Nominating your primary residence
We have a client who currently has an interest in two residential properties. He lives in one as his main residence and the other was bought as a second home just for weekends. As he has two properties available to him (neither let out to tenants) he consider making a private residence nomination. There are time limits for doing this.
You may only obtain capital gains tax relief on one main residence at any one given time. If you own more than one main residence consider the tax position. You can notify HMRC within two years after purchasing your second home which of the two properties is to be your main home and exempt from capital gains tax when you sell it.
A home must have been physically occupied in order to qualify for relief. Intending to occupy the property does not qualify for tax relief. For our client there will be occupation of both properties, the main home, and the holiday home.
A good tip to make a note of, each time there is a change in your combination of residences a new period begins and there is a fresh opportunity to make a nomination or vary an earlier one and this can be backdated up to two years.
Where time has run out be careful when making a claim that a particular property is to be the actual main residence. Documentary evidence such as correspondence address, where council tax is paid, electoral register etc are all typical factors that are considered.
The two-year time limit may be waived in certain circumstances for dual residences. For example when the market value of either one of the properties is negligible and you were unaware that a nomination could be made. The nomination, when finally made (it still ahs to be within a 'reasonable' time) will be backdated to the date when the second property came into your ownership.
If you have made no nomination to date remember that when the combination of available properties changes you can made a new nomination and backdate it, this includes a previously let property becoming available to you as a second home at the end of a tenancy.
Capital gains tax case
Which value is to be used as the base cost when calculating the capital gains tax when the client sells the late parents home? Is it;
a) the value of the part inherited share 10 years ago when her father died ? Leaving a quarter share to her in a will trust or
b) the value when her mother died, inheriting the other 25%. There was a second beneficiary in the terms of the will and factors affecting rights to inhabit the property.
Would the values be apportioned or split some other way? Would she have to pay capital gains tax for the 10 years that her mother remained living in the house?
In the detail of this case the client only gained absolute entitlement to her share of the property after the death of her mother and so the later date is used for the valuation hence a smaller taxable gain arises.
Tax relief on Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS)
Significant tax relief can be achieved through these investments. It is also possible to carry an investment back to the previous tax year to utilise the available tax relief where there is insufficient tax to relieve in the year of investment.
The tax relief, when the criteria is met such as investing for three years and gaining a certificate from HMRC, is 30% of the amount invested for EIS and 50% for SEIS. If you have invested in these we will claim the tax relief for you.
There is more information on the EIS page on the HMRC website
Protect your assets in a Discretionary trust
If you are thinking about giving something to your children to help them onto the property ladder a discretionary trust protects the asset when compared to giving it to them outright. It also starts the seven year clock ticking when at the end of the seven year period the asset will then no longer form part of your estate, on a sliding scale over the seven year period.
The trust must be registered with HMRC and will need to prepare it's own tax return each year. There are different tax rules and rates for trusts so careful planning is required before deciding to put an asset into a trust. There are inheritance tax obligations on entry to a trust and 10 yearly charges if the asset is worth in excess of the current inheritance tax free band of £325,000.
However if you want to protect an asset's ownership and/or start the process of reducing the value of your estate for inheritance tax purposes this may be a valid consideration.
The latest scam to hit taxpayers is a call to mobile phone numbers from fraudsters posing as HMRC officials requesting immediate payment of £500 in so-called phishing attacks.
Taxpayers are being told that the tax bill relates to unresolved tax issues dating back 10 years and the fraudsters ask for immediate payment by credit card. However, HMRC does not even accept credit card payments anymore so anyone being told to pay by credit card should immediately be on alert and notify HMRC of the scam.
It appears that the company has accessed old mailing addresses and frequently cites the wrong postcode when the taxpayer asks where the information has come from.
Are you a non UK resident with property in the UK?
Non UK residents are only subject to UK tax on the sale of residential April 2015. They are subject to non resident capital gains tax (NRCGT) and there are three main differences from CGT:
Only the gain arising since April 2015 is chargeable. If the property is held in a non UK company, the company rate of NRCGT is 20% and therefore greater than the current rate of corporation tax. A non resident capital gains tax return must be filed within 30 days of the sale. The tax must also be paid by this date unless a self assessment will be filed in which case the due date is the usual tax return filing deadline.
Bear in mind that, if an individual sells a property during a period of non UK residence which lasts less than five years, any pre April 2015 gain will become chargeable on their return to the UK.
Flat rate VAT scheme
Limited cost traders from 1 April 2017 Under the new rules, businesses in the scheme which have a low cost base,referred to as ‘limited cost traders’, will see the VAT rate increase. Limited cost traders include consultants, IT contractors, journalists, entertainers,hairdressers, beauticians, construction (labour only), accountants ,lawyers,architects, surveyors. This list is not exhaustive, it includes any business on the flat rate scheme that does not purchase physical goods totalling more than 2% of vat inclusive sales.
Software does not count as a physical good. A business is considered a limited cost trader when VAT inclusive expenditure on goods is either:
Less than 2% of their VAT inclusive turnover in an accounting period;
or greater than 2% of their VAT inclusive turnover, but less than £1,000 per annum, if the prescribed accounting period is not one year, the figure is the relevant proportion of £1,000).
When working out the amount spent on goods, it cannot include purchases of:
Capital goods, food, drink, vehicles or parts for vehicles.
This is assessed and reported on a quarter-by-quarter basis removing the original simplicity of the flat rate scheme. Rate rise The VAT flat rate percentage for low cost traders will increase to 16.5%.
The benefits of remaining within the flat rate scheme, for many traders, are completely wiped out by these changes and some small businesses are likely to be caught out by the additional reporting requirements. Others businesses under the VAT threshold may even find that without the benefit of the flat rate scheme, they no longer have a need to be VAT registered.
Tax free childcare
A useful article for all working parents paying for childcare:
From 24 November 2017 the childcare scheme covering 30 hours free childcare a week and the tax-free childcare option for qualified parents is available to parents whose youngest child is under six or who has their sixth birthday on that day. Parents can apply online through the childcare service which can be accessed via the childcare choices website.
In April this year, HMRC started rolling out the childcare service. Since then more than 275,000 parents have an open childcare account. Of these, more than 216,000 parents received an eligibility code for 30 hours free childcare for September.
However, HMRC acknowledges that while the majority of parents used the childcare service without significant problems, over the summer some parents did not receive the intended level of service when using the website. HMRC says it has now made significant improvements.
Over the coming months, HMRC will gradually open the childcare service to parents of older children, while continuing to make further improvements to the system.
HMRC says this is so it can manage the volume of applications going through the service, ensuring parents continue to receive a better experience and prompt eligibility responses when they apply – almost all parents receive a response within five working days, and most get their decision instantly. All eligible parents will be able to apply by the end of March 2018.
The scheme was originally meant to start on 28 April, for parents of the youngest children with all parents being able to join by the end of 2017.
The Childcare Choices website is here
Source: by Pat Sweet, tax reporter.
July 2019 Kamil Kacprzak has passed his latest set of ACCA exams.
Silviya Syulevska passed her penultimate ACCA exams and is now studying for the ACCA finals.