Capital gains tax (CGT) rates

The current rates of CGT are 18% to the extent that any income tax basic rate band is available and 28% thereafter. The rate for disposals qualifying for Entrepreneurs’ Relief is 10% with a lifetime limit of £10 million for each individual.

CGT – Entrepreneurs’ Relief (ER)

The government will allow gains which are eligible for ER, but which are instead deferred into investments which qualify for the Enterprise Investment Scheme or Social Investment Tax Relief to remain eligible for ER when the gain is realised. This will benefit qualifying gains on disposals that would be eligible for ER but are deferred into either scheme on or after 3 December 2014.

CGT – non-residents and UK residential property

At present a non-resident individual or company is not liable to CGT on residential property even though it is located in the UK. This is in marked contrast to many other countries that charge a capital gains tax on the basis of the location of a property rather than on the location of the vendor.

Therefore from 6 April 2015 a CGT charge will be introduced on gains made by non-residents disposing of UK residential property. The rate of tax for non-resident individuals will be the same as the CGT rates for UK individuals. Non-resident individuals will have access to the CGT annual exemption.

The rate of tax for companies will mirror the UK corporation tax rate.

The charge will not apply to the amount of the gain relating to periods prior to 6 April 2015. The government will allow either rebasing to a 5 April 2015 value or a time-apportionment of the whole gain, in most cases.

The government has decided that some changes are required to the rules determining the circumstances when a property can benefit from Private Residence Relief (PRR). The changes will apply to both a UK resident disposing of a residence in another country and a non-resident disposing of a UK residence.

From 6 April 2015 a person’s residence will not be eligible for PRR for a tax year unless either:

• the person making the disposal was resident in the same country as the property for that tax year, or
• the person spent at least 90 midnights in that property.

Changes to the tax treatment of pensions on death

IHT and pension funds

If an individual has not bought an annuity, a defined contribution pension fund remains available to pass on to selected beneficiaries. Inheritance tax (IHT) can be avoided by making a ‘letter of wishes’ to the pension provider suggesting to whom the funds should be paid. If an individual’s intention has not been expressed the funds may be paid to the individual’s estate resulting in a potential IHT liability.

Other tax charges on pension funds – current law

There are other tax charges to reflect the principle that income tax relief would have been given on contributions into the pension fund and therefore some tax should be payable when the fund is paid out. For example:

• if the fund is paid as a lump sum to a beneficiary, tax at 55% of the fund value is payable
• if the fund is placed in a drawdown account to provide income to a ‘dependant’ (for example a spouse), the income drawn down is taxed at the dependant’s marginal rate of income tax.

There are some exceptions from the 55% charge. It is possible to pass on a pension fund as a tax free lump sum where the individual has not taken any tax free cash or income from the fund and they die under the age of 75.

Other tax charges on pension funds – changes

The government has decided to introduce significant exceptions from the tax charges.

Under the new system, anyone who dies under the age of 75 will be able to give their remaining defined contribution pension fund to anyone completely tax free, whether it is in a drawdown account or untouched.

The fund can be paid out as a lump sum to a beneficiary or taken out by the beneficiary through a ‘flexi access drawdown account’ (see the personal tax section of this summary for an explanation of this term).

Those aged 75 or over when they die will be able to pass their defined contribution pension fund to any beneficiary who will then be able to draw down on it as income at their marginal rate of income tax. Beneficiaries will also have the option of receiving the pension as a lump sum payment, subject to a tax charge of 45%.

The proposed changes take effect for payments made from 6 April 2015.

Tax treatment of inherited annuities

The Chancellor has announced further changes to the pension tax regime. From 6 April 2015 beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free. The tax rules will also be changed to allow joint life annuities to be passed on to any beneficiary.

Changes to the trust IHT regime

Certain trusts, known as ‘relevant property trusts’, provide a mechanism to allow assets to be held outside of an individual’s estate thus avoiding a 40% IHT liability on the death of an individual. The downside is that there are three potential points of IHT charge on relevant property trusts:

• a transfer of assets into the trust is a chargeable transfer in both lifetime and on death
• a charge has to be calculated on the value of the assets in the trust on each ten-year anniversary of the creation of the trust
• an exit charge arises when assets are effectively transferred out of the trust.

The calculation of the latter two charges is currently a complex process which can take a significant amount of time to compute for very little tax yield.

A third consultation on proposed changes was issued in June 2014. It proposed that an individual would have a ‘settlement nil rate band’ which would be unconnected to their personal nil rate band.

The government has now announced that a single settlement nil rate band will not be introduced. The government will introduce new rules to target avoidance through the use of multiple trusts. It will also simplify the calculation of trust rules.

IHT – exemption for emergency services personnel and humanitarian aid workers

Following consultation since Budget 2014, the government will extend the existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service to members of the emergency services and humanitarian aid workers responding to emergency circumstances. It will have effect for deaths on or after 19 March 2014.

Stamp Duty Land Tax (SDLT)

The Chancellor has announced a major reform to SDLT on residential property transactions. SDLT is charged at a single percentage of the price paid for the property, depending on the rate band within which the purchase price falls. From 4 December 2014 each new SDLT rate will only be payable on the portion of the property value which falls within each band. This will remove the distortion created by the existing system, where the amount of tax due jumps at the thresholds.

Where contracts have been exchanged but not completed on or before 3 December 2014, purchasers will have a choice of whether the old or new structure and rates apply. This measure will apply in Scotland until 1 April 2015 when SDLT is devolved to the Scottish Parliament.

The new rates and thresholds are:

Annual Tax on Enveloped Dwellings (ATED)

The ATED is payable by those purchasing and holding their homes through corporate envelopes, such as companies. The government introduced a package of measures in 2012 and 2013 to tackle this tax avoidance. One of the measures was the ATED.

The government has now announced an increase in the rates of ATED by 50% above inflation. From 1 April 2015, the charge on residential properties owned through a company and worth:

• more than £2 million but less than £5 million will be £23,350
• more than £5 million but less than £10 million will be £54,450
• more than £10 million but less than £20 million will be £109,050
• more than £20 million will be £218,200.