Tag: Property

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MTD ITSA delayed to 2024

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by Rebecca Cave

Delayed

The government has delayed the start of MTD ITSA to 6 April 2024, with MTD for general partnerships postponed to 2025. The change to the tax year basis has also been delayed until at least April 2024.

In a written statement to the House of Commons on 23 September 2021, it was announced that MTD for income tax self assessment (MTD ITSA) would be postponed yet again to April 2024. 

“We recognise that, as we emerge from the pandemic, it’s critical that everyone has enough time to prepare for the change, which is why we’re giving people an extra year to do so. We remain firmly committed to Making Tax Digital and building a tax system fit for the 21st Century” announced the new financial secretary Lucy Frazer. 

Long time coming

This is the latest in a series of delays and deferrals in the MTD programme, which was proposed by Chancellor George Osborne in late 2015. The MTD start date for small businesses was first planned to be in April 2018, then the focus switched to MTD for VAT. The MTD for income tax programme was to be delayed until lessons had been learnt from the VAT roll-out.

MTD for VAT commenced on time for most VAT registered businesses for VAT periods starting on and after 1 April 2019 but a number of “complex” entities had a deferred start date to 1 October 2019. A similar deferral is now in place for general partnerships (ie not LLPs, mixed or corporate partnerships), with those “ordinary partnerships” due to enter MTD ITSA from April 2025.

There is no indication of when other more complex partnerships will have to join MTD, and we don’t know if the MTD for corporation tax project will start as planned in 2026 or not.

What is the base year?

The turnover for mandation into the MTD ITSA regime remains at only £10,000 per year, much to disappointment of many who were lobbying for a much higher entry threshold.

As the turnover threshold must take into account the taxpayer’s income from all of their sole-trader businesses, plus their rental income, HMRC needs to pull together several figures from the taxpayer’s self assessment tax returns. Only when the tax return totals reach the £10,000 threshold will HMRC issue a notice to file under the MTD regulations.

If MTD ITSA was mandated from 6 April 2023, the turnover test would need to apply to the figures reported in the 2021/22 tax return, submitted by 31 January 2023, and possibly turnover reported in the 2021/22. Both of those years were affected by the pandemic which reduced turnover and rental income for many businesses and landlords.

Local authority grants for businesses liable for business rates would also increase business turnover for those periods. The SEISS grants should not have been included in business turnover, but some taxpayers have reported them as such, leading to HMRC having to make many corrections taxpayers’ self-assessments for 2020/21, and possibly also for 2021/22. 

As MTD ITSA will now start in April 2024 the base year for testing the MTD turnover threshold will be the tax year 2022/23. The turnover figures for that year should not be distorted by Covid-related grants, and hopefully will reflect normal trading beyond the pandemic for most businesses. 

Tax year basis

When the consultation on changing to the tax year basis of assessment was released in July 2021, doubts were raised on whether there was sufficient time to introduce such a fundamental change to tax law before the mandation of MTD ITSA.

It was apparent that HMRC wanted all unincorporated businesses to switch to the tax year basis before the introduction of MTD ITSA in 2023, but this would make 2022/23 the difficult transitional year.

For businesses with an accounting year end that doesn’t approximate to the tax year, more than 12 months of profits would be assessed in 2022/23. This would have a knock-on effect for a wide range of allowances and charges, including NIC, student loan repayments and capital allowances, to name a few. There was just not enough time to write amendments to regulations in all the areas affected before April 2022.    

What’s more using the tax year basis would bring forward the start of MTD ITSA for businesses with a 31 March year end, from 1 April 2024 to 6 April 2023 – which came as a big shock for many accountants and businesses.

The written statement from the new financial secretary to the Treasury, confirmed the change to the tax year basis will not come into effect before April 2024, with a transition year no earlier than 2023. The government will respond to the consultation on reforming basis periods “in due course” but the wording of this statement makes the change to the tax year basis look uncertain.

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Pay CGT on property in 30 days

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From 6 April 2020, Capital Gains Tax due on the disposal of residential properties will be payable within 30 days of the completion date. This is another step in the acceleration of tax payment dates

The delay between making a capital gain and paying the CGT due can be as much as 22 months. For example, the CGT arising from a gain made by a UK resident individual on 6 April 2019 will be payable by 31 January 2021.   

