How humour can increase your bottom line

You want to be taken seriously as a business, right? But did you know that many customers and consumers actually want you to give them a laugh as well? 91% of people globally prefer brands to be funny, but 95% of business leaders fear using humour in consumer interactions.

So, how do you overcome the worry about using humour in your sales and marketing? And what are the benefits of a brand that uses humour in an effective way?

5 ways that humour improves your customer experience

Being funny in a business context might sound counterintuitive. But all the evidence points to customers wanting humorous, engaging ways for you to interact with them. Humour puts people at ease in a sales environment, and a good joke or funny meme in your marketing has the potential to win prospects over and make your customers enjoy your brand.

Using humour with your customers:

  1. Enhances customer engagement – humour in your sales and marketing really helps you connect with your audience. Funny interactions and campaigns increase your customers’ attention span and encourage them to participate, comment and engage.
  2. Builds emotional connection – when you incorporate humour, this creates positive associations for your customers. They’ll see your brand as more relatable and likeable, all of which leads to stronger connections and customer relationships.
  3. Differentiates your brand – smart and subtle use of humour sets your business apart from the the stuffy and staid competitors in your market. Being able to raise a laugh makes your brand more memorable and attractive in a crowded market.
  4. Increases message retention – humorous content can help to leave a lasting impact with consumers. This aids information recall and ensures your key messages, campaign taglines and promotional copy stay top of mind with your audience.
  5. Boosts brand perception – a well-executed, humorous approach creates a positive brand image, showcasing your company’s personality and approachability. As a ‘funny brand’, customers will feel good engaging with you and spending their money.

Talk to us about adding humour to your customer strategy

We’re accountants, so obviously we don’t have a sense of humour (we’re kidding, we like a joke as much as the next business person). But we can give you advice on how greater customer engagement and stronger relationships both lead to higher sales – and that’s great news for your targets and overall revenue.

For more on the use of humour in our workplaces and marketing, watch this short TED talk from Tom Fishburne from Marketoonist, explaining the power of humour.

steve@bicknells.net

Charging interest on a Directors’ Loan Account

Directors Loan

When you’re the director of a business, it’s likely that there will be occasions where you borrow money directly from your company, or inject your own capital into the business.

A Directors’ Loan Account (DLA) keeps track of this money owed between the company and its directors. In many companies, the account is in credit – i.e. the company owes money to the director. This can be due to directors injecting startup capital into the company, not drawing dividends they are owed, or other expenses that have been subsidised by the director.

In these situations, it’s worth considering charging interest on the balance that’s due. But how do you do this? And what impact does charging interest have for the director and company?

Understanding interest on Directors’ Loan Accounts

Let’s take a look at some of the rules around applying interest on DLAs, and the potential benefits this can bring to your company and tax planning.

  • Any interest paid re these DLAs will be deductible when calculating your company’s taxable profits. Because of this, it’s possible to achieve tax savings of up to 25%.
  • For the individual, a basic-rate taxpayer has a Personal Savings Allowance (PSA) of £1,000 and will pay 20% on the excess. So, paying interest is more tax-effective than declaring dividends. The PSA for a higher-rate taxpayer is £500.
  • The interest rate needs to be a commercial rate. In other words, the interest rate used must not exceed the rate you’d expect to see from a third-party lender.
  • Where interest is paid to an individual, basic rate tax needs to be deducted at source from any payment made to the director.
  • This tax is reportable to HM Revenue & Customs (HMRC) on a calendar-quarterly basis, with the amount deducted offset against tax due on the individual’s personal tax return. Where the company accounts are not drawn up to a calendar-quarter end, a fifth return is required up to the balance sheet date.
  • The company can take into account any interest due, but not paid, until up to twelve months later when calculating its own profits. However, the individual will only include as income any interest that’s actually been paid. Note though that ‘paid’ can include crediting to a DLA!. This can give a timing advantage.

Talk to us about maximising the tax benefits of your DLA

Any interest you receive is not subject to National Insurance Contributions (NICs) and is particularly tax effective when shielded by the Personal Savings Allowance (PSA).

The reporting requirements for interest on DLAs are no walk in the park.

