Property and Capital Gains Tax Relief – 2020 changes Reply

The Government love making changes to property tax, often in order to increase tax.

Legislation will be introduced in Finance Bill 2019-20 amending sections 222 to 224 TCGA. These changes will:

reduce the final period exemption from 18 months to 9 months (there are no changes to the 36 months that are available to disabled persons or those in a care home)

reform lettings relief so that it only applies in circumstances where the owner of the property is in shared-occupancy with a tenant

make some revisions to job related accommodation relief by extending it to serving members of the armed forces, who are required to live away from home and, instead of being provided with job-related accommodation, receive payments from the MOD under its Future Accommodation Model and uses those funds to pay for accommodation

legislate 2 ESC – D21 Late claims in dual residence cases and D49 Short delay in owner occupiers taking up residence

clarify the rules concerning the transfer of residential properties between spouses or civil partners – those rules will make clear that where an individual transfers all or part of an interest in a residential property that they own to their spouse or civil partner, the receiving spouse or civil partner will inherit the transferring spouse’s or civil partner’s previous history of use of that property, resulting in a fairer outcome

steve@bicknells.net

Why are Capital Allowances important on commercial property? 1

The rules are in Capital Allowances Act 2001.

Sections 21 and 22 explain the Assets which can’t be claimed and Section 23 lists items that can be claimed

Expenditure unaffected by sections 21 and 22
1. Machinery (including devices for providing motive power) not within any other item in this list.
2. Electrical systems (including lighting systems) and cold water, gas and sewerage systems provided mainly—(a) to meet the particular requirements of the qualifying activity, or (b) to serve particular plant or machinery used for the purposes of the qualifying activity.
3. Space or water heating systems; powered systems of ventilation, air cooling or air purification; and any floor or ceiling comprised in such systems.
4. Manufacturing or processing equipment; storage equipment (including cold rooms); display equipment; and counters, checkouts and similar equipment.
5. Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings.
6. Lifts, hoists, escalators and moving walkways.
7. Sound insulation provided mainly to meet the particular requirements of the qualifying activity.
8. Computer, telecommunication and surveillance systems (including their wiring or other links).
9. Refrigeration or cooling equipment.
10. Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires.
11. Burglar alarm systems.
12. Strong rooms in bank or building society premises; safes.
13. Partition walls, where moveable and intended to be moved in the course of the qualifying activity.
14. Decorative assets provided for the enjoyment of the public in hotel, restaurant or similar trades.
15. Advertising hoardings; signs, displays and similar assets.
16. Swimming pools (including diving boards, slides and structures on which such boards or slides are mounted).
17. Any glasshouse constructed so that the required environment (namely, air, heat, light, irrigation and temperature) for the growing of plants is provided automatically by means of devices forming an integral part of its structure.
18. Cold stores.
19. Caravans provided mainly for holiday lettings.
20. Buildings provided for testing aircraft engines run within the buildings.
21. Moveable buildings intended to be moved in the course of the qualifying activity.
22. The alteration of land for the purpose only of installing plant or machinery.
23. The provision of dry docks.
24. The provision of any jetty or similar structure provided mainly to carry plant or machinery.
25. The provision of pipelines or underground ducts or tunnels with a primary purpose of carrying utility conduits.
26. The provision of towers to support floodlights.
27.The provision of—(a) any reservoir incorporated into a water treatment works, or (b) any service reservoir of treated water for supply within any housing estate or other particular locality.
28.The provision of—(a) silos provided for temporary storage, or(b) storage tanks.
29. The provision of slurry pits or silage clamps.
30. The provision of fish tanks or fish ponds.
31. The provision of rails, sleepers and ballast for a railway or tramway.
32. The provision of structures and other assets for providing the setting for any ride at an amusement park or exhibition.
33. The provision of fixed zoo cages.

 

Sections 21 and 22 do not apply to any expenditure to which any of the provisions listed in subsection (2) applies.