NRCGT

In 2015, certain non-resident landlords were the first to be hit with an acceleration of tax payment period under the non-resident capital gains tax (NRCGT) rules. This tax was payable on gains arising from UK residential property, but only in respect of gains accruing from 6 April 2015 to 5 April 2019. Larger corporate landlords who paid the annual tax on enveloped dwellings (ATED) on their residential properties were liable to pay the ATED-related gains charge instead of NRCGT.

The transaction subject to NRCGT had to be reported within 30 days of the completion date, whether or not there was tax to pay. This short reporting period generated a lot of late filing penalties for taxpayers who weren’t advised of the change in the law, or in some cases were incorrectly advised by HMRC (Kirsopp TC07064).

The NRCGT was also payable within 30 days, but taxpayers who were already registered with HMRC for self assessment could defer that tax so it was payable with their normal SA tax.

New NRCGT

Finance Act 2019 transformed NRCGT so it now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property). This includes gains arising from indirect disposals of property such as where shares in a property-rich company are sold. Gains accruing from periods before April 2019 (or April 2015) stay out of the UK tax net if the landlord remains non-resident.

The NRCGT is also potentially payable by all non-resident landlords, as the ATED-related gains charge is abolished from 6 April 2019.

The NRCGT is charged at the normal rates of CGT for the taxpayer concerned, so corporates pay at 19% (corporation tax rate) and individuals, trustees and personal representatives pay at 18% or 28%. The tax is due within 30 days of the completion date for all transactions (with no deferrals), although as most properties have a base value at 5 April 2019, few gains will actually be subject to NRCGT in 2019/20.

UK landlords

In 2018, the government proposed that CGT would be payable “on account” within 30 days of the completion date for all UK residential properties disposed of by a UK resident. This change was due to come into effect on 6 April 2019 to coincide with the new NRCGT rules, but it was delayed until 6 April 2020.

The “on account” description of the tax payment is a misnomer as the full amount of CGT will be payable within 30 days, alongside a new online property disposal return. I suspect this return may look much like the existing real-time CGT report, except it will be possible for HMRC to enquire into the property disposal return independently of the taxpayer’s SA return.

If there is no gain to report or the gain is covered by exemptions or losses, the taxpayer won’t have to complete a property disposal return. It seems a lesson has been learned from the hundreds of late-filed NRCGT returns which reported little or no gain.  

If there is a taxable gain to report, the taxpayer must calculate the CGT due taking into account their annual exemption for the year and guess at the correct rate of CGT to apply (18% or 28% based on 2019/20 rates).

After the end of the tax year, the taxpayer will complete their self assessment tax return, including the property gain. Once their full income, gains and losses for the year are calculated, the true amount of CGT will be ascertained and any “on account” payment will be deducted. This could result in a repayment of CGT for the taxpayer. 

Action

Clients need to tell their tax advisors about their residential property sales as soon as they are agreed, so the tax due can be calculated and the property disposal return submitted to HMRC within 30 days of the completion date.

DMS Posts

Selling your home – private residence relief slashed

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In two stealthy moves, the Chancellor used the 2018 Budget to raise some extra capital gains tax from certain individuals when they sell their home. Could this include you?

Selling tax free

As you probably know, if you make a gain from selling your home it’s exempt from capital gains tax (CGT) because of private residence relief (PRR). Even you haven’t used a property as your home for extended periods, for example if you live elsewhere because of your job, PRR can still apply (see The next step ). In addition, the last 18 months of ownership are always CGT free, regardless of whether you occupy the property or not. This means you could move into a new home before selling the old one without losing any PRR. However, the 2018 Budget included two important changes to the PRR rules.

First change – ownership period

The 2018 Budget reduces the PRR for the final period of ownership to nine months (instead of 18) with effect from April 2020. This means if you buy a new home, move out and the property doesn’t sell within nine months you could face a CGT bill when you do finally find a buyer.

Tip. Special rules currently allow PRR for the final 36 months of ownership if you’re in, or moving into, a care home or have a disability. This won’t change as a result of the Budget.

