Download our free 6 page summary of the Mini Budget
At the moment the UK like other countries is in the depth of an energy crisis, mainly caused by the price of gas and lack of gas supplies.
Energy prices are higher than they have ever been, even with potential government intervention the costs will still be high. On top of that we have climate change, if we are to avoid climate disasters, we need to use renewable energy, such as Solar.
There has never been a better time to make your home more energy efficient.
Solar Panels and Batteries could mean you could become close to self-sufficient for energy, harnessing sunlight in the daytime, storing it in batteries and using it at night.
What if your company purchased a solar system for your home as benefit in kind, what would the tax be?
From 1 April 2022 until 31 March 2027 a zero rate applies to the installation of certain specified energy-saving materials in, or in the curtilage, of residential accommodation in Great Britain
It makes no difference whether your company purchases the system or whether an individual purchases it.
Solar panels include all systems that are installed in, or on the site of, a building and that are:
- solar collectors such as evacuated tube or flat plate systems, together with associated pipework and equipment, such as circulation systems, pump, storage cylinder, control panel and heat exchanger
- photovoltaic (PV) panels with cabling, control panel and AC/DC inverter
Expenditure on solar panels is special rate expenditure on the basis they are integral features of buildings or structures.
Integral features expenditure can also qualify for AIA, they do not unfortunately qualify for the super deduction (must also be a company to qualify for the super deduction).
To qualify for the allowance the conditions at S33A (1) and (2) etc must be met, please see the link below
Ownership of the property is not a requirement to qualify however the person that incurs the expenditure must own the P&M because of incurring it.
Benefit In Kind
As an employee, with the use of a company assets comes a chargeable BIK. The basic calculation is 20% of market value when first available less any unavailability and any contribution.
Example – Solar Panel System Cost = £16,000 x 20% BIK = £3,200 BIK on which the tax is 20% = £640 per year or 40% = £1,280 per year in addition to the tax there is also Class 1A NI at 13.8% (£441.60), but the overall costs is still below the energy cap of £3,500 and even below the Governments suggested cap of £2,500.
In our particular case we have electric cars and work from home and use significantly more than the average levels.
The benefit in kind is reported in section L (assets placed at the disposal of the employee) of the P11D.
Most people aren’t aware of the 15% which can apply to corporate property purchases over £500k and expect to pay the rates below (these are the rates with the extra 3%)
|Property or lease premium or transfer value||SDLT rate|
|Up to £125,000||3%|
|The next £125,000 (the portion from £125,001 to £250,000)||5%|
|The next £675,000 (the portion from £250,001 to £925,000)||8%|
|The next £575,000 (the portion from £925,001 to £1.5 million)||13%|
|The remaining amount (the portion above £1.5 million)||15%|
Stamp Duty Land Tax (SDLT) is charged at 15% on residential properties costing more than £500,000 bought by certain corporate bodies or ‘non-natural persons’. These include:
- partnerships including companies
- collective investment schemes
These bodies may also need to pay Annual Tax on Enveloped Dwellings.
Relief from the 15% higher rate charge
The 15% rate does not apply to property bought by a company that is acting as a trustee of a settlement or bought by a company to be used for:
- a property rental business
- property developers and traders
FA03/S55/SCH4A: property rental businesses FA03/SCH4A/PARA5
Where the acquisition of a chargeable interest is exclusively for the purpose of exploitation as a source of rents or other receipts in the course of a qualifying property rental business, the 15% higher rate charge will not apply to the transaction. Instead, SDLT will be charged at the higher rates (the ones with the extra 3% in the table above) – see SDLTM09835 for more information on companies and the higher rates.
To qualify as a qualifying property rental business, the business must meet two conditions:-
- it must be a property rental business as defined in Chapter 2 of Part 4, CTA 2009 (excluding the condition that the profits are chargeable to corporation tax – see PIM1020 onwards for more information), and
- it must be carried on a commercial basis and with a view to a profit.
This relief may be withdrawn in certain circumstances:-
So thankfully most companies won’t have to pay 15% but this has been a source of confusion for some clients.
Generally companies are great because corporation tax rates are lower than income tax rates, however, for Holiday Lets company ownership can be a problem if you have personal use for the following reasons (of course if you don’t want to stay there these don’t apply):
ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.