(2)The provisions are—

section 28 (thermal insulation of industrial buildings);

section 29 (fire safety);

section 30 (safety at designated sports grounds);

section 31 (safety at regulated stands at sports grounds);

section 32 (safety at other sports grounds);

section 33 (personal security);

section 71 (software and rights to software);

http://www.legislation.gov.uk/ukpga/2001/2/part/2/chapter/3

As CATAX say in their video 9 out of 10 commercial building owners are not claiming these capital allowances!

The key reason why they aren’t claiming is because when you buy or develop a building the costs don’t tend to be broken down to show these items so you need to have them retrospectively assessed by a surveyor.

If you are buying a commercial property the CPSE will ask the seller about Capital Allowances. Sellers will need to pool their fixtures expenditure (even where they have not, nor do not wish to claim allowances themselves) unless they are prepared to risk the price of their property being chipped down in recognition that no allowances will be available.

https://www.taxation.co.uk/Articles/2014/04/08/323051/good-bad-and-ugly

Often at the time of Sale a Section 198 will agree the Capital Allowances

CAA01/S200 – S201An election under CAA01/S198 or S199 must be made by notice in writing to HMRC.

It should contain the following information:

* the amount fixed by the election, 
* the name of each person making the election, 
* information sufficient to identify the fixture and the relevant land, 
* particulars of the interest acquired by or the lease granted to the purchaser; and 
* the tax district references of each of the persons making the election. 
  
The election is irrevocable. 

The time limit for making the election is two years after the time when the interest is acquired by the buyer or the buyer is granted the lease. 

A copy of the election must be included with each party's return for the first period affected by it. This will normally be the period in which the disposal or acquisition takes place. 

The amount apportioned to the fixture must be quantified when the election is made. 
https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca26850

steve@bicknells.net

It’s time for a Tax and NI free Trivial Benefit Reply

hand holding christmas voucher isolated over white

Christmas is definitely a time when you can give your employees and yourself a trivial benefit worth up to £50.

Section 323A ITEPA 2003 sets out a statutory exemption for trivial benefits. Under this exemption, if an employer provides a benefit to its employees, the benefit is exempt from tax as employment income if all the following conditions are satisfied:

  • the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person) (see EIM21865)
  • the benefit is not cash or a cash voucher (see EIM21866)
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements) (see EIM21867)
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services) (see EIM21868)

Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household) the exemption is capped at a total cost of £300 in the tax year (see EIM21869).

Here is an example

The Employer provides each of its employees with a bottle of wine costing £25 at Christmas. However, as an alternative, it provides employees who do not drink alcohol with a £25 gift voucher for a national supermarket chain which they can exchange for an alternative non-alcoholic Christmas gift. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.

In fact all shop vouchers that can’t be cash in will count provided the value is less than £50.

So why not make a list of special occasions:

Birthday

Christmas

New Year

Anniversary

Holiday

Easter

Buy a stock of vouchers and give them out.

This is a fantastic tax free benefit.

steve@bicknells.net

Are you making the most of tax free benefits? 1

I want you

Have you considered giving your employees or yourself benefits in kind that are tax free, here are some to choose from:

  1. Pensions – Up to £40k can be paid in to your pension scheme by your employer (2015/16)  and you can use carry forward to pay in even more
  2. Childcare – Up to £55 per week but check the rules to makesure your childcare complies (HMRC Leaflet IR115)
  3. Mobile Phone – One per employee
  4. Lunch – Tax Free Lunch Blog
  5. Cycle Schemes – Cycle to Work Blog
  6. Fitness – Fitness Blog
  7. Parties and Gifts – Christmas Blog
  8. Parking – Parking Blog
  9. Business Mileage Allowance – 45p for the first 10,000 miles then 25p
  10. Long Service Award – A bit restrictive as you need 20 years service, the tax free amount is £50 x the number of years
  11. Eye Tests and Spectacles – The Eye Test must be needed under the Health & Safety at Work Act
  12. Suggestion Schemes – Suggestion Scheme Blog
  13. Insurance such and Death in Service and Income Protection – Medical Insurance Blog
  14. Travel Expenses – Travel Blog
  15. Working From Home – Working from Home Blog
  16. Clothing – Tax Allowances
  17. Trivial Benefits – Trivial Blog
  18. Training – Training and Salary Sacrifice CPD
  19. Relocation Costs
  20. IPad or Laptop – IPad used for Business
  21. Rent a Room to another employee – Rent a room blog

