December Questions and Answers

Newsletter issue â€“ December 2024

Q: I own a second home worth Â£400,000, which I bought for Â£250,000 and I have shares valued at Â£50,000, which I purchased for Â£40,000. How will the recent Capital Gains Tax changes in the Budget impact what I owe if I sell these assets now compared to if I had done so before the changes were made?

A: You're right to identify that Capital Gains Tax has changed in the latest Budget. The simple headline answer is that selling now would result in a slightly higher CGT liability (compared to before the announcement) because of the increased rate on investment gains.

We can see from your figures that you've gained Â£150,000 on your property. You needn't worry about property though in terms of CGT rises. Residential property rates are not changing, so you won't be losing out in that regard by selling now rather than before the Budget.

But with Â£10,000 gains on your investment assets, you will be liable to pay HMRC a bit more due to the increased rate on investment gains.

The main rates of CGT have been raised. The lower rate increases from 10% to 18%, while the higher rate rises from 20% to 24%.

For 2024 to 2025 you get a tax-free allowance of Â£3,000. This hasn't changed.

In order to accurately work out what CGT you'd need to pay, we'd also need to know some other key details - i.e. what your other income and salaries are. CGT rates depend on your income tax band - hence the lower and higher rates mentioned above.

Please get in touch with our team if you'd like to delve into the detail of your CGT obligations.

Q: I'm an investment manager and part of my compensation comes from carried interest. I've heard about changes announced in the Autumn Budget 2024. What do these changes mean for me, and how will they affect my tax position?

A: There were indeed changes announced in the Budget relating to Capital Gains Tax (CGT) on carried interest.

For those reading this not familiar with carried interest, this tax break enables private equity fund managers to pay a reduced rate of tax on their earnings.

As a result of the Chancellor's Autumn Budget, the CGT rate on carried interest is rising to a flat 32%, effective for any carried interest payments arising on or after April 6, 2025.

The existing rules meant carried interest was taxed at 18% for basic-rate taxpayers and 28% for higher- and additional-rate taxpayers. Those rates are being replaced with a single rate of 32%, meaning most individuals in your position will see an increase in their CGT liability on carried interest.

So, depending on the amount of carried interest you receive, you'll need to factor in the increased rate when calculating your post-tax income from April 2025 onwards. If carried interest is a significant part of your compensation, you may want to review your financial plans to ensure you're prepared for this change.

If you'd like to discuss the finer details of how this will specifically impact your tax position or explore planning strategies, please get in touch with our team.

Q: Me and my wife started a small enterprise earlier this year and by the nature of what we sell, our business is very much seasonal; Christmas is going to be our busiest time. So, we've been recruiting new employees on temporary contracts. But we were surprised when one of our first starters said we should be paying into a pension scheme for her, even on this short term basis. Is this right?

A: It is possible that your new seasonal or temporary staff might be eligible for automatic enrolment into a workplace pension. Even staff on variable hours and pay, and only working for a few days could be eligible. It depends on the details of their earnings and it's down to you as the employer to investigate and check if they do qualify.

It's certainly a serious matter because employers who fail to comply, ultimately, risk being fined.

The Pensions Regulator gives a useful indication of what's required, stating the following: "You must assess your staff to work out who to put into a scheme based on their ages and how much they earn. If you employ family members they will need to be assessed too. Any staff that are aged between 22 to State Pension Age and earn over Â£192 a week, or Â£833 a month, must be put into a pension scheme which you must pay into."

It's also worth looking into 'postponement' for any staff working for you under three months. This "pauses the duty to assess those staff until the end of the three-month postponement period", HMRC says.

For more help with this and any tax-related issues with your seasonal business, give our team a call.