You’ll need to complete an ATED return if your property:
- is a dwelling — find out the meaning of ‘dwelling’ in the next section
- is in the UK
- was valued at more than:
- £2 million (for returns from 2013 to 2014 onwards)
- £1 million (for returns from 2015 to 2016 onwards)
- £500,000 (for returns from 2016 to 2017 onwards)
- is owned completely or partly by a:
- partnership where any of the partners is a company
- collective investment scheme — for example a unit trust or an open ended investment vehicle
Chargeable amounts for 1 April 2022 to 31 March 2023
|Property value||Annual charge|
|More than £500,000 up to £1 million||£3,800|
|More than £1 million up to £2 million||£7,700|
|More than £2 million up to £5 million||£26,050|
|More than £5 million up to £10 million||£60,900|
|More than £10 million up to £20 million||£122,250|
|More than £20 million||£244,750|
Benefit in Kind
Here is an example from HMRC
A UK company purchases a flat in a French ski resort for £200,000. It is agreed that a market rental for the property would be £500 per week during the 6 month skiing season and £100 per week during the rest of the year. A husband and wife who are both directors of the company use the flat for holidays with their children for 3 weeks during the ski season and one week in the rest of the year. Their children are neither employees nor directors of the company. The employer advises that the sole reason the property was bought was as a holiday home for the husband and wife. It has only been used by them as a holiday home.
We would argue in this case that provided is equivalent to available for use. Assuming that the flat was habitable for the whole of the year we would seek a benefit under Part 3 Chapter 5 measured on availability for the whole of the year. The employer may argue that the husband and wife work full time and that this prevents them using the flat for more than the 4 weeks in the year of actual use and so they are effectively only provided with it for 4 weeks. We do not accept that argument.
If the cost of the accommodation exceeds £75,000, then the amount of the cash equivalent would be calculated in accordance with Section 106 ITEPA 2003 (see EIM11472). As the annual value is based on the open market rental, under ESC A91 the cash equivalent of the benefit is restricted to step 1 of Section 106. This would mean that the cash equivalent for the tax year would be £15,600 (£500 x 26 + £100 x 26). Under Section 108 that would be split between the husband and wife in whatever way was just and reasonable, presumably half each in this case (see EIM11472).
The amount of the benefit under section 106 is:
•Step 2 – ORI × (C – £75,000) (this amount is called the additional yearly rent), where:
•C is the cost of providing the living accommodation (see point three above) and
•ORI is the official rate of interest
•Step 3 – calculate the rent that would have been payable if the property had been let for the taxable period at that additional yearly rent (see EIM11428 for taxable period)
•Step 4 – add together the amounts calculated under step 1 and step 3. From this total subtract any excess rent paid by the employee. The answer is the amount of the benefit.
FLM Indicator have a calculator to work this out if you need it.
What would be the tax if its personally owned?
If the property is owned personally then a SA105 Box 10 Private Use Adjustment is made, this excludes a % of the property costs for the period of private use. If you only stay there for a short period its going to be a much lower cost.
Share for Share exchange is often used when you are re-organising or creating a group and benefits from tax relief.
Basically if you don’t do a share exchange you would need to sell the shares at market value creating both Capital Gains and Stamp Duty costs.
In order to do a Share exchange you must have bona fide commercial reasons for doing it and it can’t be just to avoid tax. So for example you might want to create a group in order to separate trading and investment activities and enable an investment company to obtain mortgage finance (most lenders probably would not lend to a single company doing both trading and investment in the same company as it puts the investment at risk).
Here is a common scenario, a developer buys a commercial property to develop into residential and sell, but when the project completes the market conditions have changed they want to keep the residential properties and rent them out.
During the development they will have reclaimed VAT and the first grant of residential is Zero Rated, so they get full recovery. An investor would not get this.
So to avoid partial exemption for VAT its best to move to a new company and there are bona fide Commercial Reasons too as previously noted.
Although the reclassification to investment will create a profit and tax charge a group structure will provide Group SDLT relief. See these blogs for details.
The process basically has 4 stages.
Stage 1 – Form the new companies
Assuming you are now creating a new Holding Company with a New Investment Company, these need to be formed first.
Stage 2 – HMRC Clearance
Its not mandatory but it is best practice How to apply for clearance or approval of a transaction from HMRC – GOV.UK (www.gov.uk)
To get clearance you need to write a letter to HMRC setting out all the facts, the group structure and the commercial reasons, typically the letter is 6 to 10 pages long.
