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Month: November 2024

How Council Tax is calculated

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To calculate your Council Tax, you need to know the following:

  • The valuation band of your property in England, Wales, or Scotland
  • The amount your local council charges for that band
  • Whether you qualify for a discount or exemption from the full bill

If you are on a low income or receive benefits, you may be eligible for Council Tax Reduction (formerly known as Council Tax Benefit).

Your property may be put in a different band in some circumstances, for example if:

  • you demolish part of your property and do not rebuild it;
  • you alter your property to create 2 or more self-contained units, for example an annexe – each unit will have its own band;
  • you split a single property into self-contained flats;
  • you convert flats into a single property;
  • you start or stop working from home;
  • the previous owner made changes to your property;
  • there are significant changes to your local area, like a new road being built; or
  • a similar property in your area has its Council Tax band changed.

A full Council Tax bill is based on at least two adults living in a home. Spouses and partners who live together are jointly responsible for paying the bill.

Certain people are not counted (‘disregarded’) when working out how many people live in a property. Your Council Tax bill may be reduced if there are disregarded people living in your property. There are also discounts that may be available for households where everyone is a full-time student or if someone living in the property is disabled.

If you think you have overpaid your Council Tax bill you need to contact your local council to discuss a refund.

Source: HM Government Tue, 26 Nov 2024 00:00:00 +0100

Changes to CGT Investors’ Relief

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The rate of Capital Gains Tax (CGT) for Investors’ Relief will rise from 10% to 14% for disposals made on or after 6 April 2025. It will then increase further to 18% for disposals made on or after 6 April 2026. Additionally, the lifetime limit for Investors' Relief has been reduced from £10 million to £1 million for qualifying disposals occurring on or after 30 October 2024.

Investors’ Relief reduces the amount of CGT on a disposal of shares in a trading company that is not listed on a stock exchange.

To qualify for Investors’ Relief, you will need to subscribe for shares that meet the relevant qualifying conditions throughout the period you have owned them and that you have owned them for at least 3 years. The main conditions that must be met are:

  • they are ordinary shares in the company;
  • you subscribed for them in cash, and they were fully paid up when issued;
  • the company is a trading company or the holding company of a trading group;
  • none of the company’s shares are listed on a stock exchange; and
  • neither you nor any person connected with you is an employee of the company or of a company connected with it.

A claim should be made by the first anniversary of the 31 January following the end of the tax year in which the qualifying disposal takes place. For a qualifying share disposal in the current 2024-25 tax year (ending on 5 April 2025) a claim for Investors’ Relief must be made by 31 January 2027. A claim to Investors’ Relief may be amended or revoked within the time limit for making a claim.

Source: HM Treasury Tue, 26 Nov 2024 00:00:00 +0100

Seven year rule still applies – IHT PETs

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There are specific rules regarding the liability to Inheritance Tax (IHT) on gifts made during a person's lifetime. In most cases, gifts made during a person’s life are not taxed at the time they are given.

These lifetime gifts are referred to as "potentially exempt transfers" (PETs). The gift becomes exempt from IHT if the giver survives for more than seven years after making the transfer, commonly referred to as the seven year rule. There were expectations that this rule might have been changed as part of the Budget measures, but no changes were made.

If the giver dies within three years of making the gift, the IHT treatment is as if the gift was made upon death. If death occurs between three and seven years after the gift, a tapered relief applies.

The IHT rates on the amount exceeding the IHT nil-rate band are as follows:

  • 0 to 3 years before death: 40%
  • 3 to 4 years before death: 32%
  • 4 to 5 years before death: 24%
  • 5 to 6 years before death: 16%
  • 6 to 7 years before death: 8%

If you give away an asset but continue to benefit from it, this is considered a “gift with reservation,” and the value of the asset will still count towards your estate. Examples of gifts with reservation include:

  • Giving your home to a relative but continuing to live in the gifted property.
  • Giving away a caravan but still using it for holidays without charge.
  • Donating a valuable painting but still displaying it in your home.
Source: HM Revenue & Customs Tue, 26 Nov 2024 00:00:00 +0100

Gifts of land and buildings to charities

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There are special rules in place for taxpayers who make gifts of land and buildings to charity. This can include Income Tax and Capital Gains Tax (CGT) relief provided all the necessary conditions are met. There are also reliefs available where taxpayers sell a property to a charity for less than its market value. Tax relief may also be available if a lease is granted to a charity that is rent-free or below a market rent.

