We will be pleased to help anyone who would like professional advice to help get their tax affairs in order and get advice on approaching HMRC. HMRC’s guidance is here. If after reading it you believe you need help, please call us on 01702 205066 or email firstname.lastname@example.org
Are you a landlord who has letting income to declare to HMRC which you should have reported before?
Here is an extract from an announcement made by HMRC on 19th September 2013 under the heading “Tax opportunity for landlords to put house in order”:
“Landlords who rent out residential property, and fail to tell HM Revenue and Customs (HMRC) about all the rental income, are being offered the chance to come forward and put their tax affairs straight – before HMRC comes to them.
HMRC estimates that up to 1.5 million landlords in this sector may be underpaying up to £500 million in UK tax every year.
Under HMRC’s new Let Property Campaign, landlords who may owe tax – whether through misunderstanding the rules or deliberate evasion – can come forward and tell HMRC about any unpaid tax on rents, and pay what they owe, including any penalties and interest due.
The campaign is open to all residential property landlords – from those that have multiple properties, to single rentals, and from specialist landlords such as student or workforce rentals, to holiday lettings. HMRC will be working with a variety of bodies over the next few months to develop tools and guidance to support landlords of all types and help them get their affairs up to date.”
The gist of this is that if you come forward to pay your tax and any back interest, HMRC will not “throw the book at you” with regard to penalties. You will not avoid them, but you should take advantage. If they catch you first you will end up paying more.
Why not ask us to help you “bite the bullet” and pay what you owe? We will make the initial approach to HMRC, act as a “buffer” between them and you, and make sure you get as good a deal as we can get for you.
Of course the ultimate responsibility is yours, but we would love to help you take the weight off your shoulders so that you do not have to worry.
Call us now on 01702 205066 or email email@example.com
HMRC have posted on their website the following:
“The Property Sales campaign was an opportunity for you to bring your tax affairs up to date if you have sold a residential property, in the UK or abroad, that’s not your main home. If you made a profit on this type of property sale but have not told HM Revenue & Customs (HMRC), you might not have paid the right amount of tax.
To take advantage of the campaign you needed to send HMRC your disclosure and pay what you owed by 6 September 2013.
Now the deadline has passed, HMRC is using the information it holds to target those who should have made a disclosure and failed to do so.
If you think you should have made a disclosure under this campaign but have missed the deadline call the Campaigns Voluntary Disclosure Helpline now. It will still be beneficial to tell HMRC as the penalties you will pay may be lower than if HMRC approach you first.
If you would like us to help you approach HMRC to disclose the sale of a property which they should have been told about before, we will help you every step of the way and advise you in advance what tax and interest you will have to pay, as well as helping you in dealing with penalty issues.
If you are buying a property with your spouse or civil partner or even just a business partner and you intend to let it out, make sure your solicitor or conveyancer knows this and arranges the most suitable ownership status. Generally for tax reasons this will be as tenants in common. As a tenant in common you will each own a specific share of the property, which may be half, or a different specified percentage.
The other sort of joint ownership is known as a joint tenancy. In that situation each person owns an indivisible share of the whole property and cannot pass a share to another person. In the event of the death of one of the owners of a property held as joint tenants, the ownership of the property passes to the survivor, and this cannot be changed by a gift by will.
A joint tenancy may not be a good idea from the point of view of the survivor in terms of inheritance tax planning as it may be liable to significant IHT on the death of the survivor. If gifted on by the survivor it would require that person to live seven years after the gift to avoid an inheritance tax charge on death. Whether or not a property is owned by a married couple, it is a very inflexible arrangement.
The terms and types of ownership in Scotland are different from those already mentioned, which apply to England and Wales, but the same situations as above are provided for.
Having a property owned by people as tenants in common gives more flexibility. Firstly, the property doesn’t have to be owned on a fifty-fifty basis. It can be owned in whatever percentages may be agreed, such as 75:25 or 95:5. Actually several people could have a distinct share of a property. A person’s share could be willed to someone other than a joint owner if desired, or if one married person or civil partner wanted to leave the share to the other, then a will would take care of it with no difficulty. The point is that there would be room to plan who should inherit and at the same time take account of inheritance tax considerations.
