Buying your children property

Q: My wife and I are retired and we would like to give our son and daughter some of their inheritance now. We’ve thought about buying them a house in joint names, which they could rent out (because they’ve already moved out and live with their families). What would the tax implications be?

A: Firstly, they wouldn’t qualify for Stamp Duty Land Tax Relief for First-Time Buyers, because firstly, they aren’t intending to live in the property and secondly, it sounds like they already own other property.

If you gift the cash to your son and daughter, there shouldn’t be any Capital Gains Tax to pay on the purchase because cash gifts are exempt from Capital Gains Tax. However, there would be Capital Gains Tax implications should they decide to sell it.

Your son and daughter would need to declare their share of the rental income and expenses on a self assessment tax return each year and pay any tax due.

And finally, if you both survive for another seven years then the gift will be ignored for Inheritance Tax purposes. If you don’t, then the cash gift will effectively be included as part of your estate at the time of death, and could be subject to Inheritance Tax depending on the size of your estate.

Please feel free to contact your local TaxAssist Accountant, who would be happy to discuss your inheritance planning with you and the personal tax matters affecting your children.

Selling your home at a loss

Q: My house has been on the market for four months now, so I have decided to drop the asking price. However, this now means that I’m selling it as a loss. Is there any way I can utilise this loss?

A: If you were to sell your house at a profit, it is unlikely there would have been any tax to pay because of Private Residence Relief (PRR). To qualify for the relief, the property must have been your only home and you should’ve used it as a home and nothing else.

The amount of PRR may have been restricted if you have a very large garden, you’ve let part of your entire home or you’ve used part of the property for business purposes.

If you would’ve qualified for PRR (had you made a gain), then I’m afraid you cannot obtain any relief if a loss was generated instead. If your PRR would’ve been restricted, then you may be able to claim loss relief for the part of the gain that didn’t qualify for PRR. But please note, these losses can only be used against other capital gains; not income.

Please feel free to contact your local TaxAssist Accountant to discuss this further.

Furnished Holiday Lets - Changes

Q: I have a portfolio of Furnished Holiday Lets and I’ve heard there are changes being made- can you summarise what they are please?

A: Essentially, there are three changes:

1. The treatment of properties in the European Economic Area (EEA)

From 2009/10, properties in the EEA in addition to the UK have qualified as Furnished Holiday Lettings (FHLs). UK properties are treated as one ‘business’ and those in the EEA as another.

2. The period for which a property must be available for let and is actually let

1. •Availability test – during the tax year, the accommodation is available for let to the public for at least 140 days, but this will increase to 210 days from 2012/13
   

2. •Occupancy test - during the tax year, the accommodation is actually let to the public for at least 70 days, but this will increase to 105 days from 2012/13
   

3. •Pattern of occupancy – the property must not be let for periods of “longer term occupation” for more than 155 days during the tax year. A “longer term occupation” is a letting to the same person for longer than 31 consecutive days
   

3. The offset of losses

Any losses made may only be offset against profits from other properties in the same FHL business or carried forward to utilise against from the same FHL business. So you could not offset losses from the UK FHLs against profits from the EEA FHLs, because these are separate businesses.

Prior to April 2011, you were able to utilise FHL losses against other income.

If you would like some accountancy and tax advice regarding your FHL portfolio, please feel free to contact your local TaxAssist Accountant.

National Minimum Wage

Q: I’m thinking of taking on an employee, but can you tell me what the minimum is that I can pay them please?

A: The National Minimum Wage (NMW) rates are reviewed each year by the Low Pay Commission and from 1 October 2011 they are as follows:

1. •the main rate for workers aged 21 and over is £6.08
   

2. •the rate for workers aged 18-20 is £4.98
   

3. •the rate for workers aged 16-17 (i.e. above school leaving age) but under 18 is £3.68
   

4. •the apprentice rate, for apprentices aged under 19 or 19 or over and in the first year of their apprenticeship is £2.60
   

If you would like any advice or assistance with setting up your payroll scheme, please feel free to contact your local TaxAssist Accountant.

New business registration with HMRC

Q: I have just started my own business. When do I need to register with HM Revenue & Customs?

A: Firstly, you need to work out which tax year your start date falls into. The tax year runs from 6 April to 5 April, so your start date falls into the tax year ended 5 April 2012. You must therefore register by the following 5 October, i.e. 5 October 2012. As you are registering as self employed, the form you need to complete is HM Revenue & Customs form CWF1.

You will also need to pay Class 2 National Insurance which is only £2.50 per week for 2011/12 so most people choose to pay for these contributions via Direct Debit. You will need to complete HM Revenue & Customs form CA5601 if you would like to pay via this method.

Although you have some time before you need to submit form CWF1, avoid leaving it too long. Your local TaxAssist Accountant would be happy to help you meet your responsibilities with HM Revenue & Customs, and can also help you to set up your records or put together a cashflow forecast etc.

