Following the Chancellor’s Autumn Budget announcement, some key changes have been announced to Capital Gains Tax.

Entrepreneurs’ Relief (ER)

This relief has come under scrutiny of late and various representations have been made to the Chancellor to abolish the relief. ER is a very valuable relief for entrepreneurs and can see chargeable gains on the sale of their business/shares in an unquoted trading company taxed at 10%, as opposed to the normal capital gains tax rate of 20%.

Defining a personal company

The Government has announced that they will legislate in the Finance Bill 2018/19 to tackle the misuse of ER, by adding two new tests to the definition of a ‘personal company’. Currently a shareholder must have 5% of the voting rights and share capital of the company in order to be able to secure ER, assuming other conditions are met.  For disposals on or after 29 October 2018, the shareholder will require to also have 5% interest in both the distributable profits of the company and the net assets. 

Minimum holding period for ER

There will also be an increase to the minimum holding period for ER to be available, from one year to two years.  For the genuine business owner, this is unlikely to be a significant hurdle in the way of securing ER. This change will have effect for disposals on or after 6 April 2019, except where a business ceases before 29 October 2018.  When a business ceases, ER can be available on the disposal of assets/distributions received in a winding up for up to three years following the cessation of that business, subject to other conditions being met. In these circumstances, the one year period will continue to be in point. From 29 October 2018 onwards, where a business ceases the business/shares will require to have been owned for two years. 

Diluted shareholdings

As previously announced the Government will legislate in 2018/19 Finance Bill for individuals whose shareholding dilutes below the 5% qualifying threshold for ER as a result of a new share issue to still be able to qualify for ER relief. This change will have effect for shares held at the time of fund raising events which take place on or after 6 April 2019.

Taxing gains made by non-residents on UK immovable property

In 2017, the Government announced it would look to tax disposals of all UK land (residential and commercial) by non-residents. This includes both direct disposals of UK land and indirect disposals through entities which have underlying value from UK land. Where it applies to non-resident companies they will be chargeable to Corporation Tax on the gains.

Capital Gains Tax payment window

From 6 April 2020 there will be a requirement for UK taxpayers to make a payment on account of Capital Gains Tax within 30 days following a residential property disposal. The legislation to be introduced will replace and extend the existing reporting and payment on account rules that currently apply for non-UK residents. 

Capital Gains Tax private residence relief

From April 2020 the Government has announced two changes to this relief that applies to a person's main residence as follows:

• The final period of exemption, whereby relief is given will be reduced from 18 months to 9 months.
• Lettings relief to be reformed so that this relief will only be available if the owner of the property is in ‘shared occupancy’ with a tenant.

More generally, the Capital Gains Tax annual exemption has increased from £11,700 in the current tax year to £12,000 for 2019/20 tax year.  This means that gains in a tax year of up to £12,000 are covered by the annual exemption and so free of Capital Gains Tax.  For most Trustees of Trusts, the rate applying is £6,000 for 2019/20 tax year (currently £5,850).