How does Principle Private Residence Relief work?

One family house for sale

Principle Private Residence Relief (PPR) is useful relief that saves you capital gains tax (18% for basic rate tax payers and 28% for higher rates tax payers) on your main residence, but how does it work, lets take a basic example

Property Purchase Date 30/04/2001
Property Purchase Price £100,000
Date Moved Out 30/10/2010
Letting Start Date 01/11/2012
Date Sold 31/10/2014
Sale Price £200,000

Capital Gains tax calculation

Sale proceeds 31/10/2014 £200,000
Cost (assuming no improvements) -£100,000

Gross capital gain £100,000

Reliefs available
Principle Private Residence Relief

Actual Occupation 9.5 Years
Started 30/04/2001
Ended 30/10/2010

Plus last 18 Months of Ownership 1.5 Years
The Property was empty prior to letting
Up to 18 months could be by ‘absence for any reason’

Total period where private residence relief is
available 11.0 Years

Total Period of ownership 13.5 Years

Principle private residence relief
£100,000 x (132 mths/162 mths) £81,481

Gain after principle private residence relief £18,519

Letting Relief
01/11/2012 to 31/10/2014 2.0 Years

Lettings relief is to lower of
£40,000 statutory maximum
£81,481 the principle private residence relief in this example
The gain for the letting period

Gain attributable to letting 2/13.5 x £100,000 £14,815
This is the lowest figure

Capital gain after reliefs £3,704

Annual Exemption for 2014/15 £11,000

So in this example there is no tax to pay

For further details see the HMRC Helpsheet 283

For gains on sales prior to 6 April 2014, PPR is available for the last three years of ownership of a property that has been a main residence at any time.  This is the case regardless of whether or not it has been occupied during the last three years of ownership.

But as a result of the 2014 Budget, from 6 April 2014 the automatic exemption from tax on gains in relation to the final years of ownership is now restricted to cover the last 18 months rather than three years.

steve@bicknells.net

 

Widening of Qualifying Loan Interest Tax Relief Rules

Entrepreneur startup business model

Often when you start a business you will need to borrow money personally to lend to your new company or buy shares.

You might borrow by increasing your mortgage.

You may be entitled to claim tax relief for interest paid on a loan or alternative finance arrangement used to buy:

  • shares in, or to fund, a ‘close’ company (contact your HM Revenue & Customs (HMRC) office if you are not sure if the company is ‘close’)
  • an interest in, or to fund, a partnership
  • plant or machinery for your work (but make sure you do not claim this interest twice, you will do if you have already deducted it as a business expense)

If you receive a low-interest or interest free loan from your employer for one of the above purposes you may be able to claim relief for any benefit taxable on you.

This is called ‘Qualifying loan interest relief’, HMRC have a helpsheet which gives further details HS340

In the 2014 Budget Qualifying loan interest relief was changed to include EEA state companies

steve@bicknells.net

 

5 Creative Tax Reliefs

People in Cinema

The Creative Industries have done rather well in the last couple of years as far as tax reliefs go and more are just about to come on stream.

Creative industry tax reliefs (CITR) are a group of 5 Corporation Tax reliefs that allow qualifying companies to claim a larger deduction, or in some circumstances claim a payable tax credit when calculating their taxable profits.

These reliefs work by increasing the amount of allowable expenditure. Where your company makes a loss, you may be able to ‘surrender’ the loss and convert some or all of it into a payable tax credit.

Film Tax Relief (FTR) was introduced in April 2007 and 2 additional reliefs were introduced in April 2013. These are Animation Tax Relief (ATR) and High-end Television Tax Relief (HTR). A fourth relief for Video Games Development was introduced from 1 April 2014. A fifth relief for Theatre Tax Relief is to be introduced in Autumn 2014. HMRC

Let’s take a look at the 5 tax reliefs:

Film Tax Relief (FTR)

Your company will be entitled to claim FTR on a film as long as:

  • the film passes the culture test – it is considered a ‘British film’
  • the film is intended for theatrical release
  • at least 25% of the total production costs relate to activities in the UK

Animation Tax Relief (ATR)

Your company will be entitled to claim ATR on an animation programme if:

  • the programme passes the cultural test – a similar test to that for FTR but within the European Economic Area
  • the programme is intended for broadcast
  • at least 51% of the total core expenditure is on animation
  • at least 25% of the total production costs relate to activities in the UK

High-end Television Tax Relief (HTR)

Your company will be entitled to claim HTR on a programme if:

  • the programme passes the cultural test – a similar test to that for FTR but within the European Economic Area
  • the programme is intended for broadcast
  • the programme is a drama, comedy or documentary
  • at least 25% of the total production costs relate to activities in the UK
  • the average qualifying production costs per hour of production length is not less than £1million per hour
  • the slot length in relation to the programme must be greater than 30 minutes

Video Games Development

Your company will be entitled to claim VGTR as long as:

  • the video game is British
  • the video game is intended for supply
  • at least 25% of core expenditure is incurred on goods or services that are provided from within in the European Economic Area (EEA)

Theatre Tax Relief

Details to follow in the Autumn of 2014

 

steve@bicknells.net

What’s in your land? it could be worth a 150% tax deduction

Pollution

Land Remediation Relief is a relief from corporation tax only. It provides a deduction of 100%, plus an additional deduction of 50%, for qualifying expenditure incurred by companies in cleaning up land acquired from a third party in a contaminated state.