How do you pay interest to a director or individual lender? CT61 – Steve J Bicknell Tel 01202 025252

Are you missing out on Qualifying Interest Relief? – Steve J Bicknell Tel 01202 025252

Understanding the Tax Consequences of s455 Directors Loan: A Guide for UK Business Owners – Steve J Bicknell Tel 01202 025252

Because of this, it’s a good idea to talk to us first, so we can make sure you have a workable system in place prior to making any payments. We can also give an opinion of the acceptability of the proposed rate of interest to pay, and how it measures up against current market rates.

Get in touch to talk about interest on your DLA.

steve@bicknells.net

How the Sonder Europe Ltd v HMRC Case Impacts on the Rent to Serviced Accommodation Business Model – VAT

In July 2023, a significant tax case, Sonder Europe Ltd v HMRC, shed light on the VAT implications for the “Rent to Serviced Accommodation” business model in the UK. This blog post aims to provide clear instructions and guidance on how this case impacts businesses in this sector.

Whether you are already involved in this industry or considering entering it, understanding the implications of this case is crucial.

Background

The provision of holiday accommodation in the UK is subject to a 20% Value Added Tax (VAT) rate. However, the Tour Operators’ Margin Scheme (TOMS) can be used to reduce the VAT payable, as it allows businesses to pay VAT only on the margin.

The margin is calculated as the difference between the selling price and direct costs, including rent and cleaning expenses. Under TOMS, VAT is due at 1/6th of the margin for accommodations within the UK.

The Case

In the Sonder Europe Ltd v HMRC case, the First-tier Tribunal examined whether the Rent to Serviced Accommodation business model should be considered eligible for TOMS.

Points considered and answered in the case

  1. What is material alteration – Furniture? Repairs? Decorating?
  2. Is R2SA eligible to be a Tour Operator

As is typical in this sector the agreements with landlords are often 6 months to 3 years.

Sonder Europe Ltd, a company providing short-term accommodation, argued that they should be eligible for TOMS and therefore be subject to reduced VAT payments.

The Tribunal Decision

Sonder Europe Ltd v HMRC [2023] UKFTT 610 (TC) (5 July 2023)

The First-tier Tribunal ruled in favour of Sonder Europe Ltd., stating that their accommodation services fall under the TOMS scheme. The Tribunal concluded that the company’s business model met the criteria for TOMS, allowing them to pay VAT based on the margin rather than the full 20% VAT rate.

Note – First Tier Tribunal decisions don’t set a precedent, the case was based on EU Laws applicable at the time and HMRC may Appeal or bring further cases, but this is a land mark decision and it should also be noted that the Tribunal Judge and President, Greg Sinfield, is someone with a long history in the realms of VAT Liability questions and the interpretation of the legislation.

Where TOMS applies it must be applied and that means that many operators may now have grounds to apply TOMS VAT going back 4 years and stand behind the Sonder case.

Implications for R2SA VAT

The Sonder Europe Ltd v HMRC case has significant implications for businesses operating in the Rent to Serviced Accommodation sector. Following the Tribunal’s decision, such businesses can potentially benefit from substantial VAT savings by utilising TOMS. This is because Rent to Landlords is a major cost and without TOMS allowing its deduction would lead to high VAT costs which would be based on Sales.

Step-by-Step Guidance

To successfully apply the implications of the Sonder Europe Ltd v HMRC case to your Rent to Serviced Accommodation business model, follow these steps:

  1. Understand your business model:
    Familiarise yourself with the specific details of your Rent to Serviced Accommodation business model. Ensure it aligns with the characteristics that allowed Sonder Europe Ltd to be eligible for TOMS.
  2. Analyse direct costs:
    Determine the direct costs associated with your accommodation services, including rent, cleaning, maintenance, and other relevant expenses. These costs are crucial for calculating the VAT margin.
  3. Calculate the VAT margin:
    Subtract the total direct costs from your selling price to calculate the VAT margin. This margin will form the basis for VAT payments under TOMS.
  4. Apply the TOMS VAT rate:
    Multiply the VAT margin by 1/6th (0.1667) to determine the VAT due on your accommodation services. This result represents the reduced VAT payment you are eligible for under TOMS.
  5. Maintain accurate records:
    Keep detailed records of your sales (tax point will be departure date), direct costs, and VAT payments. Transparent and accurate documentation is crucial for compliance and potential future audits.

