Ed Gooderham’s thoughts on the Budget

Ed Gooderham, partner at Green & Co, tweeted along live with George Osborne’s Budget announcements. Catch up with his thoughts here…

If you have any questions on any of the above or about the Budget in general, please don’t hesitate to contact us on 01633 871122

Changes To Principal Private Residence Elections

www.greenandco.comCapital gains tax exemption can only be claimed on one of your private residences. Currently, if you own more than one property and occupy both as private residences (e.g. a holiday home which you use at weekends and another property which is occupied during the week), you can make an election, within two years of purchasing the second property, to nominate one of the properties as your principal private residence to which the capital gains tax exemption applies. Where no election is made, HMRC determines which property will be exempt based on the facts. This election used to provide tax planning opportunities in order to minimise any future capital gains tax.

However, this election is being removed with effect from 6 April 2015. At present we do not know what will happen with regard to elections already in force at this date as this is still to be announced. For all properties after this date where at least there is no election the case will be decided on the facts.

So what facts will HMRC consider when deciding which property will be exempt from capital gains tax? There have been a handful of cases which have gone through the courts which provide us with some insight to this.

If you are in this position, you should have in mind which property you would like HMRC to treat as exempt and then consider the following points:

  • Where do you have your post sent to?
  • How much gas and electricity is used on each property?
  • Which address is on your bank accounts etc?
  • Which address do you register to vote?
  • Which address is your car registered at?

While none of the above will determine the exempt residence in its own right, each one will help to form the overall picture.

For more information please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Photo credit: freedigitalphotos.net

New Beginnings

Spring is here, the clocks have gone forward, lambing is under way, and the new tax year is upon us!

Here are some of the changes to expect upon the start of the new tax year 2014/15:

1) Basic personal allowance tax band increase to £10,000.

2) The basic rate tax band has reduced to £31,865 (therefore any income earned   above this limit will be subject to 40% income tax).

3) The limit for the small loans exemption has doubled to £10,000 from April 2014.

4) The Capital gains exemption limit for individuals, estates, etc has increased to £11,000 and the exemption limit for trusts has increased to £5,500.

5) ISA Subscription limits will increase to £11,880 for stocks and shares ISA’s and £5,940 for cash ISA’s (Junior ISA and Child Trust fund maximum subscription is £3,840). However, these limits relate only to the period 6th April to 30th June 2014.

From the 1st July 2014, the new ISA subscription will be simplified with the creation of the ‘NEW ISA’ and the overall subscription for the year will be £15,000 for stocks, shares and cash – full transferability in both directions! The Junior ISA and child trust fund will increase to £4,000.

6) The annual investment allowance (AIA) has doubled to £500,000 for qualifying investment in plant and machinery made on or after 1st April 2014 (up until 31 December 2015!).

7) The main rate of corporation tax has reduced to 21% from April 2014.

8) The VAT registration threshold will rise to £81,000 and the VAT deregistration threshold will increase to £79,000, effective from 1st April 2014.

9) National Insurance contributions changes have been summarised in the table below:

14/15 Employee Employer
NICs  rate 12% 13.8%
No NICs on the first £153 pw £153 pw
NICs charged up to £805 pw No Limit
2% NICs on earnings over £805 pw N/A

With Additional Changes:

  • Self-Employed Class 2 : Flat rate £2.75 per week (£143 pa)
  • Self-Employed Small earnings exception £5,885 pa
  • Self Employed Class 4: £7,956-£41,865 pa – 9%; Over £41,865 pa – 2%
  • Class 3 Voluntary Flat rate £13.90 per week (£722.80 pa)

If you would like further details of the expected changes briefly outlined above, please contact Green and co on 01633 871122 or visit our website.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Prevention is better than cure!

Prevention is better than cure! – A saying that can often apply to reducing your tax bill.

Taking a proactive approach to your accounts can often be the simplest way to save you tax in a number of ways, for example:

Annual Investment Allowance (AIA)

The AIA allows you to claim 100% of the cost of assets, such as plant and machinery, in the first year of purchase, which in the past would have been split over a number of years. The AIA does have limitations on how much can be spent each year, therefore purchasing an asset just before or just after your accounting year-end could provide a completely different outcome on your taxable profits.

Capital Gains Tax (CGT)

Everyone has an annual allowance for capital gains before they are liable to CGT, and if you are planning to sell items such as shares, etc., that may incur a capital gain, the timing of your disposals could greatly effect the outcome of your CGT position.

Becoming a Limited Company

Though many people still view becoming a Limited Company as something associated with larger businesses, often the incorporation of a much smaller business can still prove to be beneficial for tax purposes, and with less extra administrative cost than you may expect.

