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If this is your first year of filing your personal tax return or you’re just generally unsure, read our top tips about the self-assessment deadline.

Make sure you’re registered

If you’re registered you will have been given a Unique Taxpayer Reference (UTR), you should also have had correspondence from HMRC to confirm that you’re registered. If you are looking to file it yourself, you will also need a Government Gateway login.

If you’re not registered, you will need to be quick because HMRC only provide your UTR by post, which could take a while.

If you’re not sure, HMRC can answer any queries as long as you know your National Insurance number.

Deadlines are there to be adhered to

Don’t ignore the deadlines! If it comes to February and you haven’t filed your return you will be hit automatically with a £100 fine – and that’ll just be for starters.

If you really aren’t able to meet the deadline, make the taxman aware of any genuine reasons as to why you won’t meet the deadline. But don’t depend on a deadline extension!

What if I don’t need to pay any tax?

You will still need to submit a self-assessment form even if you don’t need to pay any tax. The tax man still wants to know, no matter how little you earned.

Be honest!

Any earnings are classed as an income so even if you sell crafts on Ebay, they will want to know about it.

Property rental should be included on your self-assessment  

Even if you’re making a loss on your rental property, you still need to state whether you’re up or down in terms of earnings.

Ask for help if you need it

If you’re unsure of any of the above, we’re happy to help and can ensure quick turnaround times.

As a business owner you can choose how to extract funds from your company. Unfortunately almost all the funds you choose to remove from your business will create a tax charge, therefore it is more practical to keep a proportion of the money invested in your company.

There are different tax charges dependent on how your fund extraction is categorized. For example you could take a salary, dividend, interest, rent or a loan as a type of fund from your company. This blog will provide the advantages and disadvantages of taking either a salary or dividends from your company.

Salary

As long as the work you complete is a reasonable reflection of the projected salary, you can choose a salary as a form of fund extraction. Your company will have to set up a PAYE scheme and report the salaries that are paid, tax under PAYE will need to be paid on a monthly basis.

The below table shows the amount of tax and national insurance you would pay on an annual salary:

Annual income Tax rate NIC rate
Up to £5,876 nil nil
£5,876 – £8,164 nil 0%
£8,165 – £11,500 nil 12%
£11,501 – £45,000* 20% 12%
£45,001* – £150,000** 40% 2%
More than £150,000 45% 2%

 

*For Scottish resident taxpayers this threshold is £43,000.

**Earnings above £123,000 will result in a loss of personal allowance subjecting more of your income to tax.

 

The main advantages of choosing a salary is:

  • You have a personal income
  • Even if the company makes a loss you will still be paid a salary
  • If you take a salary between £5,876 and £8,164 it attracts no NIC’s therefore no tax is paid. A salary of £8,164 also counts as a qualifying year towards state pension.
  • The company gains corporation tax relief on the total salary at 19%

Dividend

You can extract funds through a dividend, however the company has to make a profit to be able to distribute dividends. If you take all of your funds from the company as a dividend you will pay the following tax rates:

Annual slice of income Tax rate
Up to £11,500 nil
£11,501 – £16,500 0%
£16,501 – £45,000 7.5%
£45,001 – £150,000* 32.5%
More than £150,000 38.1%

 

*Earnings above £123,000 will result in a loss of personal allowance subjecting more of your income to tax.

The main advantages of choosing a dividend is:

  • Lower tax rates than a salary, which can result in you paying less personal tax
  • Higher tax-free threshold

 

To take a salary or a dividend…

Sarah is the director of an interior design company, she has paid herself a minimum salary of £8,164. This is to ensure she has maintained her state pension entitlement. Sarah has made a profit before tax of £50,000 this year and would like to extract that as either a dividend or salary. She wants to maximise her net income.

If Sarah were to take an additional salary or bonus she would pay £9,540 in tax and £4,562 in NICs, therefore will take home £37,998 including the £8,164. The company will also pay class 1 NICs of £6,063.