steve@bicknells.net

Is my training tax deductible? 1

Training Practice Workshop Mentoring Learning Concept

Training courses can be expensive, in this blog we are going to focus on the self employed.

The key rules are contained in BIM42526

Specific deductions: administration: own training courses

Provided it is incurred wholly and exclusively for the purposes of the trade carried on by the individual at the time the training is undertaken, expenditure on training courses attended by the proprietor of a business (either as a sole trader, or in partnership with others) with the purpose of up-dating their skills and professional expertise is normally revenue expenditure, which is deductible from the profits of the business.

Business purpose test

In considering the question of purpose, you should not take an unduly narrow view of whether the content of any particular course only up-dates existing skills of the individual. But if it is clear that, for example, a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade.

Capital test

Expenditure on new skills etc may also be capital if what is acquired can be viewed as an identifiable asset of sufficient substance and endurance. See Dass v Special Commissioner and others [2006] EWHC2491 (Ch)

Let’s take the example of Property Courses

There are many property courses available for investors, often the investors are self employed/sole traders/individual investors, the courses can cost thousands.

What courses are claimable:

  • Improving your skills – for example you have a basic understanding of finances but want improve your knowledge of tax

What courses are not claimable:

  • Beginners Day/Novice Courses – any course for beginners or novices would suggest you have no previous knowledge so they won’t be allowed
  • New Skills – you want to learn something new for example you currently let property and want to learn how to do property development

If the course is disallowed the travel costs will also be disallowed

What about companies?

The rules for companies are much easier to comply with and written with a much wider scope..

Income Tax (Earnings and Pensions) Act 2003

Section 250 Exemption of work-related training provision

(1)No liability to income tax arises by virtue of—

(a)the provision for an employee of work-related training or any benefit incidental to such training, or

(b)the payment or reimbursement to or in respect of an employee of—

(i)the cost of work-related training or of any benefit incidental to such training, or

(ii)any costs of a kind specified in subsection (2) in respect of such training.

(2)The costs are—

(a)costs which are incidental to the employee undertaking the training,

(b)expenses incurred in connection with an examination or other assessment of what the employee has gained from the training, and

(c)the cost of obtaining any qualification, registration or award to which the employee becomes or may become entitled as a result of the training or such an examination or other assessment.

Section 251 Meaning of “work-related training”

(1)In this Chapter “work-related training”, in relation to an employee, means a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which—

(a)are likely to prove useful to the employee when performing the duties of the employment or a related employment, or

(b)will qualify or better qualify the employee—

(i)to perform those duties, or

(ii)to participate in any charitable or voluntary activities that are available to be performed in association with the employment or a related employment.

(2)For this purpose “related employment”, in relation to an employee, means another employment with the same employer, or with a person connected with the employer, which the employee—

(a)is to hold,

(b)has a serious opportunity of holding, or

(c)can realistically expect to have a serious opportunity of holding in due course.

