Time for ‘tax year end planning’ (pre-Budget)

/in , , , , , , , , , , , , , , , , , , /by

The budget will take place on March 19th 2014 so that gives us all just 5 weeks (at time of writing) for ‘tax year end planning’. So perhaps now is the time to start reviewing investments.

N.B. We’re not financial advisers (we are tax agents and accountants) so we can’t give advice on investments. But let us simply point out that if a portfolio shows signs of some gains, one can usually realise up to £10,900 in capital gains for the tax year 2013/2014, without a capital gains tax (CGT) liability coming into force.

It might also be worth considering making the most of ISA allowances before the tax year ends (April 5th). £11,520 can currently be invested into an ISA for the tax year 2013/2014, of which £5,760 maximum can be in a ‘Cash ISA’. Because you cannot carry forward ISA allowances into a new tax year, there is only very limited time remaining to make the most of the current ISA allowance. Tax benefits in relation to ISAs are well recognised in the UK, so much so that the Treasury has already looked at the possibility of capping their total value … and who knows what news the coming Budget will bring in this regard, particularly bearing in mind the continued need for austerity measures to reduce the budget deficit during these troubled economic times.

If you would like independent financial advice, Read more

Autumn Statement by the Chancellor of the Exchequer

/in , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , /by

George OsborneOn 5 December 2013 George Osborne, Chancellor of the Exchequer, gave his Autumn Statement in Parliament. Key announcements included:

  • A rise for the Personal Allowance, as was long-anticipated, to £10,000 in 2014/15;
  • the higher 40% tax rate threshold also increasing to £41,865;
  • A new, transferable, tax allowance of £1,000 for married couples and those in civil partnerships from April 2015;
  • For employees aged under 21 employers will not have to pay Class 1 National Insurance (‘NI’) Contributions on earnings up to the Upper Earnings Limit;
  • Capital Gains Tax (‘CGT’) for future gains will now also apply to NON-resident individuals from April 2015 (previously this had been applied only to UK resident landlords);
  • For 2014/15 the annual ISA subscription limit will increase to £11,880 (of which £5,940 can be in cash);
  • There were also announcements relating to the continuing clamp-down on tax avoidance, improvements and plans for UK infrastructure, and the proposed inheritance tax (‘IHT’) simplification for trusts.

The full speech transcript can be read here or alternatively view the following video recording: Read more

HMRC now has landlords in their sights

/in , , , , , , , , , , , , , , , , , , , , , , , , , , /by

Residential property lettingsHMRC (Her Majesty’s Revenue & Customs) has announced some new initiatives over the course of the last month and one of these is The Let Property campaign which is a campaign designed to recover undeclared tax from those receiving income from residential property lets. The idea is to encourage those landlords with under-declared income or gains (potentially including income tax, Capital Gains Tax and VAT) to contact them in order to make a full disclosure. By doing so they may well avoid the higher penalties which may be applied to them should HMRC discover the undeclared income/gains via other means. Don’t forget that they now have access to information shared across systems, including in relation to properties both at home and abroad, as well as being gained through their digital intelligence system ‘Connect’ which identifies links between individuals, entities and properties. So the message to landlords is loud and clear!

The campaign applies to landlords whether they have just a single property or a large portfolio of properties and encompasses lets to students, business workforces and the holiday market. Read more

Possible Reforms to Intestacy Rules

/in , , , , /by

Firstly we should mention that we are not solicitors and therefore you should seek professional advice (e.g. a solicitor) before making a will.

What we did want to report on, however, is that the Ministry of Justice is proposing some changes to the intestacy rules governing England and Wales. The changes would affect the scenario in which a person with no children dies leaving no valid will. Currently the surviving spouse or civil partner receives the personal possessions, £450k and half of anything over that amount, with the remaining half going to the parents, or to siblings if there are no living parents, or the siblings’ offspring if the deceased’s siblings are also deceased.  The proposed new rules would instead mean that the surviving spouse or civil partner would inherit the whole estate.

But that is only if the deceased has no children. If they have children then other rules currently apply and changes are being suggested in relation to those too. Read more

Commercial letting of furnished holiday accommodation and tax

/in , , , , , , , , , , /by

Commercial letting is defined as ‘let on a commercial basis and with a view to the realisation of profits’.
Accommodation is furnished if the tenant is entitled to use of sufficient furniture.

It will generally be necessary to calculate the furnished holiday lettings profit or loss separately from the rest of the rental business.