A share of a property owned as tenants in common can be sold or transferred to another party. A gift to a spouse / civil partner would not attract capital gains tax, though a sale to a non-spouse would (if there were a gain) and a gift to a non-spouse / civil partner would be valued at the market rate for capital gains purposes.
You will see that the distinctions between joint tenancies and tenancies in common are important for tax purposes. A joint tenancy arrangement has much less flexibility. If you need to understand more about the nature of these distinctions you should take legal advice. In the next article we will be discussing the income tax issues relevant to the two types of ownership.
If you have Furnished Holiday Lettings (FHL) business losses in the current tax year ending on 5th April 2011 this is the last year (2010-11) in which you will be have the ability to set them off against other general income. i. e. earnings, investment income and non-FHL lettings profits etc.
If you already have losses or if you would have losses if you brought forward the timing of necessary expenditure such as repairs to properties to spend before 5th April, you should consider doing so as in future losses post 5th April 2011 will only be offset against other FHL income.
There is a summary of the changes to the tax treatment of FHL here.
Following the Coalition’s decision not to abolish the Furnished Holiday Lettings (FHL) tax category with all its advantages over the letting of investment property, we now know what the Government does intend for the future.
The regime for FHL is not going to be quite as generous as it was in the past, but we should be thankful that it is not going to be axed altogether. The previous qualifications for a letting to be an FHL were:
- the property should be available for holiday letting on a commercial basis for at least 140 days in the tax year;
- it should be let for at least 70 days;
- individual lets should not exceed 31 days
- the holiday property should not be let to the same person for more than 31 days in the year in the holiday letting period of at least 140 days.
- outside the holiday letting period longer term occupation by one tenant should not exceed 155 days in a tax year.
- the property should be available for holiday letting on a commercial basis for at least 210 days in the tax year;
- it should be let for at least 105 days;
- individual lets should not exceed 31 days
- the holiday property should not be let to the same person for more than 31 days in the year in the holiday letting period of at least 210 days.
- where the FHL business comprises multiple properties the qualifying days rules will be averaged between the properties so that all will fall within (or without) the FHL category. There will be clarity rather than confusion.
- a “period of grace” will be introduced to allow businesses that do not continue to meet the “actually let” requirement for one or two years to elect to continue to qualify throughout
- that period.
- losses made in a qualifying UK or European Economic Area (EEA) furnished holiday lettings business may only be set against income from the same UK or EEA furnished holiday lettings business
The change to the loss relief position is significant. Previously as FHL losses were treated as trading losses they could be set against and individual’s other income of the same year or carried back to be set against the taxpayer’s income of the previous year. If taxpayers will have other income in 2010-11 and anticipate some expenditure in the near future relevant to their FHL businesses they might consider spending the money earlier if it would enable them to claim loss relief against other income in 2010-11.
It is worth repeating the unchanged advantages from my earlier post:
- any capital gains made on FHL-qualifying properties will be liable to capital gains tax at the business rate of 10% and would qualify for the new Entrepreneurial 10% lifetime band which is now to be £5 million, more than enough for most FHL owners one would think.
- a capital gain on one property may be rolled over into another replacement property subject to certain conditions being met. Therefore the gain would only be taxed on the final sale of the replacement assuming that was not also replaced.
- you can claim Capital Allowances in respect of equipment such as white goods purchased for your properties, and can write down the costs against current income. For non FHL furnished rentals normally you are only allowed a deduction of 10% of the rent.
Undoubtedly there will be some property owners who will find that their lettings no longer qualify as Furnished Holiday Lettings and therefore they will ultimately pay more tax. Others whose businesses continue to qualify will not be able to set off their losses and again will pay more tax on other income.
Unless the expenditure on equipment is very high one would expect the ordinary furnished lettings “wear and tear” allowance of 10% of the rent to afford the replacement of lost capital allowances.
The new regime is not quite so friendly as the previous one, but as the last Government was minded to abolish FHL altogether we should be thankful for small mercies and some quite big ones in terms of capital taxes.
It is not possible to cover every detail or quirk of an issue in an article such as this. As always, please take paid-for professional advice before making any changes to your business or personal tax status.