When qualifying assets are donated, the market value of the asset is deducted from the taxpayer’s total taxable income for the tax year (6 April to 5 April) in which the gift or sale to charity occurs.

Taxpayers are exempt from paying Capital Gains Tax (CGT) on land, property, or shares given to charity. However, if the taxpayer sells the asset for more than its original cost but less than its market value, they may owe tax. In such cases, the gain should be calculated based on the actual amount the charity pays, rather than the market value of the asset.

If a taxpayer donates land or buildings, the charity may ask them to sell the asset on its behalf. Taxpayers can still claim tax relief for the donation, but they must keep detailed records of both the gift and the charity’s request. Without these records, they may be liable for CGT.

Source: HM Revenue & Customs Tue, 26 Nov 2024 00:00:00 +0100

Approaching the VAT registration threshold

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When approaching the VAT registration threshold there are important matters to consider. The VAT registration threshold is the point at which businesses must register for VAT with HMRC.

A business must register for VAT if:

  • their total VAT taxable turnover for the previous 12 months is more than £90,000 – known as the ‘VAT threshold’;
  • they expect their turnover to go over the £90,000 VAT threshold in the next 30 days; or
  • they are an overseas business not based in the UK and supply goods or services to the UK (or expect to in the next 30 days) – regardless of VAT taxable turnover.

With traditional VAT registration, businesses are required to collect VAT on their sales and pay it to HMRC even if customers have not paid their invoices. This can create cash flow issues, as the business must remit the VAT before receiving full payment from customers. This means that small businesses may struggle with cash flow due to VAT liabilities, especially if they do not have enough working capital to cover tax obligations while waiting for customer payments.

We would be happy to help businesses approaching the VAT registration threshold understand their options. There are a number of VAT registration options available. Making the wrong choice could have significant cash flow consequences. It may be possible to alleviate these difficulties by adopting the VAT Cash Accounting Scheme or VAT Flat Rate Scheme but take advice before making a decision as registration criteria apply; not all businesses would qualify.

Source: HM Revenue & Customs Tue, 26 Nov 2024 00:00:00 +0100

Landlords with undeclared Income

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The Let Property Campaign provides landlords who have undeclared income from residential property lettings in the UK or abroad with an opportunity to regularise their affairs by disclosing any outstanding liabilities whether due to misunderstanding the tax rules or because of deliberate tax evasion. Participation in the campaign is open to all residential property landlords with undisclosed taxes. The campaign is not suitable for those letting out non-residential properties.

Landlords who do not avail of the opportunity and are targeted by HMRC can face penalties of up to 100% of the tax due together with possible criminal prosecution. Taxpayers that come forward will benefit from better terms and lower penalties for making a disclosure. Landlords that make an accurate voluntary disclosure are likely to face a maximum penalty of 0%, 10% or 20% depending on the circumstance, and these costs would be in addition to the tax and interest due. There are higher penalties for offshore liabilities. 

There are three main stages to taking part in the campaign are notifying HMRC that you wish to take part, preparing an actual disclosure and making a formal offer together with payment. The campaign is open to all individual landlords renting out residential property. This includes, amongst others, landlords with multiple properties as well as specialist landlords with student or workforce rentals. Once HMRC have been notified of the wish to take part in the campaign, landlords usually have 90 days to calculate and pay any tax owed.

HMRC’s guidance for landlords wishing to make a disclosure has recently been updated to provide further information about who is affected by the Let Property campaign and how to notify HMRC.

Source: HM Revenue & Customs Tue, 26 Nov 2024 00:00:00 +0100

What does EBITDA stand for?

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EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It's a widely used financial metric that provides a measure of a company's operating performance, excluding the effects of financing, accounting, and tax decisions. By focusing on earnings from core operations, EBITDA offers a clearer view of a company’s profitability and cash-generating potential.

Why is EBITDA Useful?

  1. Standardisation for Comparisons:
    It allows analysts and investors to compare companies across industries or regions without accounting for differences in financing (interest), tax environments, and accounting practices (depreciation and amortisation).
  2. Focus on Operations:
    Excluding non-operational expenses like interest or tax, EBITDA highlights the efficiency and profitability of the core business.
  3. Cash Flow Proxy:
    Although not an exact measure of cash flow, EBITDA approximates the cash a business generates before paying off capital expenses, taxes, or interest.