If a letting is to qualify as furnished holiday letting(FHL)a few conditions should be met:
• the property to be in the UK ;
• property has to be furnished;
• property should be available for holiday letting to the public for at least 140 days a year;
• it should be let commercially for 70 days or more, and
• cannot not be occupied for more than 31 days by the same person in any period of 7 months.
The difference between residential lets and holiday lets is that with residential ones you can claim a certain relief called wear and tear as compared to the holiday ones where you can claim capital allowances.

Capital allowances can include the cost of furnishings and furniture, and equipment such as refrigerators and washing machines.

Another important difference between residential and holiday lettings is that with holiday ones you can offset any loss you make in the year against other type of income.
You may also be able to take advantage of Capital Gains Tax (CGT) reliefs, such as ‘business asset roll-over relief’.
For example, if you reinvest within three years in another UK holiday letting property or certain other assets costing the same as or more than you got for the property you have sold, you may be able to defer payment of CGT until you dispose of those new assets.
To work out your taxable profit you deduct your allowable expenses from your gross rental income. These include:
•Letting agent fees (where applicable)
•Legal and accountant fees
•Buildings and contents insurance
•Interest on mortgage payments
•Maintenance and repair costs (but not improvements)
•Utility bills
•Council Tax
•Cleaning or gardening
•Other costs related to letting the property, such as phone calls, advertising and stationery.
Landlords with income from furnished holiday accommodation in the UK are
currently treated as if they are trading for certain tax purposes, as long as they
satisfy the above criteria.
Landlords with income from furnished holiday accommodation elsewhere in the
European Economic Area (EEA) cannot currently qualify for this treatment. They
were treated instead in the same way as landlords of other types of overseas
property, under the property income rules.
The Government has decided it should repeal the Furnished Holiday Lettings rules from 2010-11.

Next week we are going to talk about these changes in more detail.

If you are still confused about lettings in relation to tax, Taxfile‘s tax agents in South London and accountants in Exeter are here to assist you.

April’s tax reforms

/in , , , , , , , , , /by

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.

Dealing with someone’s tax after they die

/in , , , , , , , , , , , /by

When somebody dies it is important to sort out their tax and National Insurance contributions as soon as possible. The ‘personal representative’ or the executor has to sort out the deceased person’s tax affairs, as well as the rest of the estate.There may be either tax to pay or a rebate from the Tax Office.
If the deceased paid tax through Pay As You Earn (PAYE), their Tax Office will send the executor a form called R27 ‘Potential repayment to the estate’ to complete.
If the deceased person was self-employed paying tax through self-assessment, the administrator can choose to fill in form R27 in full – or only in part and then complete a Self Assessment tax return immediately or at the end of the tax year.
The deceased person will get their full tax-free personal allowance for the year of their death. They will also get a full year’s entitlement to any blind person’s or married couple’s allowance that was due to them for the full year.
If they did not receive enough income to use the whole of the blind person’s or married couple’s allowances, the personal representative can arrange for the unused allowances to be transferred to a surviving spouse or civil partner.
The personal representative may have to pay Capital Gains Tax (CGT) if profit is made from selling the property or possessions of the deceased. The executor is treated as acquiring the house at its market value at the time of death so CGT can only be payable if a profit is made after disposal and if it exceeds the ‘annual exempt amount’ (AEA).
You might find it very useful to ask a tax accountant for advice. Taxfile in South London can give you the best solutions when having to sort out a deceased person tax affairs.

Is Your Estate Excepted From IHT?

/in , , , , , , , , , , /by

(for UK domiciliaries only)

From 6 April 2004, there are two types of estates are qualified to be excepted from IHT for UK domiciliaries.

1. Low valued estates
When the total value of estates does not exceed the inheritance tax threshold, then those estates do not suffer IHT.

Which threshold should be applied is determined by the date of deceased’s death. If the death was between 6 August and 5 April in any one tax year, or between 6 April and 5 August with the grant of representation taken after 5 August, you should use the threshold of that tax year in which the death happened. If death was between 6 April and 5 August, but the grant of representation was taken before 5 August, the threshold should be used is the one from the tax year of one year earlier.

2. Exempt estates
No IHT is payable when either Spouse/Civil Partners Exemption or Charity Exemption applies and the gross value of the estates is less then £1 million.

