May 2022 | DSK Partners LLP

IHT business asset relief

Posted on May 5, 2022 by

There are a number of reliefs available that can reduce liability to IHT if you inherit the estate of someone who had died. One of these reliefs is known as Business Relief and is a valuable tax relief for taxpayers with business interests, offering either 50% or 100% relief from IHT on the value of the business assets if certain conditions are met.

100% Business Relief can be claimed on a business or interest in a business or on shares held in an unlisted company.
50% Business Relief can be claimed on:
– shares controlling more than 50% of the voting rights in a listed company
– land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
– land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

Relief is only available if the deceased owned the business or asset for at least 2 years before they died. There are a number of restrictions to the relief, for example if the company in question mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments. In some cases, partial Business Relief may be available.

Source: HM Revenue & Customs Tue, 03 May 2022 00:00:00 +0100

Exchange of joint interests

Posted on May 5, 2022 by

HMRC’s internal manuals consider the reliefs available where there is an exchange of joint interests in land.

The manuals state that:

The exchange of interests in land which are jointly owned by two or more persons constitutes a disposal by each owner for Capital Gains Tax purposes. In some cases, the exchange is made simply to rationalise the ownership of the land and to make it easier to deal with. The exchange may give rise to a charge to Capital Gains Tax or Corporation Tax on Chargeable Gains, and this is the case even where no money changes hands.

An Extra-Statutory Concession (ESC) – ESC/D26, published in 1984 provided relief in relation to these types of disposals but was withdrawn in April 2010. The ESC was replaced by a modified relief for exchanges on or after 6 April 2010. This relief is provided by way of TCGA1992/S248A-E in the form of roll-over relief in certain circumstances to facilitate rearrangements of holdings of land.

There are five separate conditions that must be met to claim roll-over relief under the applicable legislation. Where the relevant conditions are met then a landowner can make a claim for roll-over relief.

Source: HM Revenue & Customs Tue, 03 May 2022 00:00:00 +0100

Writing off a director’s loan

Posted on May 5, 2022 by

An overdrawn director's loan account is created when a director (or other close family member) 'borrows' money from their company. Many companies, particularly 'close' private companies, pay for personal expenses of directors using company funds. Where these payments do not form part of a director’s remuneration, they are usually posted to the director’s loan account (DLA).

The DLA can represent cash drawn by a director as well as other drawings by a director (including personal bills paid by the company). Whilst it is quite common for small company accounts to show an overdrawn position on a DLA, this can create some unwelcome consequences for both the company and the director. The rules are further complicated if the loan is for more than £10,000 as interest must be charged and be reported on the directors’ personal Self-Assessment tax return.

There are also further Income Tax costs if the loan is written off or 'released' (not repaid) by the company. If this happens, the company must deduct Class 1 National Insurance through the company’s payroll. The director will be required to pay Income Tax on the loan through their Self-Assessment tax return.

Source: HM Revenue & Customs Tue, 03 May 2022 00:00:00 +0100

Tax benefits of switching to electric cars

Posted on May 5, 2022 by

There are many benefits to encourage the use of electric cars including lower running costs, the environmental advantages and reduced noise pollution. There are also tax benefits to encourage the purchase of electric cars.

We have listed some of these benefits below.

The benefit-in-kind (BIK) due on company cars can be significantly reduced. For example, most electric cars will incur a BIK rate of only 2% in 2022-23. Compare this with the benefit charge for a gas-guzzler pumping out 160 g/km or more of CO2 which would be based on 37% of the list price when new. This means that company car drivers who switch to an electric car should see their tax bill significantly reduced. This also benefits employers who may see a significant decrease in Class 1A National Insurance charges.

Businesses purchasing electric cars can expect to recover more of their investment in direct tax relief. For example, businesses can write-off 100% of the cost of an electric vehicle against the profits of the year of purchase and there are no restrictions on the value of the vehicle. The car must be new and unused to qualify for the 100% relief.