Tax Relief on Equipment and Vans

Q: We have just started up a plumbing and heating business and we’re going to buy a small fleet of vans and bit of equipment- probably totalling in the region of £60,000. It’s been a while since I’ve run my own business, but I know you used to get 50% of the cost of equipment offset against your profits in the year of purchase and 25% each year thereafter. What are the rules now?

A: In 2008/09 the Annual Investment Allowance (AIA) of £50,000 was introduced, which applied to general plant and equipment. Expenditure up to the AIA can be written down by 100% in the year of purchase. Any expenditure in excess of that or assets brought forward are written down by 20% (writing down allowance). The AIA was increased to £100,000 from 2010/11.

Assuming your vehicles meet the HM Revenue & Customs definition of a ‘van’, they will qualify for the AIA.

Please note, from 2012/13 the AIA will reduce to just £25,000 and the writing down allowance to 18%. If your accounting period straddles two periods when the AIA was different, then the AIA will be prorated. So for instance, if your start date is 1 October 2011 and your period end is 30 September 2012, then your AIA will be:

(6/12 x £100,000) + (6/12 x £25,000) = £62,500

If you want to ensure you get as much tax relief as possible as early as possible, please feel free to contact your local TaxAssist Accountant who would be able to talk you through the Capital Allowances regime and work out the optimum time and amount to spend.

Secondment to Europe

Q: I normally work in the UK but my employer is sending me on a short-term secondment to our French offices. Will I still pay UK taxes or French?

A: You are deemed to be a ‘posted worker’, i.e. you normally work in the UK but have been temporarily posted elsewhere in the EEA. Provided your work in France is not expected to last more than 24 months, you should continue to be insured in the UK and have to pay UK National Insurance contributions as if you were here. Your employer should apply to HM Revenue & Customs for a certificate A1, so that you will not normally have to pay contributions to the other country’s social security scheme as well.

Your employer is also likely to continue to calculate and deduct PAYE tax in the normal way. Your employer should give you a letter including the following details though:

1. •the date you went abroad to work
   

2. •your gross pay from the start of the tax year to the date when you were sent abroad
   

3. •the tax deducted from the start of the tax year to the date when you were sent abroad
   

If you would like to discuss the implications of your secondment further, please do not hesitate to contact your local TaxAssist Accountant.

VAT Refunds on Building Your Own Home

Q: I am an employed brick layer and I am therefore pretty good when it comes DIY. My girlfriend and I are thinking of building our own house and one of my mates in the trade, said that we might be able to get some tax back. Was there any truth in what he said?

A: Yes- there is a DIY Refund Scheme which could mean you could reclaim some of the VAT back on a new build or a conversion of a non-residential property into dwellings which will be used either by you or your
relatives for residential or holiday purposes.

You can claim for building materials, including materials bought in any other member state of the EU. But there are strict rules that they are genuine building materials, and not furniture, electrical/ gas appliances, carpets etc.

You can also reclaim for any builder’s services, although they should be zero-rated anyway. You cannot reclaim VAT paid on any professional services though, like surveyors or architects fees. And you cannot reclaim the VAT paid on any hire of plant and equipment.

You cannot claim before or during construction; you must wait until the building is completed, and your claim must be made to HM Revenue & Customs within three months of completion. The forms to make a claim can be obtained from HM Revenue & Customs’ website.

 You must include various information with your claim:  your calculation of your refund, copy of the planning permission, plans and evidence the building is completed (such as a Council Tax assessment).

If your claim is successful, HM Revenue & Customs estimate you should receive your refund within 30 banking days of them receiving your claim.

If you would like to discuss this further or would like your local TaxAssist Accountant to help you with your claim, please feel free to contact us.

  

Mark Fordham (Pictured above)

TaxAssist Accountants

Tel. 01582 760154

Web: www.taxassist.co.uk/markfordham

Disclaimer – advice shared in this column is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this column, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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The Harpenden house bubble

The Harpenden property market is as strong as ever despite what you might read in the press. Our market benefits from a shortage of supply of homes, which will always be outstripped by demand because of our highly desirable location for schooling, lifestyle and commuting.

 

Economists overlook the behaviour of home owners when prices drop; in affluent areas sellers refuse to sell, which prevents prices from falling as supply of homes shrinks faster than demand. Economists also forget that buyers are often also sellers, so if demand drops supply will fall too, maintaining that all important balance between the two.

The Harpenden market is very strong and the only people suffering from a smaller number of property sales are the businesses with high overheads that need high volume sales each month to cover their overheads. These firms sometimes talk the market down instead of sitting it out until lack of supply forces prices up.

 

Demand for Land and New Homes is as high as ever with new homes being sold off-plan as buyers rush to secure a deal. Developers and their banks prefer prime locations like Harpenden during challenging times as the new home sales are almost guaranteed by the very limited supply.

Lance Trendall (photo above)

The Land Office

The Studio, 22 Station Road

Harpenden, Herts AL5 4SE

www.thelandoffice.co.uk

Mark Fordham answers the questions.