The tax releif is available on both commercial and residential developments.

Qualifying Land Remediation Expenditure can be claimed for tackling pollution, natural issues, such as radon, arsenic or Japanese Knotweed or remediating long term derelict land.

Asbestos is a common issue and qualifies for Land Remediation Relief….

Legislation in The Control of Asbestos Regulations 2006 and The Control of Asbestos Regulations (Northern Ireland) 2007 governs the way that asbestos is removed.

As a result additional costs may be incurred in containing the asbestos and dust during removal.

For example, a licensed contractor must be employed to remove high risk material, such as pipe insulation or asbestos insulating panels.

The additional costs incurred in order to comply with the regulations are part of the cost of removing the asbestos and so may qualify for Land Remediation Relief.

CIRD63200

So you don’t have to be Indiana Jones to discover value in your land…

 

steve@bicknells.net

 

Things you need to know about R&D Tax Credits…..

Laboratory Collage

Research and Development (R&D) tax relief (or credit) is a company tax relief that can either reduce a company’s tax bill or, for some small or medium sized (SME) companies, provide a cash sum. It is based on the company’s expenditure on R&D.

For there to be R&D for the purpose of the tax relief, a company must be carrying on a project that seeks an advance in science or technology. It is necessary to be able to state what the intended advance is, and to show how, through the resolution of scientific or technological uncertainty, the project seeks to achieve this.

http://www.hmrc.gov.uk/manuals/cirdmanual/cird80150.htm

These are the key questions that you will be asked when requesting an R&D Tax Credit from HMRC:

  1. How was it decided that R&D had taken place
  2. A description of the scientific & technological advance sought
  3. The uncertainties involved
  4. How and when the uncertainties were resolved
  5. Why the knowledge being sought was not readily deducible by a competent professional
  6. Were any grants, subsidies or contributions received for the project within the claim
  7. Who owns the Intellectual Property of the products resulting from the R&D
  8. Was the R&D carried out for others ie clients, this could mean your claim is rejected

Amount of relief

For expenditure incurred up to and including 31 July 2008 SMEs can deduct 150% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24 for every £100 of actual R&D expenditure. For expenditure incurred on or after 1 August 2008 SMEs can deduct 175% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24.50 for every £100 of actual R&D expenditure. The rate is further increased from 1 April 2011 to 200%, and a payable credit of £25 for every £100 of spend.

Large companies can deduct 125% in respect of qualifying expenditure incurred up to and including 31 March 2008 and can deduct 130% thereafter.

Here is a template (originally created by HMRC but updated by me) to help you calculate the value of your claim it has references to relevant HMRC guidance.

The claim is made on your corporation tax return (CT600) if you discover that you should have made a claim in a prior year its not too late, follow this link to find out how to correct prior year returns http://www.hmrc.gov.uk/ct/managing/company-tax-return/amend.htm

Case Studies and Examples

Here are some excellent examples http://www.bis.gov.uk/files/file36112.pdf

It is possible to claim for software http://www.bis.gov.uk/files/file34845.pdf

Software could be tool to enable the R&D or a goal in its own right, but simply modifying existing software isn’t R&D. It has to follow the same rules as other R&D and be an advance in science and technology.

Construction companies have claimed R&D for developing new building systems and new building technologies.

R&D could be a new process rather than an invention.

It doesn’t have to have a patent but there could be advantages to having one, such as patent box tax relief.

steve@bicknells.net

Donate Trade Pounds to Charity and get Cash Back

Bartercard has many charity members who all love getting donations http://belmontmail.co.uk/ZFF-YPOC-E24SJ4HO59/cr.aspx

But often charities and those making donation fail to claim the cash back relating to the donations, for example:

Gift Aid

25% tax refunds in cash http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/GivingMoneyToCharity/DG_10015097

This means that for every £1 donated, you can claim an extra 25 pence.

Individual Tax Relief

If you pay higher rate tax and make a donation through Gift Aid you can claim some tax back too.