Conclusion

The Sonder Europe Ltd v HMRC case has provided a positive outcome for the Rent to Serviced Accommodation business model in relation to VAT payments. Utilising TOMS based on the Tribunal’s decision can lead to significant VAT savings. By understanding the implications of this case and following the step-by-step guidance provided, you can successfully adapt your business model to benefit from reduced VAT payments.

Read our other blogs on TOMS

Is TOMS an option for Serviced Accommodation VAT? – Steve J Bicknell Tel 01202 025252

How are HMRC attacking the use of TOMS for serviced accommodation? – Steve J Bicknell Tel 01202 025252

If TOMS applies is the VAT threshold based on Sales or Margin? – Steve J Bicknell Tel 01202 025252

steve@bicknells.net

Could you be personally liable for your company taxes?

One of the key reasons you trade through a limited company is to reduce your liability as a director. And one key benefit of getting incorporated as a company is that you – as a company director – are not generally liable for any amounts owed by the company.

But, did you know that, under some circumstances, HM Revenue & Customs (HMRC) can transfer the liability for some unpaid taxes to you as an individual?.

What’s a Joint and Several Liability Notice?

Under certain circumstances, HMRC can issue a Joint and Several Liability Notice (JSLN) to any director, shadow director or manager. This JSLN effectively transfers liability for taxes owed by the company to you personally. That means your personal assets could be at risk, and (in a worst-case scenario) these company debts could end up bankrupting you!

The JSLN legislation covers liabilities in respect of periods ending on or after 22 July 2020, regardless of when those periods started.

Notices can be given to you in respect of:

  • A company that’s insolvent or likely to become insolvent, and has entered into tax avoidance arrangements where Disclosure of Tax Avoidance Schemes (DOTAS) and General Anti-Abuse Rule (GAAR) rules are likely to apply.
  • A company that’s insolvent or likely to become insolvent, and has engaged in tax evasion activities, such as failing to register for taxes.
  • Cases where two previous businesses have been insolvent with unpaid taxes, with a successor company carrying on similar activities.
  • A case where the company has been issued with a penalty for facilitating tax avoidance or evasion, or proceedings has been commenced in respect of such penalties under DOTAS or GAAR.
  • a tax charge has been applied in respect of Covid support payments to which the company was not entitled.

These notices can be issued where the company has undertaken any tax avoidance measures, receives excess Covid support payments, or where there have been repeated insolvency or non-payment cases involving the same individuals.

Once a notice has been issued, you would be jointly and severally liable with the company in respect of all tax liabilities at the date of the notice. You would also be liable for any further tax liabilities arising in the next five years, or until the notice is withdrawn.

How would being served a JSLN affect you?

Suddenly becoming personally liable for your company’s tax liabilities is never going to be good news. The impact of a JSLN can be significant.

Once a notice has been issued to you, your personal assets are at risk. HMRC will do its best to reclaim any unpaid taxes owed by the company and – theoretically speaking – HMRC can claim against you without pursuing the company first.

Talk to us about any risks you may face around JSNLs

If a JSLN is issued, you should contact us immediately. You only have a window of 30 days to ask for a review of the decision to issue the JSLN, or to appeal against it.

We’ll be happy to talk through your situation and help you communicate with HMRC.

steve@bicknells.net

Understanding the Tax Consequences of s455 Directors Loan: A Guide for UK Business Owners


If you’re a director or shareholder of a UK company, it’s important to understand the tax consequences of s455 Directors Loan. Failure to comply with HMRC regulations can lead to penalties and additional tax liabilities. In this blog post, we will explore the tax implications of s455 Directors Loan, the rate of tax payable, when and how the tax is paid, reclaiming the tax, benefits in kind, board resolutions, bed and breakfasting loans, anti-avoidance rules, relief time period, and including relevant notes in micro accounts.

