No April Showers for Landlords!

Landlords may benefit by having a Taxfile safety net.
Landlords and taxpayers with small amounts of freelance earnings could well expect to find a Tax inspector appearing unannounced at their Buy to Let property or small home business enterprise! Proposals included in last weeks finance bill and coming into force on April 1st 2009, will herald even more investigative powers for the Tax man. HMRC inspectors will have additional powers to investigate landlords and challenge them over perceived income errors on their tax returns, which could result in fines between 30%-100% of any extra tax due.

In a recent report, HMRC have identified 20% of Landlords (nearly 80,000), as having made errors on their Tax returns. But what is meant by an error? Taxpayers could be heavily penalised for just failing to understand the tax rules applied to rental income. For example, being late with the lettings business registration, or using inappropriate expenses and so on.

Any concerns or worries in this area can be directed to Taxfile who will be happy to offer help and advice. We strongly recommend landlords take advantage of our insurance cover against any tax investigation, this offers Landlords piece of mind and financial protection.

Taxfile welcome your call on 0208 7618000 to discuss your situation.

Good luck.

Land and Property Team at Taxfile

April's tax reforms

One of the most significant changes in the tax year 08/09 is the adjustment to income tax bands. The 10% band is being scrapped and the 22% band is being replaced by a 20% band. The income above £41,435 is taxed at 40 %.
There will also be changes to the amount of national insurance contributions we pay.
The upper earnings limit, up to which you pay the standard rate of 11%, is being increased from £670 a week to £770 . Any earnings above the limit are then taxed at 1%. This change will affect those with weekly earnings between £670 and £770, that previously used to pay 1% on these earnings and now they have to pay 11 %.

In terms of Capital Gains Tax(CGT), the top rate of 40% is being replaced by a flat rate of 18%. But this good news is balanced by the abolition of two tax reliefs: indexation relief and taper relief which would normally reduce the investor's gain and so minimize his or her tax.

Changes also affect non-domiciled residents. At the moment, non-UK residents who are working in this country pay tax here on their earnings in this country but not on any of their non-UK income. From today, non-domiciled residents who have lived in the UK for more than seven years will be taxed on their worldwide earnings, rather than just those in this country, or have to pay an annual charge of £30,000.

Ed Green, financial planning manager for Chartwell Private Client, warns: "On the face of it, this looks like good news as the basic rate of income tax is going down. But the reality is that the changes to your pocket will hardly make a difference. However, one area that should be of concern is for people with a personal pension. At present, tax-relief means that, for a basic-rate taxpayer, a contribution of 78p into a pension fund is made up to £1 – this will soon be only 97-and-a-half pence. The changes will also affect higher-rate taxpayers. Now is therefore a good time to put in a lump sum.[...]Another group that will be hit by the income tax changes are those on low incomes, currently paying only 10 per cent on pay above their £5,225 basic allowance. This benefits those on an income of up to £7,455.[...] Pensioners could also be particularly hard hit by the change as they will be forced to pay the higher 20 per cent rate of tax on pension income above the initial tax-free allowance, currently £7,550 for individuals aged 65 to 74 or £7,690 for those aged 75 or more. Previously they paid a tax rate of just 10 per cent for the following £2,230 of income above this allowance, but this will now only apply to savings income.(...) "(The Independent, Saturday, 8 March 2008 )

Tell us at Taxfile in what way you are being affected by these changes and whether it has a positive or a negative impact on you as a the taxpayer.