steve@bicknells.net

Can my Staff have tax free living accommodation? Reply

Emergency Mobile Application

In general providing living accommodation to employees is treated as a taxable benefit in kind with the benefit value based on the cash equivalent.
accommodation value
The main occupations which satisfy the rules for exemption are:
• agricultural workers living on farms or agricultural estates
• lock-gate and level crossing gatekeepers
•caretakers who live on the premises for which they are responsible where
they are on call outside normal working hours
•stewards and greenkeepers who live on the premises they look after
•managers of public houses who live on the premises
•wardens of sheltered housing who live on the premises where they are on
call outside normal working hours
•police officers and Ministry of Defence police
•prison governors, officers and chaplains
•clergymen and ministers of religion, unless engaged on administrative
duties only
•members of HM Forces
•members of the Diplomatic Service
•managers of newspaper shops that have paper rounds
•managers of traditional off-licences, that is, those with opening hours
equivalent to a public house
•in boarding schools where staff are provided with accommodation on
or near the school premises – the head teacher, other teachers with pastoral
or other irregular contractual responsibilities outside normal school hours
(for example, housemaster), bursar, matron, nurse and doctor
•veterinary surgeons who live close to the practice in order to respond
regularly to emergency calls
•managers of camping and caravan sites living on, or near to, the premises
•stable staff of racehorse trainers, who live on the premises and certain key
workers who live close to the stables.

The Test

Basically the test is based on ‘necessary’ and ‘customary’ https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim11300

The test is only satisfied where the employee can demonstrate that occupation of the particular property (as opposed to any other property) is essential to the proper performance of the duties of the employment.

Support for this view can be derived from Langley and Others v Appleby (53TC1), in which Fox J said at page 21
“if it is asserted that it is essential for the servant to occupy the house in order to perform his duties, it seems to me that the servant must establish affirmatively that for the performance of his duties he must live in that house and no other.”
The words “that house and no other” emphasise the strict nature of the test.

An employee may claim that it is necessary to occupy a particular residence because the employer requires the employee to live there. This is not enough to satisfy the test. It must be shown that the duties of the employment require occupation of the residence. An argument that the employee cannot afford to live elsewhere is not sufficient, see Vertigan v Brady (60TC624).

Rent Allowances and Deductions

It is common for an employee to:

  • own the property he lives in, or
  • rent the property from a third party, not his employer.

In both cases the employer may pay the employee extra salary or a rent allowance to help with the accommodation costs. This extra salary or rent allowance will count as earnings under Section 62 ITEPA 2003

An employer may own or rent accommodation and provide it to an employee. If the employee is entitled to a fixed wage or salary from which sums are deducted by the employer in respect of the accommodation then the fixed wage or salary is earnings under Section 62 ITEPA 2003. No deduction is allowed from earnings for the deductions made by the employer. See Cordy v Gordon (9TC304) and Machon v McLoughlin (11TC83)

 

steve@bicknells.net

What can Nurses claim against tax? Reply

Friendly beautiful nurse

There are special tax deductions available to Nurses including midwives, auxiliaries, students, dental nurses, nursing assistants and healthcare assistants.

Laundry & Clothing

Uniforms are normally not a taxable benefit and often provided by the employer.

Flat Rate Laundry Expenses https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32712

 a. Ambulance staff on active service  185
b. Nurses, midwives, chiropodists, dental nurses, occupational, speech, physiotherapists and other therapists, healthcare assistants, phlebotomists and radiographers. See guidance at EIM67200 for shoes and stockings/tights allowance 125
c. Plaster room orderlies, hospital porters, ward clerks, sterile supply workers, hospital domestics and hospital catering staff. 125
d. Laboratory staff, pharmacists and pharmacy assistants. 80
e. Uniformed ancillary staff: maintenance workers, grounds staff, drivers, parking attendants and security guards, receptionists and other uniformed staff. 80

If you are an employee who wants to claim the laundry allowance you should send HMRC a letter as follows:

Re: Uniform Tax Rebate

I have been employed at……… since….. My job title is ……. and I wear a company uniform.

I am obliged to launder the uniform, which is supplied to me by the company. I therefor wish to claim any payment to cover the laundry costs.

The uniform provided is not suitable to be worn outside of the work environment due to having the company logo on it.

I would like to receive the rebate in the form of a cheque….