You can request advance clearances by sending an email to firstname.lastname@example.org. You do not need to send a paper copy.
Attachments should be no larger than 2MB. Do not send self-extracting zip files as HMRC software will block them.
If possible we would like to reply by email, but we need your permission to do so by including the following statement:
‘I confirm that our client understands and accepts the risks associated with email and that they are happy for you to send information concerning their business or personal details to us by email. I also confirm that HMRC can send emails to the following address (or addresses)….’
If you’re making the application on behalf of yourself or your company adapt this wording as necessary.
Stage 3 – The Contract
This is normally done by a solicitor.
The contract deals with the acquiring company and the shareholders of the target company under which the shares are to be acquired with the consideration being shares in the acquiring company.
Stage 4 – Stamp Duty Relief
As the acquiring company is paying consideration for the shares (the issue of its own shares), then the transaction is subject to Stamp Duty. However, relief can be claimed under s77 FA 1986 if the conditions are met and the anti-avoidance rule of s77A FA 1986 does not apply. HMRC guidance is at STSM042000 starting at STSM042410. After the conditions have been checked and a claim prepared, see “How to Claim Relief” on GOV.UK. The claim needs to be made within 30 days of the contract date and, as HMRC outline, various information will need to be attached to the e-mail claim including the stock transfer form.
If you have a large portfolio (because that could be seen as business) then this might be possible but not if you only have a single property (or if its a small portfolio).
Forming a partnership has been seen as milestone on the route to incorporation, incorporation will mean that Section 24 interest restrictions don’t apply, which can save substantial amounts of tax.
Incorporation Tax Relief
The Ramsey case set out a basis for incorporation tax
Mrs Ramsey carried out the following activities
- Mr & Mrs Ramsey personally met potential tenants
- Mrs Ramsey check the quarterly electric bills
- Mrs Ramsey arranged insurance
- Mrs Ramsey arranged and attended to maintenance issues (drains)
- Mrs Ramsey and her son maintained the garages and cleared rubbish
- Mrs Ramsey dealt with post
- Mrs Ramsey dealt with fire regulation issues
- Mrs Ramsey arranged for a fence to be erected
- Mrs Ramsey created a flower bed
- Shrubs were pruned and leaves swept
- The parking area was cleared of weeds
- The flag stones were bleached
- Communal areas were vacuumed
- Security checks were carried out
- She took rubbish to tip
- She cleaned vacant flats
- she helped elderly tenants with utilities
This work equated to at least 20 hours per week and Mrs Ramsey had no other employment.
It is because she did the work herself that her property investment was considered a ‘Business’ and eligible for Incorporation Tax Relief.
Partnerships have special rules on SDLT relating to incorporation.
The rules on SDLT for Partnerships are in the Finance Act 2003 Schedule 15 and amendments in the Finance Act 2006 Schedule 24.
It is complicated but essentially it comes down to the following formulae
MV x (100 – sum of lower proportions (SLP))%
What this means is that if the land being put into the partnership is effectively retained by the transferor-partner (or persons connected with the transferor) after the transaction, you basically end up with:
MV x (100-100) = £0
So a husband and wife partnership owning 50% each could transfer the property to a company for 50% of the shares each and in theory there would be no SDLT charge.
What’s the problem for small portfolios
Take a look this tax question of the week My VIP Tax Team question of the week: Finance Costs Restriction (cronertaxwise.com)
Two of my clients, a married couple, have jointly held residential investment property. The husband is a higher rate taxpayer and the wife is a basic rate taxpayer and they would like to change the allocation of the property income. They do not want to change their 50/50 capital interest so have decided to form a general partnership to take advantage of exception C within ITA 2007 S836 to the assumption they are beneficially entitled to the income in equal shares. Their property portfolio is mortgaged. As the husband has income from other sources, he has fully utilised relief for all finance costs attributed to him. The wife has cumulative unrelieved finance costs, due to her personal allowance mitigating her tax liability on the property income. Can those unrelieved finance costs be carried forward and relieved against tax liabilities on property income from the partnership?Alexandra Fielding – Croner 4/5/22
There are two issues you raise which need to be addressed.
The first is the formation of a partnership to enable more of the property income to be allocated to the wife.