  1. Understanding s455 Directors Loan:
    S455 Directors Loan refers to money borrowed by a company director or shareholder from their company. If the loan is not repaid within 9 months following the end of the accounting period, it can incur tax implications for both the company and the director.
  2. Rate of Tax Payable:
    The rate of tax payable on s455 Directors Loan is currently set at 33.75% of the outstanding loan amount. This tax is paid by the company, not the individual director or shareholder.CTM61505 – Close companies: loans to participators and arrangements conferring benefit on participator: general – HMRC internal manual – GOV.UK (www.gov.uk)
  3. When is Tax Payable?
    The tax on s455 Directors Loan is typically due at the same time the company’s corporation tax is due – nine months and one day after the end of the accounting period in which the loan was made.
  4. How is Tax Paid?
    Tax payable on s455 Directors Loan is paid by including it as part of the company’s corporation tax liability, which is reported and paid through the Corporation Tax Return (CT600).
  5. Reclaiming the Tax:
    The tax paid on s455 Directors Loan can be reclaimed by the company after the loan has been repaid. LC Forms (hmrc.gov.uk)
  6. Benefit in Kind on Directors Loan:
    If the loan exceeds £10,000, the company may need to report it as a “benefit in kind” for the director. This means that the individual may be subject to personal income tax on the value of the loan unless the Director/Shareholder pays interest on the loan at least at the approved HMRC rate.
  7. Board Resolution for Loans over £10,000:
    To avoid the potential income tax implications of benefit in kind, a board resolution should be implemented authorising the director’s loan. This should be done before the loan is taken or within nine months of the company’s year end. A loan agreement is also recommended.
  8. Bed and Breakfasting Loans:
    To prevent circumventing the 9-month rule, bed and breakfasting occurs when the director repays the loan just before the end of the 9-month period and immediately takes out a new loan. Anti-avoidance rules are in place to discourage this practice. The key rules are the ’30 day rule’ and ‘intentions and arrangements rule’.
  9. Anti-Avoidance Rules:
    HMRC has anti-avoidance rules in place to prevent the abuse of s455 Directors Loan transactions. It is essential to ensure that all loans between directors/shareholders and their companies are conducted fairly and genuinely.
  10. Relief Time Period – 9 Months:
    The relief time period refers to the nine months following the end of a company’s accounting period. If the loan is repaid within this period, the tax paid on s455 Directors Loan can be reclaimed.
  11. Including Notes in Micro Accounts:
    Micro entities are required to prepare and submit detailed notes as part of their financial statements. It is important to include relevant notes regarding any outstanding s455 Directors Loan, as this will provide transparency during the tax assessment process.

Conclusion:
Understanding the tax consequences of s455 Directors Loan is crucial for UK business owners. By addressing the tax liabilities promptly, ensuring compliance with regulations, and seeking professional advice, companies can navigate this complex area of taxation efficiently. Stay informed, keep accurate records, and stay on top of your financial obligations to avoid any unnecessary penalties or additional tax liabilities.

steve@bicknells.net

The top tax-effective benefits for directors and employees

Offering benefits-in-kind to your staff is a great way to make your business an attractive place to work. And these benefits add even more value if they’re also either tax-effective or tax-free.

You can offer certain concessions that make benefits provided to your employees (including directors) either low-tax or no tax. To be clear, we’re talking here about general employee benefits, not higher-value items such as company cars or share options etc.

Under certain circumstances, these general benefits-in-kind (BiK) become taxable if they’re provided as part of a flexible salary sacrifice system. But let’s look at the kinds of benefits you can offer – and the avantages they have for your employees.

The top tax-effective benefits to offer your team

If you want to offer employee benefits, but don’t want these BiK to end up attracting significant tax penalties for the employee, there are several useful benefits to consider.

For example:

  • Gifts of £50 or under – gifts not exceeding £50 can be given to employees without any tax or National Insurance charges arising. The cost is tax-deductible by the company. The gift must not be related to any work achievements, must not be money, must not be a contractual entitlement and, for directors, the total must not exceed £300 per annum.
  • Annual staff functions – annual functions, such as the yearly Christmas party or team summer barbecue, can be given to employees, provided the total cost per person during the year doesn’t exceed £150 per guest, including VAT.
  • Work mobile phones – a single mobile telephone can be provided to each employee together with the associated line rental and call charges, with no personal tax charge for any private use.
  • Free staff meals – free meals can be provided on company premises or in a staff canteen, provided that it’s on a reasonable scale.
  • Employer pension scheme contributions – as an employer, you can contribute (sometimes, have to contribute) to employee pension funds, within certain annual and lifetime limits. Topping up your employee’s contributions helps to increase the overall benefit of the mandatory work pension scheme.
  • Life insurance cover – Death in Service cover can be provided for your employees, and will normally be tax free, both the insurance premiums paid and any claims paid.
  • Health and medical check-ups – one health-screening assessment and one medical checkup per annum can be provided to each employee. This doesn’t cover full medical insurance, and also doesn’t generally cover medical treatment.
  • Welfare counselling – counselling can be provided to your employees free of tax, but this doesn’t cover medical treatment, legal, tax or financial advice. However, debt counselling is covered.
  • Business mileage – where your employee uses their own car for business travel, that business mileage can be reimbursed at a rate of £0.45/mile for the first 10,000 miles in a tax year and £0.25/mile thereafter.
  • Home-working allowance – you can pay an allowance of £6/week (£26/month) to employees who are required to work from home.
  • Private gyms – gym facilities can be provided to your employees and their family members, as long as the gym premises are not available to the general public.
  • Staff suggestions – rewards for making innovative business suggestions can be paid free of tax, as long as the amount doesn’t exceed £25. If an employee’s suggestion is implemented, a further award, linked to a proportion of the financial benefit to the company, can be made, subject to a cap of £5,000.
  • Long-service awards – you can offer a long-service award to a member of staff after a minimum of 20 years’ service. There must be at least ten years between awards that are made and the award has to be articles rather than cash. The overall cost can’t exceed £50 per year of service.

You can find out more details on the many available employee benefits-in-kind on the Expenses and benefits: A-Z page on the HMRC site.

If you provide a range of attractive tax-effective benefits to your employees, this goes a long way to creating a more satisfied, happy and productive workforce.

Many of the rules around employee benefits are complex and difficult to calculate, so it’s well worth talking to us about your benefits plans and where we can offer advice. We can walk you through the available options and show you the tax implications for your team.

steve@bicknells.net

Spreading your tax costs with Time To Pay

HM Revenue & Customs (HMRC) expects you to pay your taxes on time. But if you’re finding it difficult to pay in full, HMRC can be approached to allow a Time to Pay arrangement.

A Time to Pay arrangement will allow you to pay your debt off in pre-agreed installments, reducing the impact of a large tax bill – and helping you manage your debt and cashflow.

How does Time to Pay work?

If you need to request a Time to Pay arrangement for self-assessment tax, Employer’s PAYE and VAT, these can often be made online using a ‘self-service’ system.

Where you owe other types of tax, or where the conditions for online applications are not met, you’ll need to contact HMRC to discuss your situation.

  • The easiest (although not always the quickest) way to discuss your Time to Pay request is by telephone to 0300 200 3835.
  • HMRC agents will want to know about all taxes you owe, not just the one(s) where you want to spread payment. They will also ask for details of your income and outgoings, and any savings or assets that may be able to be used to reduce the amount owed.
  • Presuming that you agree to a payment plan with HMRC during the call, they will usually want to set up a Direct Debit straight away.

Making use of the self-serve Time to Pay system

If you don’t have any existing payment plans or debts with HMRC, the ‘self-serve’ system may be more straightforward, provided that the applicable tax returns have already been filed. The conditions and amounts vary depending on the particular tax.

For example:

  • Self-Assessment: You must apply no more than 60 days after the payment deadline and owe no more than £30,000.
  • Employer’s PAYE: You must be within 35 days of the deadline, owe no more than £15,000 and have no outstanding penalties. The maximum period over which the amount due can be spread is six months.
  • VAT: For VAT, you need to apply within 28 days of the due date and owe no more than £20,000. You can’t apply for a Time to Pay arrangement through the self-serve scheme if you use either the cash accounting or annual accounting schemes.

The self-serve option for Time to Pay does make the process easier, but remember that HMRC isn’t obliged to offer you the option of settling your taxes owed via installments.

If you fail to pay your taxes, HMRC can take recovery action in the County Court, and apply for the taxpayer to be put into liquidation or made bankrupt where appropriate.