If Sarah extracts the available profits as a dividend, she will take home £45,336 as she will pay tax of £3,328 (Includes the salary). The company will also pay corporation tax of £9,500.

By taking dividends instead of a salary, Sarah will take home an additional £7,338.

As always if you have any questions get in touch on 0845 054 8560.

The UK tax system has a variety of specifications and guidelines that should be followed strictly as deviation can result in serious penalties. Reliefs and allowances are also offered as they encourage spending and investment; these should also be followed just as strictly as they can also result in penalties.

To ensure you avoid penalties we have generated a tax planning guide with tips to help you save on your personal taxes:

ISA’s

As long as you’re eligible, you can open an Individual Savings Account (ISA) to help save on income tax. ISA’s are tax free and you can receive a 25% bonus on your savings. ISA’s are particularly useful if you are a first time buyer, there is a help to buy ISA. The maximum investment into all ISAs is £20,000 per adult per year.

Distribution between family

Sharing income or gains around the family can reduce the marginal tax rates for the highest earners, and make use of the allowances available to those on lower incomes. To be most effective, the lowest earner must own the investment or bank account which produces the gain. If you have a family business, ensuring each family member is either employed by or has a share within the business can assist with income sharing and therefore tax savings.

Marriage allowances

Marriage has a whole host of benefits, including a variety tax benefits. Married couples or civil partners can generally transfer assets between them without charges. A spouse with a high income can transfer assets into joint names to save on tax.

Where both spouses or civil partners pay tax at no more than 20%, and one of them doesn’t use all their personal allowance, that person can transfer £1,150 of their personal allowance to their partner. This saves tax of £230 in 2017/18. This marriage allowance can also be claimed for 2015/16 and 2016/17.

Children

If your household is claiming child benefit and the highest earner in the house has an income of £60,000 or more, the benefit will be clawed back as a tax charge. To avoid this you can either opt out of receiving child benefit or arrange income sources so neither parent earns over £50,000.

As long as you are eligible, it is important that you claim child benefit, even if you opt out of receiving the payment for a period. This is because the benefit claim provides national insurance credits for the non-earning parent, and in-turn helps towards building state pension entitlement.

Sundry income

Earning small of amounts of extra income can be tax free as long as they fit within the guidelines that follow:

  • £7,500 from letting a room in your own residential home
  • £1,000 from letting a property which doesn’t qualify for rent-a-room relief
  • £1,000 from providing services, hiring assets or selling goods

Employee benefits

You may be offered non-cash benefits by your employer, those that are NI and tax free are worth taking up. Take a look at our employee benefits blog post to see which benefits are tax free.

Arrangements such as salary sacrifice can be taxed as if they are salary, so we would always suggest gaining advice before going ahead with such an agreement as they can be very complex.

Employee pension schemes

Pension’s are probably one of the most tax-efficient savings methods. Your employer will receive tax relief on the full amount paid into a pension scheme as long as the contributions are reasonable for the work you do. The money contributed from both yourself and your employer will be built up inside a fund, tax-free.

The only time you will start to pay tax on a pension is if you go over the annual pension allowance, which is usually £40,000.

You should always take qualified independent financial advice before making a significant investment into a pension fund, or other savings scheme, and beware of pension scammers. John, our financial adviser would be happy to help with any pension advice John.Winstanley@ascendis.co.uk

For any further information or advice, get in touch with your client manager or call us on 0845 054 8560.

You should have already heard that the UK’s income tax system as we have known it for many many years is about to change. April 2018 will bring the changes from paper formatted records into digital format. Below we have answered some questions on what Making Tax Digital means for you.

What is Making Tax Digital?

It is a tax initiative created by HMRC to align all internal tax systems. It will help both individuals and businesses to have all their tax affairs in one place, as each taxpayer will have one account whereby they report all their different taxes.

Why now?