Although, as you say, a partnership means the assumed 50/50 income entitlement of s836 ITA 2007 does not apply, this is not the end of the matter. A non-commercial allocation of profits within a partnership is still within the settlement legislation of s624 ITTOIA 2005 and can apply to all partnerships and LLPs. This is a view confirmed by HMRC at TSEM4215.
The allocation of more of the profits to the wife without a corresponding increase in her share of partnership equity simply to avoid income tax would be caught by the settlement legislation. The exception in s626 ITTOIA 2005 for transfers between spouse/civil partners would not apply as this would be “wholly or substantially a right to income” without a corresponding transfer of partnership equity. If the couple’s particular rental properties require personal involvement of time and effort and such work is only carried out by the wife, or most of it is carried out by the wife, then it may be possible to commercially justify a greater share of the partnership profits to be allocated to the wife. How much would depend on the time spent and the nature of the work undertaken.
I would add that whether the particular rental properties constitute a “business” that meets the requirements of the Partnership Act 1890 depends on the facts involved. Although not an issue actively pursued by HMRC at the moment, there is a published view from HMRC at PM131800 which states:
The letting of jointly owned property does not normally constitute a partnership. Most cases will fall short of the degree of business organisation needed to constitute a business. The provision of significant additional services in return for payment may be an indicator of such business organisation.
The second issue relates to the unrelieved finance costs.
The rules to determine the entitlement to relief of non-deductible costs of a dwelling-related loan for an individual are contained within ITTOIA 2005 S274A and S274AA. Section 274A(3) tells us the relievable amount for a tax year is the total of the individual’s current-year restricted finance costs (if any) for that year in respect of that business and the unrelieved individual’s brought-forward restricted finance costs (if any) for that year in respect of that business.
The legislation restricts the tax reduction for finance costs so that a reduction can only be made against the income tax liability on the same property business to which the finance costs relate.
Although the properties and the individuals carrying on the letting activities will remain the same after the partnership is formed, for income tax purposes the partnership property business is a separate property business to that previously carried on by the individuals (ITTOIA 2005 S859(2)). This rule pre-dates the finance costs restriction and is covered by HMRC at PIM1030.
Therefore, unrelieved dwelling-related loan costs accumulated by the wife will be lost on the formation of the general partnership.
Whilst the wife’s only source of income is property income, she may continue to accumulate unrelieved finance costs. Your clients may want to consider allocating more of the underlying ownership of the property to the wife or transferring other income producing assets to utilise her personal allowance to maximise finance cost tax reductions.
Form 17 – Joint Ownership Proportions
For jointly owned property Form 17 and Declarations of Trust can be used to change the split of ownership.
When you make a declaration it must apply equally to ownership and income and a couple must be married or civil partners, you can’t be separated or divorced or joint tenants.
Form 17 is used to make the declaration
You can use this form to declare a beneficial interest if you hold property jointly and:
• you actually own the property in unequal shares, and
• you are entitled to the income arising in proportion to those shares, and
• you want to be taxed on that basis.
Form 17 must be submitted with in 60 days of completion, in addition a Declaration of Trust is likely to be required.
If there is a change, even a minor change, after submitting the Form 17 it will be invalid and revert to 50/50.
If the property is held in a single name it may be possible to use a declaration of trust to confirm joint beneficial interest.
Income Tax and Capital Gains Tax will be be based on the beneficial interest in the property, so if one spouse is a higher rate tax payer and the other a lower rate tax payer changing the proportion of ownership could have a significant tax advantage.
Download a free copy from our website https://www.bicknells.net/charities
For VAT reverse charge to apply the subcontractor must be able to answer these questions
- Is the work being done a construction activity (CIS340)
- Are both the Subcontractor and Contractor registered for VAT (and the VAT rate isn’t Zero) and CIS
- Does the contractor have an onward supply for Construction Services (in other words they aren’t the end user or an intermediary)
Assuming the answer to all 3 questions is YES then VAT reverse charge will apply and the subcontractors invoice need to look like this one.
Under the VAT Regulations 1995 invoices for domestic reverse charge supplies, when the customer is liable for the VAT, must include the reference ‘reverse charge’. The following examples fulfill the legal requirement:
•Reverse charge: VAT Act 1994 Section 55A applies
•Reverse charge: S55A VATA 94 applies
•Reverse charge: Customer to pay the VAT to HMRC
The Subcontractors VAT return will look this.