Inheritance Tax

Unfortunately, Inheritance Tax planning can be a difficult subject to think about. More often than not, the majority of a person’s wealth is tied up in the property they own rather than money in the bank, and, as such, is unlikely to be spent during the retirement period. The writing of your Will, therefore, should not be the only thing to consider when deciding how your legacy should be allocated.

Submitting monthly VAT returns

If your business provides a product or service that is zero rated or exempt from VAT, whilst your expenditure does incur VAT, you may wish to improve the cash flow of your business by recovering your VAT on a monthly basis rather than once a quarter.

There are many reasons why we, as accountants, and you, as clients, should aim to be proactive when dealing with your financial affairs, and the aforementioned are just some of the more widely relevant reasons.

At Green and Co we regularly provide our clients with advice on these matters and more.

Being proactive is something that we strive to achieve so that our clients can make the right decisions from a position that is most tax efficient for their individual situation.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Property Sales Campaign by the Inland Revenue

HMRC regularly give the tax payer the opportunity to declare tax that would otherwise have gone undeclared.

The latest campaign that they are advertising relates to sales of property either at home or abroad which is not your main residence and any Capital Gains Tax that may be due on the sale of that property. To take advantage of this campaign and get the best possible terms available regarding any unpaid tax, you must notify HMRC by the 9th August 2013 and the matter must be settled (and any outstanding tax paid) by the 6th September 2013.

The property may be a holiday home or rental property or it may be your primary residence in those instances where you don’t qualify for Primary Residence Relief such as:

1. you may own a property with grounds or gardens  of more than 5,000 square metres or:

2. you use any part of your home for business purposes;

3. you purchased the property to make a profit from a quick sale

4. you let out all or part of your home.

You don’t necessarily need to have purchased the home – for instance it may have been a gift or inheritance – you may still be liable to pay tax on any gain.

You will not be eligible for this campaign if you buy and sell property as a business – in this case you are liable for Income Tax rather than Capital Gains Tax.

If you don’t take advantage of this campaign and the Inland Revenue come to you for tax that they think is due it is likely to cost you more money as penalties and interest may apply.

More than one home? – Have You Considered Principle Private Residence Relief

www.greenandco.com

Capital gains tax is not typically a consideration when selling your own home if it is your only home and main residence and has exclusively been used as a home. This is due to a tax relief known as Principle Private Residence (PPR).

However, if you own more than one home, for example if you live in one property during the week and another at weekends, then PPR can be a valuable tax relief. If you are in this position then you can elect which property is to be your PPR and this can produce significant tax savings on the eventual disposal of the properties, if proper tax planning is undertaken.

This election must be made within two years of acquiring the second property and in the absence of such an election HMRC will decide the PPR based on facts.

Another consideration, if you have occupied a home as a PPR and have let it for residential purposes, is lettings relief; which can also be used to produce tax savings.

Additionally, it is important to consider which periods of ownership qualify for PPR relief, for example, as long as the property has been your only or main home at some point during the time in which you have owned it, the final three years of ownership will be deemed occupancy. There are other examples which will count towards occupancy.

In order to minimise future capital gains tax it is important to consider a PPR election and plan effectively. For further information, please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of ddpavumba at FreeDigitalPhotos.net

 

Is The Holiday Over For Furnished Holiday Lets?

www.greenandco.comIt is that time of the year again when most of us are thinking about that all important break.

For those of us lucky enough to own furnished holiday homes the taxman has just whipped the flake from our cornet. From 6 April 2012 it will now be much harder to have our lettings treated as a trade.

So what – you might say

Well for a start some very important reliefs will be lost:

  •  You will no longer be able to claim capital allowances on furniture, white goods etc.
  • Some important capital gains tax reliefs on the disposal of the property will not be available.
  • Business property relief for Inheritance tax.

(A recent court ruling has clarified when business property relief is available for furnished holiday properties)

What do I do to ensure my property still qualifies as a furnished holiday let?

For a property to qualify it must be:

  • In the UK or EEA
  • Furnished
  • Available for commercial letting to the public as holiday accommodation for at least 210 days a year
  • Actually let as such for at least 105 days a year
  • A short term let of no more than 31 days (You can let the property out for periods longer than 31 days in one stretch but none of the days will count towards your qualification.  However, if the total of all or any ‘longer term occupation’ lettings is more than 155 days in the period/tax year, your property will no longer qualify as a FHL for that)

Declaring rental income and expenses

This is done via the land and property pages attached to a self-assessment Tax Return.

If you want any further information on this blog please contact the office on 01633 871122 and ask for Barbara Power.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Simon Howden at FreeDigitalPhotos.net