Corporation Tax Relief

When your company makes a qualifying donation to a charity the amount paid is treated as a ‘non-trade charge’ – this means your company can make a claim in its Company Tax Return to set the amount of the donation against its taxable profits.

steve@bicknells.net

 

£12.6 Billion in Unclaimed Tax Relief and Refunds

At a time when HMRC are writing to employees who have underpaid tax because they were on the wrong tax code for 2011/12, it might be worth giving some thought to unclaimed tax reliefs

Here’s the top ten list of our biggest tax wastes:

Area of Tax Wastage Amount of Wastage
Income-related Tax Credits £7.26 billion
Tax relief on pension contributions £2.45 billion
Tax relief on charity donations £997 million
Savings on Inheritance Tax £448 million
Making use of ISAs £403 million
Child Benefit £401 million
Avoiding penalties for late filing of tax return £307 million
Savings on Capital Gains Tax £133 million
Making use of Employee Share Schemes £118 million
Income tax and Personal Allowances  £83 million
Total £12.6 billion

Source: unbiased.co.uk

http://www.lovemoney.com/news/household-bills/tax/11323/six-easy-ways-to-pay-less-tax

£12.6 billion is an incredible amount of money and I am sure many people aren’t even aware that they could be claiming tax relief or refunds, so why not check what you could claim and makesure your tax is right.

steve@bicknells.net

 

 

 

 

Why invest in a Pension? Because of Tax Relief!

 

I have been looking at the Tax Relief impact on Pension Investments

Lets say you invest £10,000 per year of earned gross income, increasing each year by 3% for inflation and see the effect of tax relief at 40% and 20%, assuming a return on the investment of 7% (which you should get with Commercial Property Investment)

40% Tax Rate 20% Tax Rate
Year Pension No Pension % Diff Year Pension No Pension % Diff
1 £10,700 £6,252 71% 1 £10,700 £8,336 28%
2 £22,470 £12,954 73% 2 £22,470 £17,272 30%
3 £35,395 £20,131 76% 3 £35,395 £26,841 32%
4 £49,564 £27,808 78% 4 £49,564 £37,078 34%
5 £65,077 £36,013 81% 5 £65,077 £48,017 36%
6 £82,036 £44,773 83% 6 £82,036 £59,698 37%
7 £100,555 £54,119 86% 7 £100,555 £72,158 39%
8 £120,754 £64,081 88% 8 £120,754 £85,441 41%
9 £142,761 £74,692 91% 9 £142,761 £99,590 43%
10 £166,715 £85,987 94% 10 £166,715 £114,649 45%
11 £192,765 £98,000 97% 11 £192,765 £130,667 48%
12 £221,070 £110,771 100% 12 £221,070 £147,694 50%
13 £251,801 £124,337 103% 13 £251,801 £165,782 52%
14 £285,140 £138,740 106% 14 £285,140 £184,987 54%
15 £321,285 £154,024 109% 15 £321,285 £205,365 56%
16 £360,445 £170,233 112% 16 £360,445 £226,978 59%
17 £402,846 £187,416 115% 17 £402,846 £249,888 61%
18 £448,731 £205,621 118% 18 £448,731 £274,161 64%
19 £498,358 £224,901 122% 19 £498,358 £299,868 66%
20 £552,006 £245,309 125% 20 £552,006 £327,079 69%

Even when you consider:

  • Your money is locked up till you are 55
  • You pay tax when you take money out of the pension
  • You can get 25% out of the pension tax free

The difference in growth is massive

If you do salary sacrifice you can increase the tax effect by saving national insurance too.

So why aren’t more people investing in pensions?

steve@bicknells.net

Tax Relief for Pre-trading Expenses

By the time you actually start trading, you may have spent thousands of pounds on research and setting up the business.

Provided you have formally notified HM Revenue & Customs that you have started up a business, most of these costs are usually allowable as business expenses in the first year.

Income Tax (Trading and Other Income) Act 2005

Pre-trading expenses

(1)This section applies if a person incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the person starts to carry on the trade (“the start date”).
(2)If, in calculating the profits of the trade—
(a)no deduction would otherwise be allowed for the expenses, but
(b)a deduction would be allowed for them if they were incurred on the start date,
the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).

http://www.legislation.gov.uk/ukpga/2005/5/section/57

http://www.hmrc.gov.uk/manuals/bimmanual/bim46355.htm

VAT Paid Before VAT Registration

You can reclaim any VAT you are charged on goods or services that you use to set up your business.

Normally, this will include:
• VAT on goods you bought for your business within the last 4 years and which you have not yet sold.
• VAT on services, which you received not more than 6 months before your date of registration.

You should include this VAT on your first VAT return. (Notice 700/1 April 2010 4.2)

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageExcise_ShowContent&id=HMCE_CL_000086&propertyType=document#P331_32574

steve@bicknells.net