Annual exemption

If you lose some or all of your PRR and this results in a capital gain a CGT bill won’t always follow. Your annual CGT exemption, £12,000 from 6 April 2019 (if you haven’t used it against other gains) reduces the taxable amount. If there are joint owners they can also use their annual exemption to reduce the tax on their share of the gain.

Second change – letting relief

Currently, if you let your home PRR includes a bonus in the shape of an extra relief which can reduce the taxable amount of any capital gain you make from selling your home by up to a maximum of £40,000 (see The next step ). The Chancellor has decided that this letting relief is to be withdrawn from April 2020 unless you occupy part of your home or share it while letting it.

Check your circumstances

The once simple PRR is becoming more complicated year-on-year. If you’ve occupied a house as your main residence for a while, but you’ve also lived somewhere else, the Budget raises the chance of a CGT bill. In future when you sell your home you’ll need to consider the CGT position if you’ve been absent from your home for one or more extended periods during your ownership.

Trap. While some absences are ignored, this might only apply if you re-occupy your home after the absence.

CGT changes in the pipeline

In an obvious attack on landlords, although it may affect others, the Chancellor confirmed that from April 2020 anyone who makes a capital gain from selling residential property which is not covered by an exemption or relief will have to declare and pay an estimate of the CGT within the following 30 days.

 

DMS Posts, Tax

Autumn Budget 2018 – Capital Taxes

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Capital gains tax (CGT) rates

The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.

There are two specific types of disposal which potentially qualify for a 10% rate, both of which have a lifetime limit of £10 million for each individual:

  • Entrepreneurs’ Relief. This is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses
  • Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares

CGT annual exemption

The CGT annual exemption is £11,700 for 2018/19 and will be increased to £12,000 for 2019/20.

Entrepreneurs’ Relief (ER)

Tackling misuse

With immediate effect for disposals on or after 29 October 2018, two new tests are to be added to the definition of a ‘personal company’, requiring the claimant to have a 5% interest in both the distributable profits and the net assets of the company. The new tests must be met, in addition to the existing tests, throughout the specified period in order for relief to be due. The existing tests already require a 5% interest in the ordinary share capital and 5% of voting rights.

Minimum qualifying period

The government will legislate in Finance Bill 2018-19 to increase the minimum period throughout which certain conditions must be met to qualify for ER, from one year to two years. The measure 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.

Dilution of holdings below 5%

Draft legislation has been issued to provide a potential entitlement to ER where an individual’s holding in a company is reduced below the normal 5% qualifying level (meaning 5% of both ordinary share capital and voting power). The relief will only apply where the reduction below 5% occurs as a result of the company raising funds for commercial purposes by means of an issue of new shares, wholly for cash consideration.

Where a disposal of the shareholding prior to the issue would have resulted in a gain which would have qualified for ER, shareholders will be able to make an election treating them as if they had disposed of their shares and immediately reacquired them at market value just before dilution. To avoid an immediate CGT bill on this deemed disposal, a further election can be made to defer the gain until the shares are sold. ER can then be claimed on the deferred gain in the year the shares are sold under the rules in force at that time.

The new rules will apply for share issues which occur on or after 6 April 2019.

Gains for non-residents on UK property

Draft legislation has been issued to charge all non-UK resident persons, whether liable to CGT or corporation tax, on gains on disposals of interests in any type of UK land, whether residential or non-residential. Certain revisions are to be made following a further technical consultation when the full legislation is introduced but the key points are covered here.

All non-UK resident persons will also be taxable on indirect disposals of UK land. The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities who hold a less than 25% interest.

All non-UK resident companies will be charged to corporation tax rather than CGT on their gains.

There will be options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019.

The CGT charge relating to the Annual Tax on Enveloped Dwellings will be abolished. The legislation will broadly have effect for disposals from 6 April 2019.

Payment on account and 30 day returns

Draft legislation has been issued to change the reporting of gains and the associated CGT liability on disposal of property. The main change is a requirement for UK residents to make a return and a payment on account of CGT within 30 days following the completion of a residential property disposal on a worldwide basis. The new requirements will not apply where the gain on the disposal is not chargeable to CGT, for example where the gains are covered by private residence relief.