All the major software providers have this covered for you, for example on Sage Accounting you just need to tick a box on Customers Account Settings.
If you don’t have Gross CIS status you may have Construction Industry Scheme (CIS) deductions to reclaim and you will be probably be trying to reclaim now as we have concluded a tax year (5th April and submitted returns due on the 19th April).
Sole traders and partners
At the end of the tax year, send in your Self Assessment tax return as usual. You should record:
- the full amounts on your invoices as income
- any deductions contractors have made in the ‘CIS deductions’ field
HM Revenue and Customs (HMRC) will work out your tax and National Insurance bill and take off any deductions made by contractors.
The process for companies is different, companies may well have offset Subcontractors deductions and payroll against deductions made by their clients using CIS132 How to offset Construction Industry Scheme deductions – CIS Offsetting (CIS340 4.13) – Steve J Bicknell Tel 01202 025252
So the first step to work out the net amount to reclaim and check it to the HMRC Government Gateway.
You can choose to:
- Form R38 to claim the Refund – Claim an Income Tax refund – GOV.UK (www.gov.uk)
- Claim online via your government gateway (agents will use their Agent Services Account) – Claim a refund of Construction Industry Scheme deductions if you’re a limited company or an agent – GOV.UK (www.gov.uk)
- Claim by Post
Claim via the Government Gateway
When you click this option ad log in you will get an access code xxx-xxx-xxx, keep a not of this code, the next screen asks you to enter it.
The you can choose
- New Claim
I think the amendment option is very helpful in case you make a mistake (shame we don’t get this for other taxes like VAT or PAYE)
Then the questions are
- Agent details and address (if its being claimed by an accountant)
- Business details
- PAYE reference
- Tel No
- Business Address
- Tax Year for the claim ie 6th April 2021 to 5th April 2022
- Estimated overpayment (note the word estimated) this the net amount from the CIS132
- Do you want to offset against other taxes Yes/No
- Would you like a Cheque or Bank Transfer
- Bank details for bank transfer
- E Mail for confirmation
Then you will get a confirmation via E Mail ‘Claim repayment of deductions from your Construction Industry Scheme payments’ it will have another reference xxx-xxxx-xxx
You’ll normally receive a response within 25 days.
Claim by Post
Write to us and make sure that you include:
- your full company name
- your PAYE reference numbers
- the reasons for the overpayment
- a completed R38 form if you want your refund to be paid to an agent or other representative
If you want us to pay the refund into a bank account, you’ll need to provide the:
- bank account number
- sort code
- account holder’s name
If you want us to deduct your repayment from other amounts you owe for:
- Corporation Tax — include your Corporation Tax unique tax reference and either the end date of your accounting period or accounting period number
- VAT — your registration number and the VAT Return period
- other liabilities — include type of charge, year or period it refers to and any reference numbers you have
You do not have to send any supporting information with your claim, but we may request further details if your claim does not match their records.
Mark your claim ‘CIS’ and send it to:
National Insurance Contributions and Employer Office
HM Revenue and Customs
The rules are in
CG67900 – Capital Gains Manual: Businesses: Appropriations to and from stock in trade
Appropriation treated as a disposal – TCGA92/S161 (1)
Where an asset (which was acquired by a person otherwise than as trading stock) is later appropriated for use as stock in that person’s trade, the transfer is dealt with for trading profits as if there were a sale and purchase at market value, see BIM33630. For capital gains purposes, TCGA92/S161 (1) deems the asset to have been sold for its open market value at the date of transfer.
Election to defer CG charge – TCGA92/S161 (3)
Collection difficulties might arise because tax on chargeable gains may become due and payable before there has been a factual disposal of the asset. To relieve this problem, the trader may make an election under TCGA92/S161 (3). If an election is made, there will be no chargeable gain on the appropriation of the asset to trading stock. Instead, in the computation of trading profits, the market value of the asset will be reduced by the amount of the chargeable gain. The effect of an election is that the trading profits or losses will include the whole of the income profit and the capital gain accruing on the asset over the whole period of ownership.
So what happens if you have a develop a property and then decide to keep it as an investment rather than sell it?
This known as reclassification and there would be an immediate deemed disposal under ITTOIA 2005 s 172B and CTA 2009 s 157 as a result a taxable trading profit would calculated based on the market value.
The tax would be payable even though the property had not been sold and a profit had not been realised. No elections are available.