Spouse/Civil Partner Exemption can only be deducted if both spouses or civil partners have always been domiciled in the United Kingdom, if one of the spouse/ partners is domiciled outside of UK at the time of transfer of estates, the exemption is limited to £55000. And charity exemption can only be deducted if the gift is an absolute gift to the organisation concerned.

Both types of estates must be subject to the following conditions in order to be exempted from IHT:

• the deceased died domiciled in the United Kingdom,
• if the estate includes any assets in trust, they are held in a single trust and the gross value does not exceed £150,000 (unless the settled property passes to a spouse or civil partner or to a charity when the limit is waived),
• if the estate includes foreign assets, their gross value does not exceed £100,000,
• if there are any specified transfers(transfer the estate to somebody as a gift, the value does not exceed £100,000 if the transfer is within 7 years of death, and this transferred estate does not get involved into any trust), their chargeable value does not exceed £150,000, and
• the deceased had not made a gift with conditions attached
• the deceased did not have an alternatively secured pension fund, either as the original scheme member or as the dependant or relevant dependant of the original scheme member

Well financial planning with the help of Taxfile will significantly save your IHT, just feel free to visit our offices in
South London to get professional advice from our
tax experts.

Something You Need to Know about Principal Private Residence Relief to Avoid CGT

/in , , , , , , , , /by

Before you start the game of property investment, be aware that the Inland Revenue is always interested in the profit you make by selling your properties.

But the sale of your main home will rarely result in any Capital Gains Tax (CGT) liability, because of the principal private residence (PPR) exemption.

•Determination of Principal Private Residence
It is not necessary to have lived in it as the only or main residence for all the period of ownership, but it must have been occupied for at least part of the period of ownership as your only or main residence.
HM Revenue and Customs state that to qualify, “residence is one of quality rather than the length of occupation which determines whether a dwelling-house is its owner’s residence”. A dwelling house must have become its owners home at some point during ownership even though no minimum qualifying period of occupation is required to qualify for the relief.

•Nomination of Principal Private Residence
The nomination is made by sending a formal election to your tax office within two years of purchasing the second home. Once made, the nomination can be changed, and be backdated by up to two years, and can even be done after you have sold one of the two homes, which can lead to some useful tax planning. If you acquire a second home and do not make a nomination within the two year time limit, your main residence will be decided by the Revenue as a question of fact, which could mean you miss out on some valuable opportunities to claim relief.
Clearly, by careful planning with the PPR election, significant tax savings can be made, wherever there are two homes, nomination can be made to ensure that both are classed as qualifying main residences at some point in order to shelter the last three years from tax on both properties. Ordinarily, the property that is expected to realise the largest gain on sale will be the property that retains the nomination for the largest duration.
At Taxfile in Tulse Hill, South London you can pop in to see one of their tax advisers and for a reasonable fee they will recommend the best solution in order to minimize your tax liability.

Your personal tax allowance

/in , , , , , , , , , , , /by

Everyone who lives in the UK is entitled to a personal allowance. This is the amount of income you can receive each year without having to pay tax on it. Depending on your circumstances, you may also be able to claim certain other allowances.
There are three levels of personal allowance for 2007/2008 tax year:
•Basic rate, which is 5225 (with no income limit)
•age 65 to 74, which is 7550 (with an income limit of 20900)
•age 75 and over 7690 ( with an income limit of 20900).
It is important to bear in mind that if your income is over the income limit, the age related allowance reduces by half of the amount (£1 for every £2) you have over that limit, until the basic rate allowance is reached (you’ll always get the basic allowance, whatever the level of your income).
If you become 65 or 75 during the year to 5 April 2008, you are entitled to the allowance for that age group.

So if, for example, you are 69 and have an income of £22,000( £1100 over the limit) your age-related allowance would reduce by £550 to £7,000.

If HM Revenue & Customs (HMRC) knows your age you should get the personal allowance automatically. But bear in mind they won’t know your age unless you’ve told them or shown your date of birth on a tax return or claim form. If you haven’t done this already and you are 65 or over you need to contact your Tax Office.
If you want to claim a tax refund because you didn’t use your personal allowance (or for any other reason), you need to do so within five years from the 31 January following the end of the tax year concerned. Taxfile in South London can help you claim the overpaid tax . Their tax advisers deal with the Inland Revenue on your behalf , taking the strain off you at a taxing time, making sure that you never pay more than your minimum tax liability, whether this be income tax, capital gains tax (CGT) or inheritance tax(IHT).