Advantages of EBITDA

  1. Simplifies Analysis:
    EBITDA ignores factors like tax policies or depreciation schedules that vary by country or industry, making it easier to compare profitability.
  2. Evaluating Acquisition Targets:
    Often used in mergers and acquisitions to assess a company’s ability to generate cash and service debt.
  3. Non-Cash Adjustments:
    It eliminates the impact of non-cash charges (depreciation and amortisation), focusing on actual operational results.

Limitations of EBITDA

  1. Excludes Key Costs:
    By ignoring interest, taxes, and capital expenses, EBITDA can give an inflated sense of profitability, especially for capital-intensive businesses.
  2. Not a Cash Flow Substitute:
    While it’s a useful proxy, EBITDA doesn't reflect changes in working capital, capital expenditures, or actual cash flows.
  3. Potential for Misuse:
    Some companies may over emphasise EBITDA to mask issues like high debt levels or significant tax liabilities.
Source: Other Mon, 25 Nov 2024 00:00:00 +0100

What are your concerns?

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According to the Office for National Statistics as of October 2024, the primary concerns among individuals in the UK are:

  1. National Health Service (NHS): 85% of adults identified the NHS as a significant issue, reflecting widespread apprehension about healthcare services.
  2. Cost of Living: 84% of respondents highlighted the cost of living as a major concern, indicating ongoing financial pressures on households.
  3. Economy: 69% of individuals expressed concerns about the economy, underscoring unease regarding economic stability and growth.
  4. Crime: 60% of adults reported crime as a pressing issue, pointing to fears about safety and security.
  5. Immigration: 58% of respondents viewed immigration as an important issue, reflecting debates over immigration policies and their societal impacts.
  6. Housing: 58% of individuals identified housing as a significant concern, highlighting challenges related to housing affordability and availability.

These findings are based on data collected by the Office for National Statistics (ONS) between 2 and 27 October 2024.

Additionally, a Statista survey from October 2024 reported that 50% of UK respondents considered the economy one of the main issues facing the country, emphasizing the prominence of economic concerns.

Source: Other Mon, 25 Nov 2024 00:00:00 +0100

Car and van fuel benefit charges from 6 April 2025

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The vehicle benefit charges for 2024-25 were announced at Autumn Budget 2024. The government will introduce legislation by statutory instrument in December 2024 to ensure the changes are reflected in tax codes for tax year 2025-26.

Where employees are provided with fuel for their own private use by their employers, the car fuel benefit charge is applicable. The fuel benefit charge is determined by reference to the CO2 rating of the car, applied to a fixed amount. The car fuel benefit charge will increase in 2025-26 to £28,200 (from £27,800).

The fuel benefit does not apply when the employee pays for all their private fuel use.

The standard benefit charge for private use of a company van will increase to £4,020 (from £3,960). A company van is defined as ‘a van made available to an employee by reason of their employment’. There is an additional benefit charge for fuel for a van with significant private use. The limit will increase in 2025-26 to £769 (from £757). If private use of the van is insignificant then no benefit will apply.

Source: HM Treasury Tue, 19 Nov 2024 00:00:00 +0100

What is a discretionary trust?

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A trust is an obligation that binds a trustee, an individual or a company, to deal with assets such as land, money and shares and which form part of the trust. The person who places assets into a trust is known as a settlor and the trust is for the benefit of one or more ‘beneficiaries’. The trustees make decisions about how the assets in the trust are to be managed, transferred or held back for the future use of the beneficiaries.

IHT planning can involve the careful use of trusts. There are a number of types of trusts which are subject to different tax rules. The main types to be aware of are bare trusts, discretionary trusts, interest in possession trusts and mixed trusts.

A discretionary trust is a type of trust where the trustees have some authority to decide how to distribute income and capital among the beneficiaries. Unlike fixed trusts, where beneficiaries have a set entitlement, discretionary trusts allow trustees to exercise their discretion based on various factors, such as the trust deed, the beneficiaries' needs and circumstances. Trustees must act in the best interest of the beneficiaries and follow the terms of the trust deed

Discretionary trusts are sometimes set up to put assets aside for:

  • a future need, like a grandchild who may need more financial help than other beneficiaries at some point in their life; or
  • beneficiaries who are not capable or responsible enough to deal with money themselves.
Source: HM Revenue & Customs Tue, 19 Nov 2024 00:00:00 +0100

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