Companies can also benefit from the super-deduction, which offers 130% first-year allowance on qualifying electric charging points for cars and vans. To qualify for the relief the company must use the charging point in their own business. This relief is available until 31 March 2023.

The road tax, or Vehicle Excise Duty (VED) rates for all fully electric vehicles have been reduced to £0 until at least 2025. There are reduced VED rates for plug-in hybrid electric vehicles (PHEVs).

There is no benefit-in-kind charge for the private use of a company van if the private mileage is insignificant. If the van is an electric vehicle, there is no benefit-in-kind charge even if the private mileage is significant.

There are also other benefits including an EV charge-point grant that provides funding of up to 75% towards the cost of installing electric vehicle smart charge-points, up to a maximum of £350 (including VAT) per household/eligible vehicle. Electric cars are also exempt from the London congestion charge when applying for a Cleaner Vehicle Discount.

Source: HM Government Tue, 03 May 2022 00:00:00 +0100

Builders – when you may not have to charge VAT

Posted on May 5, 2022 by

VAT for most work on houses and flats by builders and similar trades, like plumbers, plasterers and carpenters, is charged at the standard rate of 20%. However, there are a number of exceptions where special VAT rules apply and a reduced or zero rate of VAT may apply.

A builder may not have to charge VAT (zero rate) on some types of work if it meets certain conditions, including:

building a new house or flat
work for disabled people in their home

A builder may be able to charge the reduced rate of 5% for some types of work if it meets certain conditions, including:

installing energy saving products and certain work for people over 60
converting a building into a house or flats or from one residential use to another
renovating an empty house or flat
home improvements to a domestic property on the Isle of Man

There are also special VAT rules for work on certain types of buildings that are not houses or flats, including approved alterations and substantial reconstructions to protected buildings and converting a non-residential building into a house or communal residential building for a housing association.

In addition, there are certain other types of communal residential building that builders do not have to charge VAT. These include children’s homes, residential care homes, hospices and student accommodation.

In all cases, it is the supplier’s responsibility to charge VAT correctly and to ensure they hold proper evidence to support the fact that a customer is eligible for a supply at the reduced or zero VAT rate.

Source: HM Revenue & Customs Tue, 03 May 2022 00:00:00 +0100

Mortgage interest on rented property

Posted on May 5, 2022 by

Under new rules that came into effect from April 2017 the tax relief on mortgage costs for residential landlords was restricted to the basic rate of tax. The finance costs restriction was phased in over a number of years and is now fully in place since 6 April 2020. This means that all finance costs, such as mortgage interest on rented properties, are disallowed as expenses and any tax relief is restricted to the basic rate of tax (20%) tax reduction.

The definition of finance costs include interest on mortgages, loans – including loans to buy furnishings and overdrafts as well as alternative finance returns, mortgage fees and other costs and discounts, premiums and disguised interest. No relief is available for capital repayments of a mortgage or loan.

These changes have affected many higher rate and additional rate taxpayers and particularly those with highly leveraged properties, i.e., loans form a significant part of property values. The rules also mean that relevant taxpayers are pushed into paying higher tax rates than previously was the case. This could mean losing some or all of their personal allowances as well as restricting the amount of tax relief on money invested in their pension.

The finance cost restrictions apply if you are a UK resident individual that lets residential properties in the UK or overseas, a non-UK resident individual that lets residential properties in the UK or if you are involved with a partnership that lets properties or are a trustee or beneficiary of a trust liable for Income Tax on the property profits.

Interestingly, landlords of furnished holiday lettings are not affected by the restriction on finance costs.

Source: HM Revenue & Customs Tue, 03 May 2022 00:00:00 +0100

Month: May 2022

IHT business asset relief

Exchange of joint interests

Writing off a director’s loan

Tax benefits of switching to electric cars

Builders – when you may not have to charge VAT

Mortgage interest on rented property

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