Limitations of tax relief when you sell your home

Archive for March, 2019

Limitations of tax relief when you sell your home

Wednesday, March 6th, 2019

It is a commonly held point of view that when you sell your home you won’t pay any tax, and in particular, that you won’t pay any Capital Gains Tax on the difference between the purchase and sales prices.

Unfortunately, there are circumstances when this is not true. For example, you may have some tax to pay if you have let all or part of your house for part of your period of ownership.

There is also a restriction on the amount of land you can sell as part of your home/garden tax-free. Presently this is 5,000 square metres (just over one acre). And if you sell your home and retain part of the garden to sell at a later date, the subsequent sale of the land will attract a Capital Gains Tax charge.

You may also incur a tax cost when you sell your home if you have used part of the property exclusively for business purposes – this would not include non-exclusive use, such as using a spare bedroom or study as a part-time home office.

Issues may also occur if you sell your UK home while you are non-resident for UK tax.

If you are unsure of the tax status of your home for tax purposes, by all means call to discuss your options.

Loans to employees

Wednesday, March 6th, 2019

A reminder that if your business makes a loan to your employees or their relatives this can create tax problems for both employees and employers. And please don’t forget that the term “employee” includes directors, and also that loans to family members may be caught.

For example, the employer will have an obligation to report a beneficial loan to HMRC (and pay Class 1A NIC) and the deemed benefit would be a taxable benefit in kind for the relevant employee. A beneficial loan is one that is interest free or the rate charged is below the “official rate” and the benefit is the difference between these interest rate charges.

Fortunately, not all loans create a tax problem, certain loans are exempt from this reporting obligation. These could include loans employers provided:

  • in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee),
  • with a combined outstanding balance due from an employee of less than £10,000 throughout the whole tax year,
  • to an employee for a fixed and never changing period, and at a fixed and constant rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out – the official rate for 2018-19 is 2.5%,
  • under identical terms and conditions as those provided to the public (this mostly applies to commercial lenders),
  • that are ‘qualifying loans’, meaning all the interest charged to the loan account qualifies for tax relief.

Loans written off also create a National Insurance Class 1 charge for the employee. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC from the employee’s salary, on the amount written off for tax purposes.

Calculating the taxable benefits for chargeable loans can be somewhat complex and readers are advised to take advice if they are unsure of their tax and NIC responsibilities.

Phone scams

Tuesday, March 5th, 2019

It would seem that fraudsters, keen to relieve you of your hard earned cash, are switching to phone calls now that email scams are becoming less effective.

HMRC recently issued the following instructions to UK taxpayers and requested that we all assume a new level of vigilance. They said:

If you know someone who has a landline, particularly those who may need protecting such as vulnerable relatives and neighbours, our advice is:

  • recognise the signs – genuine organisations like banks and HMRC will never contact you out of the blue to ask for your PIN, password or bank details
  • stay safe – don’t give out private information, reply to text messages, download attachments or click on links in emails you weren’t expecting
  • take action – forward suspicious emails claiming to be from HMRC and details of suspicious calls to phishing@hmrc.gsi.gov.uk and texts to 60599. Alternatively, contact Action Fraud on 0300 123 2040 or use its online fraud reporting tool, especially if you suffer financial loss
  • check GOV.UK for information on how to avoid and report scams and recognise genuine HMRC contact

The last point is key. If you receive any form of communication – by email or landline – requesting personal information (particularly your bank details) politely close the call and use the official website’s contact details to call back. If you don’t have access to the internet, ask a relative to help or visit your local Citizen’s Advice Centre.

HMRC has made strides in the last year to close down many of the fraudsters’ phone lines, in conjunction with Ofcom they have shut down almost 450 lines. However, we need to remain vigilant. As HMRC have advised:

The tax authority will only ever call you asking for payment on a debt that you are already aware of, either having received a letter about it, or after you’ve told us you owe some tax, for example through a Self-Assessment return.

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