Tax Question of the Week: Disposals to Connected Person

Q- A client has recently sold an asset, for what he believes to be the market value, to his sister-in-law. A capital loss has arisen and he would like to know how he could use this loss.

A- The first thing to be aware of when making a disposal of an asset to a connected person is that TCGA1992 s18 deems it to be a transaction made for a consideration equal to open market value, regardless of the actual proceeds.

The question then is who is a connected person and which relatives are included? The definition of this term is found within TCG1992 s286 – they are certain relatives, trustees, partners, and companies. As your client’s disposal was to his sister-in-law, we shall concentrate

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Tax Question of the Week: Property Swap

Q- Jack and Jill jointly own two investment properties and wish to swap their interests so that they each have ownership of one of the properties. As tenants in common they currently equally own Cornfield with a market value of £210,000 and the original cost of £50,000 and Wheatfield with a market value of £200,000 and the original cost of £49,000. Jack is to have Cornfield and Jill is to have Wheatfield. What are the CGT and SDLT implications?

A- For CGT there is a form of roll-over relief on the disposal of joint interests in land in s 248A TCGA 1992 where conditions A to E in that section is satisfied. Condition A is that there is a joint holding of land or separate holdings in land; condition B is that there is a disposal of an interest to one or more co-owners; condition C is that the consideration includes an interest in a joint holding in land; condition D is that in consequence of the disposals the co-owners become sole-owners and condition E is that the acquired interest is not an interest in excluded land. Read More

Tax Question of the Week: Class 2 National Insurance Changes

Q- I have several self-employed clients all of which are subject to the Class 2 national insurance rules and currently pay contributions. Class 2 was about to be abolished but I have heard that this has now changed. Is that correct?

A. Class 2 national insurance contributions are payable by the self-employed. Contributions are payable at a flat weekly rate and entitle the contributor to short-term contributions based employment and support allowance, maternity allowance, widowed parent’s allowance, state pension, and bereavement benefits. Read More

Tax Question of The Week: Non-Resident Capital Gains Tax

Q- My client is a non-UK resident, having left the UK in April 2016. His main home which he purchased in July 2014 has been let out since he left. He is now planning to sell the property and is wondering whether he is liable to capital gains tax in the UK and whether there are any reliefs available to him?

A- Finance Act 2015 extended the scope of capital gains tax to non-UK residents disposing of UK residential property but only to the extent of gains arising after 6 April 2015. The capital gains tax legislation was amended to take account of the changes. The key changes were as follows: Read More

Tax Question of The Week: Training Costs

Q- Is tax relief available for training costs when setting up a new trade in a limited company?

A- Corporation Tax Relief is generally available for officer and employee training costs. Income Tax Relief and National Insurance Relief is also available to officers and employees who receive work-related training.

Where a limited company provides training to Read More

Tax Question Of The Week: Islamic Finance and Interest Restrictions

Q- My client purchased their buy to let property using an Islamic finance Murabaha arrangement. As the provider cannot charge interest does this mean that my client can’t claim any of these finance costs against their rental property income?

A- For income tax purposes Part 10A of ITA 2007 relates to the treatment of interest in alternative finance arrangements with financial institutions. Although these Islamic finance arrangements do not charge interest HMRC deem these charges incurred in these arrangements to be, in effect, Read More

Tax Question Of The Week: Uniforms

Q- My client has recently enquired about the possibility of claiming relief for the expenses of cleaning of clothing that she wears in her role in nightclub security, having heard that there are flat rate expenses that employees are able to claim.

A- Your client is correct in that HMRC have issued guidance, which sets out a flat rate deduction for some industries and occupations for the cost of replacing, repairing and cleaning protective clothing or uniforms. This guidance can be found here and it was updated in July 2018. Read More

Tax Question Of The Week: Class 4 NIC Changes

Q- One of our clients asked about that the Class 2 NIC is finally being abolished from 6 April 2019. This means that those of my self-employed client with losses or low profits who want to protect their state pension contribution record will have to pay Class 3 contributions which are considerably more expensive. Will there be any alternatives?

A- A. At the same time that Class 2 NIC is being abolished, changes will be made to Class 4 NIC which may be of assistance – but not in all cases. We have no legislation as yet and so the following comments are based on the information available but may be subject to change.

Class 2 NIC currently gives

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Tax Question Of The Week: Additional Interest Acquired In Main Residence

Q- An unmarried couple are separating after many years together, as part of the separation my client has agreed to buy her partner’s joint interest in the family home for £300,000. Will Stamp Duty Land Tax be payable on this acquisition, and if so, as she also owns a rental property, will the additional 3% rates apply?

A- Finance Act 2003, Schedule 3, Paragraph 3A provides an exemption from SDLT on transactions made in connection with the ending of a marriage or civil partnership. As the couple never married, this exemption will not apply and SDLT will be due on the £300,000 consideration paid by your client to acquire the joint interest from her ex-partner.

Legislation at Read More

Dwelling Related Interest Tax Reducer

Q- One of our clients asked why doesn’t the relief for an individual landlord for his finance charges in 2017/18 always result in a reduction of his income tax bill of 20% x 25% of those charges?

A- Most people preparing Self-Assessment tax returns for individuals are aware that there is a new restriction to the relief that landlords get for interest and associated finance charges where they are letting out residential property. The restriction applies only to financing costs that a referable on a just and reasonable basis to let dwellings but Read More