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim67200

Expenses deductions may be permitted to nurses of all grades including midwives, for expenditure incurred and defrayed by them on the repair and renewal of shoes and stockings/tights:

  • shoes: where the wearing of a prescribed style is obligatory in the hospital or other workplace in which they may work allow £12 per year
  • stockings/tights/socks: where the wearing of a prescribed style or colour is similarly obligatory, allow £6 per year.

Mileage

Nurses may need to travel between locations and the 2013 case of  Dr Samad Samadian v HMRC defined the rules for mileage claims

The results of the case in summary were:

  • Home to Hospitals – Disallowed
  • Hospital to Hospital – Disallowed as Business Expenses (but could be allowed against Employment)
  • Visits to Patients – Allowed

Approved Tax Free rates per business mile

Type of vehicle First 10,000 miles Above 10,000 miles
Cars and vans 45p 25p
Motorcycles 24p 24p
Bikes 20p 20p

Travel to a Temporary Work Place

A workplace is a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose. So even where an employee attends a workplace regularly, it will be a temporary workplace and so not a permanent workplace, if the employee attends for the purpose of performing a task of limited duration or other temporary purpose.

Limited duration is explained at EIM32080.

Temporary purpose is explained at EIM32150.

If a workplace is capable of being a temporary workplace by reference to this rule, you must consider the following additional rules:

  • the 24 month rule, see EIM32080
  • the fixed term appointment rule, see EIM32125
  • the depots and bases rule, see EIM32160
  • the area rule, see EIM32190

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32075

EIM32125 – Section 339(5) ITEPA 2003

A period of attendance at a workplace for a limited duration does not make that place a temporary workplace if the employee attends in the course of a period of continuous work (see EIM32080) that can be expected to last for all, or almost all, of the period for which he or she is likely to hold, or continue to hold, that employment. In these cases the 24 month rule (see EIM32080) is overridden and the workplace is a permanent workplace.

The legislation does not define almost all of the period of the employment. You should not normally challenge relief under this paragraph where the likely duration of work at a workplace is less than 80% of the likely duration of the employment.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32125

Professional fees and subscriptions

Professional Fee and subscriptions Royal College of Nursing (under N) are reclaimable and HMRC have a list of approved fees

https://www.gov.uk/government/publications/professional-bodies-approved-for-tax-relief-list-3/approved-professional-organisations-and-learned-societies#n

Training & Courses

Doctors & Nurses often agree to pay for their own continuing training personally because of a shortage of NHS funds but when they do pay for courses its unlikely they will be able to claim tax relief.

EIM32530 states that it is well established that employees are not entitled to an expenses deduction under Section 336 ITEPA 2003 for the expenses continuing professional education (CPE). The Commissioners and the Courts have traditionally held that the duties of trainee doctors, for the purpose of the expenses rule, are limited to the clinical work that they do for the NHS Trust by whom they are employed. Their training activities are not undertaken “in the performance of” those duties for the purpose of Section 336 . That is so even though the training activities may be compulsory, and failure to complete them may lead to the employee losing his or her professional qualifications, and/or their job.

The Commissioners and the Courts upheld that view in a number of cases, as follows:

Parikh v Sleeman (63TC75) – a hospital doctor was refused relief for the expenses of attending training courses during periods of study leave.

Snowdon v Charnock (SpC282) – a specialist registrar was refused relief for the expenses of undergoing mandatory personal psychotherapy.

Consultant Psychiatrist v CIR (SpC557) – an NHS consultant was refused relief for the expenses of CPE necessary to maintain her professional qualification.

Decadt v CRC (TL3792) – a specialist registrar was refused relief for the expenses of taking professional examinations, even though it was a condition of his employment that he should do so.

In the recent case of Revenue & Customs Commissioners v Dr Piu Banerjee ([2010] EWCA Civ. 843), the Court of Appeal accepted that a deduction for training costs incurred by an employee should be allowed if the employee was employed on a training contract where training was an intrinsic contractual duty of the employment (see also EIM32535 & EIM32546) and where any personal benefit, unlike most CPE courses, would be incidental and not therefore give rise to a dual purpose of the expenditure.

