Tax Question of the Week: Ultra-low Emission Vehicles

Q-How do the new company car tax bands favour ultra-low emission vehicles (ULEVs)?

A- Starting from tax year 2020/21, changes will be made to company car tax benefit-in-kind bands. These were first put forward in 2016 and finally confirmed in autumn 2017. The changes affect ultra-low emission vehicles, which are cars with CO2 emissions below 75g/km.

What does this mean in practice? Read More

Tax Question of the Week: SDLT and Welsh Land Tax

Q- My client is buying five residential properties from the same seller. Three of the properties are in England but two of them are located in Wales. I am familiar with the “linked transaction” principle and understand that this is common to both taxes with similar rules, but how would this apply in this case, given the different rates and bandings in each jurisdiction?

A- Although Land Transaction Tax (LTT) in Wales replaced Stamp Duty Land Tax from 1 April 2018, both jurisdictions contain similar rules – which require a single calculation of tax based on the combined consideration of all the “linked transactions” where: Read More

Tax Question of the Week: Electric Car Charging

Q- My client is an expanding local mobile care business and they are increasingly aware of the pollution that cars emit into the environment. With this in mind, they have been asked by their team whether they can look at changing the company cars to hybrid or electric cars and whether there are any incentives to do so.

Here we look at some of the recent changes and existing exemptions that may help them to make their minds up.

A- If an employer provides a vehicle battery charging point for use by employees, no additional benefit arises if the employee uses the charging point to charge a company car. The provision of electricity for an electric company car is not regarded as ‘fuel’, even if the employee uses the charged vehicle for private mileage. Consequently, no additional fuel benefit arises. Read More

Tax Question of the Week: Changes in Entrepreneurs Relief

Q- How do changes in the Entrepreneurs relief conditions following the budget affect me and when do they come into force?

A- The first key change was the definition of a personal company for Entrepreneurs’ Relief. Previously, a personal company was defined as one in which the shareholder:

  • is an office holder, director or employee of the company or group company; and
  • holds at least 5% of the ordinary share capital and of the voting rights of the company.

The shareholder will now also need to hold a 5% interest in the distributable profits and the net assets of the company for the relief to be available on the gain. Read More

Tax Question of the Week: Estates in Administration

Q- I need to register an Estate of a deceased person with HMRC but cannot find any relevant online forms. How do I register?

A- The law has not changed but unfortunately, HMRC has continually changed its administration procedures regarding estates.

The law (Section 7 Taxes Management Act 1970) requires the personal representatives to notify liability within 6 months of the end of the tax year of liability. Failure to do so may result in a “late notification penalty” (under Schedule 41 Finance Act 2008). For example, if an individual dies during the 2018/19 tax year and the estate receives untaxed income or has a chargeable gain in the tax year then notification is required by 5th October 2019.

Read More

Tax Question of the Week: Finance Cost Restriction

Q- My client is a basic rate taxpayer with a small profit on their rental property. They also have employment income that is covered by their personal allowance, in addition, dividends have been voted from their limited company to utilise their basic rate band. On completing their self-assessment tax return for the year ended 5 April 2018, the software is not calculating the 20% tax reduction for the finance costs that have been restricted in the property business computation. I am aware that these rules apply from 17-18 onwards but was led to believe it was something that would only affect higher rate taxpayers.

A- It was announced in summer 2015 that rules would be introduced to restrict relief for financial costs on residential properties to the basic rate of income tax. These rules have begun to take effect from the tax year 17-18 onwards and are being phased in over four tax years.

Generally, this means that landlords will no longer be able to deduct finance costs from their property income in the profit computation but will instead receive a basic rate deduction from their tax liability. Whilst this would appear to imply that only higher rate taxpayers would be affected by these changes, a closer look at the legislation in s274AA ITTOIA 2005 shows that the tax reduction a taxpayer is entitled to in a tax year is 20% of the lower of:  Read More

Tax Question of the Week: Deemed Domicile and Remittance Basis

Q- Pilar came to the UK when she began working here in autumn 2002. She was born with Spanish domicile and intends to retire to Barcelona where she grew up. When she moved to the UK, she continued to keep a modest amount of savings in a deposit account in Spain. As she has sufficient income from her work in the UK, she doesn’t normally draw on the offshore bank account. Now that it is time to prepare a Self-Assessment Tax Return for 2017/18, the question has arisen of how the taxing of the offshore interest has been affected by the rule to deem people to have UK domicile being extended to Income Tax and Capital Gains Tax.

 

A- Pilar will be deemed to be UK domiciled for the year 2017/18 because she has been UK resident for 15 of the 20 years immediately preceding it. This means that she is not able to make a claim to use the remittance basis in 2017/18. However, it is worth noting that this deeming rule, which can be found in the Income Tax Act 2007 at section 835BA is not the end of applying the remittance basis to offshore income and gains in all circumstances. Read More

Tax Question of the Week: Gift with Reservation

Q- After careful deliberation, my clients have decided to transfer their main residence to their daughter – partly for tax reasons. Do they have to transfer this at market value? Alternatively, would it be preferable to sell the property, gift the proceeds to the daughter who then buys a new residence in her own name for her parents to live in?

A- A transfer at less than market value will be a transfer of value for Inheritance Tax (IHT) purposes. If your clients continue to live in the property then the transfer is likely to be a Gift with Reservation (GWR) as they have not been “virtually excluded” from the enjoyment of the property. Therefore the property will remain in their estate of your clients. It is possible for your clients to pay full market value rent on the property (not just the gift element) to the daughter in order to prevent the GWR but this is a serious financial obligation on your clients and is usually only suitable where clients have considerable wealth and can easily afford this obligation for the rest of their lives – especially as rentals will generally increase over time. If they fail to meet this obligation at any time in future then the GWR rules will arise at that point. The daughter would be chargeable on the rent received by her parents and if she is not already registered for self-assessment may have to do so. Read More

Tax Question of the Week: The Budget – Entrepreneurs’ Relief

Q- I understand that the Budget delivered on 29th October proposed some changes regarding Entrepreneurs’ Relief. Can you expand on the proposals, please?

A- Three adjustments to the legislation about Entrepreneurs’ Relief are proposed.

The first affects the definition of a personal company. This will apply where the disposal is of shares in a trading company or the holding company of a trading group. One of the requirements is that the company is the individual’s personal company. The definition of a personal company will be expanded to add a requirement that the shareholder must have a 5% interest in the distributable profits and net assets of the company for the relief to be available.

Read More

Tax Questin of the Week: Off-Payroll Working Rules

Q- My Client is working for a Public Sector Body through their own personal service company. They are caught under the Off-Payroll Working Rules and need to have an operation in the near future, will the Fee-Payer be responsible for the payment of any Statutory Sick Pay my client is entitled to?

A- No, while the Off-Payroll Working Rules introduced a requirement on the Fee-Payer to deduct PAYE and National Insurance from the deemed direct earnings the legislation doesn’t make the Fee-Payer liable to statutory payments. Therefore, any liability to statutory payments would remain with the individuals Personal Service Company (PSC). Read More