For UK residents, the measure will have effect for disposals made on or after 6 April 2020.

CGT private residence relief

It is proposed that from April 2020 the government will make two changes to private residence relief:

  • the final period exemption will be reduced from 18 months to 9 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.

The government will consult on the detail of both of these changes and other technical aspects.

Inheritance tax (IHT) nil rate bands

The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.

IHT residence nil rate band

From 6 April 2017 a new nil rate band, called the ‘residence nil rate band’ (RNRB), has been introduced, meaning that the family home can be passed more easily to direct descendants on death.

The RNRB is being phased in. For deaths in 2018/19 it is £125,000, rising to £150,000 in 2019/20 and £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.

There are a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.

Downsizing

The RNRB may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the RNRB, are passed on death to direct descendants.

Changes to IHT RNRB

Amendments are to be introduced to the RNRB relating to downsizing provisions and the definition of ‘inherited’ for RNRB purposes. These amendments clarify the downsizing rules, and provide certainty over when a person is treated as ‘inheriting’ property. This will ensure the policy is working as originally intended. The changes will have effect for deaths on or after 29 October 2018.

Stamp Duty Land Tax (SDLT)

First time buyers relief

The relief for first time buyers will be extended to purchasers of qualifying shared ownership properties who do not elect to pay SDLT on the market value of the whole property when they purchase their first share. Relief will be applied to the first share purchased, where the market value of the shared ownership property is £500,000 or less.

Higher rates for additional dwellings (HRAD)

A minor amendment will extend the time allowed to claim back HRAD where an individual sells their old home within three years of buying their new one.The measure also clarifies the meaning of `major interest` in land for the general purpose of HRAD.

Consultation on SDLT charge for non-residents

The government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.

 

DMS Posts

Capital Gains Tax

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Overview

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.

It’s the gain you make that’s taxed, not the amount of money you receive.

ExampleYou bought a painting for £5,000 and sold it later for £25,000. This means you made a gain of £20,000 (£25,000 minus £5,000).

Some assets are tax-free. You also don’t have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.

Disposing of an asset

Disposing of an asset includes:

  • selling it
  • giving it away as a gift, or transferring it to someone else
  • swapping it for something else
  • getting compensation for it – like an insurance payout if it’s been lost or destroyed

What you pay it on

You pay Capital Gains Tax on the gain when you sell (or ‘dispose of’):

These are known as ‘chargeable assets’.

Depending on the asset, you may be able to reduce any tax you pay by claiming a relief.

If you dispose of an asset you jointly own with someone else, you have to pay Capital Gains Tax on your share of the gain.

When you don’t pay it

You only have to pay Capital Gains Tax on your total gains above an annual tax-free allowance.

You don’t usually pay tax on gifts to your husband, wife, civil partner or a charity.

What you don’t pay it on

You don’t pay Capital Gains Tax on certain assets, including any gains you make from:

  • ISAs or PEPs
  • UK government gilts and Premium Bonds
  • betting, lottery or pools winnings

When someone dies

When you inherit an asset, Inheritance Tax is usually paid by the estate of the person who’s died. You only have to work out if you need to pay Capital Gains Tax if you later dispose of the asset.

Overseas assets

You may have to pay Capital Gains Tax even if your asset is overseas.

There are special rules if you’re a UK resident but not ‘domiciled’ and claim the ‘remittance basis’.

If you’re abroad

You have to pay tax on gains you make on residential property in the UK even if you’re non-resident for tax purposes. You don’t pay Capital Gains Tax on other UK assets, eg shares in UK companies, unless you return to the UK within 5 years of leaving.

Capital Gains Tax allowances

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount).

 

The Capital Gains tax-free allowance is:

  • £11,700
  • £5,850 for trusts

You can see tax-free allowances for previous years.

You may also be able to reduce your tax bill by deducting losses or claiming reliefs – this depends on the asset.

Gifts to your spouse or charity

There are special rules for Capital Gains Tax on gifts or assets you dispose ofto:

  • your spouse or civil partner
  • charity

The normal rules apply for gifts to others.

Your spouse or civil partner

You don’t pay Capital Gains Tax on assets you give or sell to your husband, wife or civil partner, unless:

The tax year is from 6 April to 5 April the following year.