Talk to us about making Time to Pay work for you

One of the best ways to avoid getting into difficulties with your tax liabilities is to work more closely with your accountant. As your tax adviser, we’ll produce regular forecasts so that any financial stresses can be foreseen well in advance.

Where unexpected circumstances do arise, putting a suitable payment plan in place with HMRC is the most sensible way to manage this situation. Ignoring your tax problems won’t make them go away and burying your head in the sand can lead to serious penalties and legal action.

Get in touch to talk about Time to Pay.

Steve@bicknells.net

Factors to Consider When Determining Your Main Residence in the UK

brown paver brick wall


When you own more than one home, deciding which one will be your main residence can have significant tax implications. In the UK, HM Revenue and Customs (HMRC) provides guidelines on how to determine your main residence for capital gains tax (CGT) purposes. In this blog post, we will discuss the factors you should consider and the process of nominating your main residence. Additionally, we’ll explore various scenarios where you might have a second home for work or as a holiday retreat, and provide case studies and examples to illustrate the concepts.

  1. What is a Main Residence Election?
    The HMRC’s main residence election allows you to nominate the property you consider your main residence for CGT purposes. It is crucial because it determines which property will be exempt from CGT when you sell it. There is no requirement for it to be the property you spend most time on.
  2. Why Nominate a Main Residence?
    Nominating a main residence is particularly beneficial if you own multiple properties. By designating one as your main residence, you can save on potential CGT liabilities when selling the other properties. The Nomination Election once made can be varied CG64510
  3. HMRC CG64545 – Nine Factors to Identify Your Main Residence:
    For a nomination to be accepted, HMRC considers several factors, including:
  • Length of occupation
  • Where your family resides
  • Degree of furnishing and personal belongings
  • Residency status for voting, car registration, etc.
  • Bills and correspondence addresses
  • Where your business is located (if applicable)
  • Schooling and medical registrations
  • Bank accounts and club memberships
  • Intention to return to the property
  1. Having a Second Home for Work:
    In some cases, you might own a second property near your workplace to avoid daily commuting. It is essential to consider whether this property qualifies as your main residence and how it impacts your taxation.
  2. Having a Second Home as a Holiday Retreat:
    If you own a second property primarily for recreational purposes, such as a vacation home, it is crucial to understand the implications of CGT. Determining which property is your main residence becomes vital to minimize potential tax liabilities.
  3. Two-Year Election Deadline:
    To nominate a property as your main residence, you must make the election within two years of acquiring a second property. Every time there is a change in combination of available residences in re-starts the clock, this could be triggered by renting out and re-occupying, but seek advice first.
  4. Format for the Election:
    While there is no specific format, you should provide sufficient information to convince HMRC that your nominated property should be considered your main residence. It is advisable to keep documentary evidence supporting your claim.

Conclusion:
Determining your main residence when you own multiple properties is a crucial decision that affects your tax liabilities. By considering the factors outlined by HMRC and making a nomination within the designated timeframe, you can minimize your CGT liabilities.

steve@bicknells.net

Maximizing Principle Private Residence Relief: Understanding Deemed Occupation and Qualified Absence

couple walking in the street carrying plants and boxes

Introduction


As a UK accountant, it’s crucial to guide clients on the various tax planning opportunities available. One such opportunity is Principle Private Residence (PPR) Relief, which provides tax benefits to individuals who sell their main residence. In this blog post, we will explore the concept of deemed occupation and qualified absences, including eligibility criteria and examples. So, let’s delve into the details!

Understanding Deemed Occupation


Under certain circumstances, an individual’s absence from their main residence can still be considered as occupation for tax purposes. This concept is known as deemed occupation. It allows individuals to claim PPR Relief even when they are not physically present in their property. Let’s explore the qualifying absences.

Absence Qualifying as Deemed Occupation


a. 3 Years for Any Reason: Individuals can claim deemed occupation for up to three years, regardless of the reason for their absence. It could be due to travel, work-related commitments, or simply personal circumstances.
b. 4 Years for Employment Elsewhere: If an individual is employed elsewhere and occupies the property sporadically during a four-year period, the absences can still qualify as deemed occupation.
c. Any Period Required to Work Abroad: Individuals who are required to work abroad can claim deemed occupation during their period away from their main residence.
d. Up to 2 Years at the Start of Ownership with Qualifying Delay: If there is a delay in occupying the property at the start of ownership due to qualifying reasons, individuals can claim deemed occupation for up to two years.

