce settlement may be liable, depending on when the transfers occurred. These are usually referred to as Potentially Exempt Transfers (PET), as they should be exempt from IHT, unless the person who transferred the asset dies within 7 years.

It’s also important to remember that finalised divorces don’t revoke existing Wills. So, if your divorce will affect your chosen beneficiaries and asset distribution, you should review and update your Will.

How does a no fault divorce affect Capital Gains Tax?

The biggest tax issue for most couples getting a divorce will be Capital Gains Tax. Transferring assets is almost unavoidable as part of a divorce, and it’s only possible to avoid paying CGT if the transfers happen before the end of the tax year of the separation.

Previously, spouses could avoid CGT under the ‘no gain, no loss’ principle, whereby one partner receives the asset at the original cost to the other partner. This means no CGT is applicable if the transfer happens during the same tax year when the couple was still living together.

Now, after separation, partners are considered ‘connected persons’ for CGT purposes, so any transfers will be at market value, regardless of proceeds paid – so the person making the transfer could be liable for CGT, even without receiving profits to pay the tax with.

This is why divorce settlements require such careful tax planning. Private Residence Relief (PRR) only applies to the main family home, so couples with multiple properties, high-value assets, or company shares could find themselves in trouble.

Of course, you can try to mitigate Capital Gains Tax
from divorce by agreeing to wait until the following tax year to transfer assets, but this still requires planning and co-operation. CGT allowances
and thresholds can also vary from year to year, so it’s crucial to stay on top of your tax bracket information and relevant liabilities.

Do you need tax advice for a no fault divorce?

Taxes aren’t always the priority when dealing with a divorce settlement, which can be extremely stressful even when there’s no fault assigned. That said, it can lessen the stress significantly to have expert tax guidance while you’re negotiating your divorce.

HMRC has updated their online help-sheet with information on the CGT implications of no fault divorce, which you can read through here. If you’re planning to apply for a no fault divorce, or are already in the process, and think you would benefit from tax consultancy services, feel free to contact GBAC, accountants in Barnsley, who also cover Leeds and Sheffield, on 01226 298 298 or at info@gbac.co.uk.

We’ve been covering the ongoing developments with the Making Tax Digital roll-out for a while here on the GBAC blog, and now we’re back to discuss the latest issues with MTD.

Currently, the biggest concerns for many are the pilot scheme for MTD for Income Tax and the expansion of MTD for VAT. Here’s the latest information on both of these parts of MTD.

MTD for Income Tax pilot scheme

Before Making Tax Digital becomes mandatory for Income Tax in 2024, there’s an official pilot scheme testing the system. Users can provide feedback on how it works in practice.

As the pilot scheme for Income Tax is still evolving, HMRC is only allowing small numbers of users to sign up. Taxpayers can join the pilot from July 2022 if they earn over £10,000 from:

Clients can sign up through their MTD-compatible software if their accounting period aligns with the tax year (6th April to 5th April). You can find out more about eligibility and how to join here.

In the coming months, new functionalities should be added, which will allow users to claim Income Tax relief on the marriage allowance and personal pension contributions.

It should also soon be possible to make voluntary Class 2 National Insurance contributions and student loan repayments through this system, as well as reporting capital gains.

MTD for VAT-registered businesses

Making Tax Digital for VAT became a requirement for all VAT-registered businesses from 1st April 2022. Not every eligible business needed to sign up immediately, as their first filing might not be required until 2023, depending on their annual accounting period.

However, the earlier your business registers and sets up MTD accounting software, the better. You should give yourself time to get used to keeping digital records and submitting documents to HMRC this way, especially if you choose to invest in brand new software.

You should also be aware of new VAT penalties coming in January 2023, as interest charges and fines for late submission or late payment will be changing next year. HMRC should be publishing more detailed information about these changes by December 2022.

There are limited Making Tax Digital exemptions when it comes to VAT-registered businesses, so don’t assume that you’re exempt just because you’ve never filed tax returns online before. If you apply for an MTD exemption, your age, ability, location, and religious practices will be taken into account. HMRC may simply allow you more time to adjust to MTD.

Need help taking your taxes digital?

The responsibility for handling tax matters, including MTD registration and compliance, lies with the taxpayer (i.e. the company director). If you’re not sure about your company’s Making Tax Digital status, you might prefer to hire an accountant to handle it on your behalf.

Digitalisation is beyond overdue for the old tax system, so don’t be left behind and risk financial penalties down the line for failing to comply with MTD filing. If you haven’t registered already and need help getting started with HMRC-recognised digital accounting software, we can help.

With plenty of experience in software set-up and training, providing tax advice, and managing accounts for businesses of all sizes, you can trust GBAC, accountants in Barnsley, to do what’s best for you and your company. Give us a call on 01226 298 298 or email info@gbac.co.uk today to get started.