If they later sell the asset

Your spouse or civil partner may have to pay tax on any gain if they later dispose of the asset.

Their gain or loss will be calculated from when you or they first owned it.

If this was before April 1982, your spouse or civil partner should work out their gain using the market value on 31 March 1982 instead.

They should keep a record of what you paid for the asset.

Gifts to charity

You don’t have to pay Capital Gains Tax on assets you give away to charity.

You may have to pay if you sell an asset to charity for both:

Work out your gain using the amount the charity actually pays you, rather than the value of the asset.

Work out if you need to pay

You need to pay Capital Gains Tax when you sell an asset if your total taxable gains are above your annual Capital Gains Tax allowance.

Work out your total taxable gains

  1. Work out the gain for each asset (or your share of an asset if it’s jointly owned). Do this for the personal possessions, shares, property or business assets you’ve disposed of in the tax year.
  2. Add together the gains from each asset.
  3. Deduct any allowable losses.

The tax year runs from 6 April to 5 April the following year.

You’ll need to report and pay Capital Gains Tax if your taxable gains are above your allowance.

If your total gains are less than the tax-free allowance

You don’t have to pay tax if your total taxable gains are under your Capital Gains Tax allowance.

You still need to report your gains in your tax return if both of the following apply:

  • the total amount you sold the assets for was more than 4 times your allowance
  • you’re registered for Self Assessment

There are different rules for reporting a loss.

If you’re non-resident

You need to tell HMRC when you sell residential property even if your gain is below the tax-free allowance or you make a loss. Non-residents don’t pay tax on other capital gains.

Report and pay Capital Gains Tax

You can report any Capital Gains Tax you need to pay either:

  • straight away using the ‘real time’ Capital Gains Tax service
  • annually in a Self Assessment tax return

If you use the ‘real time’ service but need to send a tax return for another reason, you’ll have to report your gains again through Self Assessment.

If you’re a non-resident and you’ve sold a residential property in the UK, tell HM Revenue and Customs (HMRC) within 30 days, even if you have no tax to pay.

Before you report

You’ll need:

  • calculations for each capital gain or loss you report
  • information from your records about the costs and what you received (the ‘proceeds’) for each asset
  • any other relevant details, such as any reliefs you’re entitled to

Report your gain and pay straight away

You can use the ‘real time’ Capital Gains Tax service if you’re a UK resident. You’ll need a Government Gateway account – you can set one up from the sign-in page.

When you use the service you’ll need to upload PDF or JPG files showing how your capital gains and Capital Gains Tax were calculated.

When to report

You can use this service as soon as you’ve calculated your gains and the tax you owe. You don’t need to wait until the end of the tax year.

You must report by 31 December after the tax year when you had the gains.

The tax year runs from 6 April to 5 April the following year.

After you’ve reported your gains, HMRC will send you a letter or email giving you a payment reference number and telling you ways to pay.

Report in a Self Assessment tax return

You can file a Self Assessment tax return to report your gain in the tax year after you disposed of assets.

If you don’t usually send a tax return, register for Self Assessment after the tax year you disposed of your chargeable assets.

If you’re already registered but haven’t received a letter reminding you to fill in a return, contact HMRC by 5 October.

You must send your return by 31 January (31 October if you send paper forms).

You can get help with your tax return from an accountant or tax adviser.

After you’ve sent your tax return

HMRC will tell you how much you owe. The Capital Gains Tax rate you pay depends on your Income Tax rate.

You’ll need to pay your tax bill by the deadline.

You’ll have to pay a penalty if you send your tax return late, miss the payment deadline or send an inaccurate return.

Capital Gains Tax rates

You pay a different rate of tax on gains from residential property than you do on other assets.

You don’t usually pay tax when you sell your home.

If you pay higher rate Income Tax

If you’re a higher or additional rate taxpayer you’ll pay:

  • 28% on your gains from residential property
  • 20% on your gains from other chargeable assets

If you pay basic rate Income Tax

If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

  1. Work out how much taxable income you have – this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.
  2. Work out your total taxable gains.
  3. Deduct your tax-free allowance from your total taxable gains.
  4. Add this amount to your taxable income.
  5. If this amount is within the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above this.