HMRC CG64555: Armed Forces


Special considerations apply to members of the armed forces. Under HMRC CG64555, individuals serving in the armed forces are entitled to claim deemed occupation even if they have not occupied the property for the qualifying period.

Letting During Qualified Absence


During a qualified absence, individuals may choose to let their property. In this case, they are still eligible for PPR Relief on the periods of deemed occupation.

CG65050 – Residence before/after period of absence

It is a condition of s223(3) TCGA92 that both before and after the period of absence there must be a time in which the dwelling-house was its owner’s only or main residence unless they were prevented from resuming residence as a consequence of their or their spouse or civil partner’s employment requiring them to live elsewhere. The periods of residence do not have to be immediately before and after the period of absence.

Examples of Absence Qualifying as Deemed Occupation

a. Sarah, an engineer, temporarily moves abroad to complete a project for four years. Her home remains vacant during this period. She can claim deemed occupation for the first three years.


b. John, a member of the armed forces, is posted overseas for three years. Although he does not occupy the property during this time, he is entitled to claim deemed occupation for the entire period.

Conclusion


Understanding the concept of deemed occupation and qualified absences is essential for maximizing Principle Private Residence Relief. By being aware of the eligibility criteria and utilizing these provisions effectively, individuals can ensure significant tax savings.

steve@bicknells.net

How does Principle Private Residence Relief Work? (CGT)

signages for real property selling

As a UK accountant, one of the most common tax reliefs that clients ask about is Principle Private Residence Relief (PPR). This relief can be a significant tax saver for those selling their homes, but it is essential to understand the rules and regulations surrounding it.

What is PPR?

Firstly, PPR allows you to sell your main residence without incurring capital gains tax (CGT). However, if you have let out part of your home, it can affect your entitlement to PPR.

Tax when you sell your home: If you let out your home – GOV.UK (www.gov.uk)

If you rent out your home, then you will not be able to claim PPR for the period it is let. However, relief may still be available for the period you lived in the property and for the final 9 months of ownership.

a house for rent placard
Photo by Ivan Samkov on Pexels.com

How is PPR calculated if you let the property?

To calculate the PPR tax reduction for the let period, you will need to apportion the gain between the period it was your main residence and the period it was rented out. The amount of tax relief will be calculated based on the proportion of time the property was your main residence.

For example, if you lived in the property for five years, and then rented it out for two years, there would be seven years of ownership. The tax relief would apply for five years, but the remaining two years would be subject to CGT with an adjustment for the 9 month period.

How do you calculate the Gain?

Calculating the capital gain can be a complex process and may be affected by several factors such as the purchase and sale price, any home improvements made during ownership, and the length of ownership. It is recommended to seek specialist advice from a tax professional to ensure all factors are considered in the calculation.

person holding orange and white iphone case
Photo by cottonbro studio on Pexels.com

How is the Gain taxed and reported?

The rates of CGT vary depending on the individual’s income tax rate. Currently, basic rate taxpayers will pay CGT at a rate of 18%, and higher rate taxpayers will pay at a rate of 28% on gains above the tax-free allowance of £12,300 (2022/23), £6,000 (2023/24), £3,000 (2024/25).

This blog explains how CGT is reported to HMRC How and when do you report capital gains tax on residential property disposals? – Steve J Bicknell Tel 01202 025252

How can you use Form 17?

Its worth seeking advice before the sale of any property as there could be ways to reduce the CGT for example couples can use Form 17 to change the ownership Declare beneficial interests in joint property and income – GOV.UK (www.gov.uk) and make best use of their tax allowances.

Working away and conculsion

If you work away from home, you can still claim PPR if the property remains your primary residence. However, if you buy another property to live in, this may affect your eligibility for PPR.

In conclusion, PPR can be a valuable tax relief for those selling their main residence. However, if you have let out your property, this may affect your entitlement to PPR. It is essential to understand the rules and regulations surrounding PPR and seek specialist advice when necessary.