Salary Sacrifice solves this problem.

Salary sacrifice works particularly well for training because except in the most extreme cases, employees cannot claim a tax deduction for training costs that they pay personally but if the employer pays for training that is work-related:

  • the employer gets the tax deduction
  • the employee is not taxed on the cost and
  • there is no National Insurance to pay.

EIM01210 confirms this.

steve@bicknells.net

Have you declared tax on your bank rewards? Reply

Pretty Young Woman Withdrawing Money at the Bank Machine

In April 2016 the PSA (Personal Savings Allowance) came into force.

The PSA applies to all non-ISA cash savings and current accounts, and will allow some savers to receive a generous portion of their interest totally free of tax.

95% of savings will no longer be taxed.

Basic rate taxpayers will receive £1,000 in savings income tax free, higher rate taxpayers get a band of £500 and additional rate tax payers get nothing.

Sounds great but the key word is ‘Interest

Some banks have been giving ‘Rewards‘ instead of interest and these fall outside of the scope of the new PSA and as such will be taxable, for example..

http://www.co-operativebank.co.uk/assets/ns/bank/pdf/currentaccounts/everyday-rewards/benefits-document.pdf

http://www.barclays.co.uk/PersonalBanking/P1242689794073

https://www.halifax.co.uk/bankaccounts/current-accounts/reward-current-account/Default.asp

Currently Cash Back on spending doesn’t count as a reward so that is ok and not subject to tax.

I think this situation is confusing and could lead to taxpayers incorrectly failing to declare rewards thinking that they were interest!

 

steve@bicknells.net

How much can landlords claim for wear and tear? Reply

for rent black blue glossy web icon

Landlords have been used to claim 10% of rental income as a tax deductible wear and tear allowance, but that will change in April 2016.

The Wear and Tear Allowance for fully furnished properties will be replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.

The relief given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, or less any proceeds received for, the asset being replaced.

https://www.gov.uk/government/publications/reform-of-the-wear-and-tear-allowance/reform-of-the-wear-and-tear-allowance

As the old rules apply until the 5th April 2016 it would be worth postponing any renewal purchase until after 6th April 2016, so you can claim a tax deduction in 2016/17.

It also worth noting that the old rules only applied to fully furnished property where as the new rules can be applied by any landlord who includes any items of furniture or equipment in their property.

The cost of the renewal is reduced by any sale proceeds for the item it replaces.

Detailed guidance is expected in April 2016.

steve@bicknells.net

 

Good news for employers – £3k employers allowance Reply

Fotolia_45741373_XS cash

The NICs Employment Allowance was introduced in April 2014, for the purpose of supporting businesses and charities in helping them to grow by cutting the cost of employment. Eligible employers can claim the allowance, which reduces their Employer NICs bill by up to £2,000 a year. This is an ongoing allowance. Once an employer has claimed the allowance, they will continue to enjoy it in future years, without needing to do anything further. Over a million employers have benefited from the allowance since its introduction.

This measure will increase the Employment Allowance by £1,000 to £3,000 from April 2016. This means eligible business and charities will be able to claim a greater reduction on their employer NICs liability.

This is fantastic news for employers, but there is a potential sting in the tail.

HMRC plan to exclude one person businesses!

But many believe that HMRC’s plan won’t work because all you need to do is employ a family member or friend and then the one person should qualify for the allowance.

John Cullinane, CIOT tax policy director, said: “The government may find its plan to be ineffective in reducing employment allowance claims because it is open to abuse. It will simply have the effect of penalising single director-employee limited companies that are unable to, or do not know that they could, appoint another person as director or employee to claim the allowance.”

http://www.taxation.co.uk/taxation/Articles/2016/01/19/334213/one-person-businesses-may-circumvent-curb-employment-allowance

steve@bicknells.net

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