Example

Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,300. Your gains aren’t from residential property.

First, deduct the Capital Gains tax-free allowance from your taxable gain. For the 2018 to 2019 tax year the allowance is £11,700, which leaves £600 to pay tax on.

Add this to your taxable income. Because the combined amount of £20,600 is less than £45,000 (the basic rate band for the 2018 to 2019 tax year), you pay Capital Gains Tax at 10%.

This means you’ll pay £60 in Capital Gains Tax.

If you have gains from both residential property and other assets

You can use your tax-free allowance against the gains that would be charged at the highest rates (for example where you would pay 28% tax).

If you’re a trustee or business

Trustees or personal representatives of someone who’s died pay:

  • 28% on residential property
  • 20% on other chargeable assets

You’ll pay 10% if you’re a sole trader or partnership and your gains qualify for Entrepreneurs’ Relief.

If you make a loss

You can report losses on a chargeable asset to HM Revenue and Customs (HMRC) to reduce your total taxable gains.

Losses used in this way are called ‘allowable losses’.

Using losses to reduce your gain

When you report a loss, the amount is deducted from the gains you made in the same tax year.

If your total taxable gain is still above the tax-free allowance, you can deduct unused losses from previous tax years. If they reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.

Reporting losses

Claim for your loss by including it on your tax return. If you’ve never made a gain and aren’t registered for Self Assessment, you can write to HMRCinstead.

You don’t have to report losses straight away – you can claim up to 4 years after the end of the tax year that you disposed of the asset.

There’s an exception for losses made before 5 April 1996, which you can still claim for. You must deduct these after any more recent losses.

Losses when disposing of assets to family and others

Your husband, wife or civil partner

You usually don’t pay Capital Gains Tax on assets you give or sell to your spouse or civil partner. You can’t claim losses against these assets.

Other family members and ‘connected people’

You can’t deduct a loss from giving, selling or disposing of an asset to a family member unless you’re offsetting a gain from the same person.

This also applies to ‘connected people’ like business partners.

Connected people

HMRC defines connected people as including:

  • your brothers, sisters, parents, grandparents, children and grandchildren, and their husbands, wives or civil partners
  • the brothers, sisters, parents, grandparents, children and grandchildren of your husband, wife or civil partner – and their husbands, wives or civil partners
  • business partners
  • a company you control
  • trustees where you’re the ‘settlor’ (or someone connected to you is)

Claiming for an asset that’s lost its value

You can claim losses on assets that you still own if they become worthless or of ‘negligible value’.

HMRC has guidance on how to make a negligible value claim.

Special rules

HMRC has guidance on the special rules for losses:

Record keeping

You need to collect records to work out your gains and fill in your tax return. You must keep them for at least a year after the Self Assessment deadline.

You’ll need to keep records for longer if you sent your tax return late or HM Revenue and Customs (HMRC) have started a check into your return.

Businesses must keep records for 5 years after the deadline.

Records you’ll need

Keep receipts, bills and invoices that show the date and the amount:

  • you paid for an asset
  • of any additional costs like fees for professional advice, Stamp Duty, improvement costs, or to establish the market value
  • you received for the asset – including things like payments you get later in instalments, or compensation if the asset was damaged

Also keep any contracts for buying and selling the asset (for example from solicitors or stockbrokers) and copies of any valuations.

If you don’t have records

You must try to recreate your records if you can’t replace them after they’ve been lost, stolen or destroyed.

If you fill in your tax return using recreated records, you’ll need to show where figures are:

  • estimated – that you want HMRC to accept as final
  • provisional – that you’ll update later with the actual figures

Market value

Your gain is usually the difference between what you paid for your asset and what you sold it for.

There are some situations where you use the market value instead.

Situation Use market value at
Gifts Date of gift
Assets sold for less than they were worth to help the buyer Date of sale
Inherited assets where you don’t know the Inheritance Tax value Date of death
Assets owned before April 1982 31 March 1982

Checking the market value

HM Revenue and Customs (HMRC) can check your valuation.

After you’ve disposed of the asset, complete a ‘Post-transaction valuation check’ form. Return it to the address on the form – allow at least 2 months for HMRC’s response.