The Office for National Statistics reported that in 2016 82% of all adults use the internet daily, with 70% accessing via a mobile phone. Therefore, moving the tax system into a digital format has been a long time coming and will hopefully make submitting records a lot easier and thus leaving more time to other important matters.

How will Making Tax Digital affect me?

If you own your own business, are self-employed or a landlord, you will be required to keep your records in a digital format, and also send HMRC an electronic quarterly update, and possibly quarterly payment obligations.

When are the changes being introduced?

MTD is being staged in over the next 3 years, below is a breakdown of when you could be staging:

April 2017 – Initial MTD testing – HMRC are testing the system with a few selected businesses

April 2018 – Non-incorporated business and landlords over the £85,000 VAT threshold

April 2019 – Business with turnover between £10,000 and £85,000, and landlords with receipts exceeding £10,000

April 2020 – Limited companies

For example

If you are a limited company with a financial year end of August, you will start your digital reporting from August 2020.

How will it work?

If you are a limited company with a financial year end of August, you will start your digital reporting from August 2020.

It will require quarterly filing from businesses and landlords onto a digital system, thus invalidating the need for annual tax returns. However, year-end accounts are still necessary to reconcile quarterly payments and claim relief, if need be. A year-end declaration will be required rather than self-assessments and corporation tax returns, the main differences will be that HMRC are able to pre-populate return figures such as employment income.

Are there any exceptions to MTD?

HMRC have confirmed a few exemptions such as people with disabilities who aren’t able to use a computer, or if you have a seasonal business. However, each exemption is assessed on a case by case basis.

If you have any further questions surrounding Making Tax Digital, please contact us on 0845 054 8560 and we’d be happy to answer any questions.

The below article is taken from AccountingWeb

It explains how the new exemption for trivial benefits works.

Basic rules

The basic rule is that an employer can now provide trivial benefits such as a bunch of flowers, a box of chocolates, a meal out, without having to put it on the P11D and without any tax or national insurance for either employer or employee. The employer will also be entitled to claim income tax or corporation tax relief on the cost.

There are three key conditions:

  • the trivial benefit must cost no more than £50
  • the benefit must not be a reward for services or in any way contractual
  • the benefit must not be cash or a cash voucher

The legislation does not impose a limit on the number of trivial benefits that an employer can provide. It can be suggested that an employee could potentially clock up £12,500 a year of tax free benefits. This would equate to a £50 benefit on each of 250 working days in the year.

Suppose you buy four £30 bottles of champagne to give to each of your employees every so often. If you take them into the office and say “Hey guys – the numbers for this month are looking great so here’s a bottle of champagne”. That would be a reward for services and so would be taxable and NICable. But if you were to say “The sun is out, the sky is blue – I’m in a good mood and this is for you!” – then the champagne would be a trivial benefit.

Directors

The next question is whether director/shareholders can enjoy trivial benefits themselves, and the answer is “Yes!”

But HMRC knows what directors can be like, so the legislation imposes an annual cap of £300 on exempt trivial benefits provided to a director or office-holder of a close company (including benefits provided to members of their family or household).

Gift cards

Say you plan to use the company credit card to buy 12 gift cards with £50 credit on each of them. Over the next few months you will occasionally give one of these to yourself and one to your partner (who is also a director of the company). These gift cards cannot be exchanged for cash.

How much will you save? Each of you would have to pay £126 tax and NI on £300 of extra salary (assuming each is in higher rate bracket) and the company would pay £41 of secondary class 1 NIC. So between you, £335 is saved.

If you would like to discuss any of the above, please call us on 0161 359 4227/0845 054 8560

 

Owning a property portfolio can create a challenge for even the most experienced investor. As of 2015, the Government’s amendments to property taxes has left most Property Investors with the question of how to make their investments financially viable.

Changes to the availability of mortgage interest relief are due to start affecting rental profits from 2017/18, along with changes to the long-standing concept of the Wear and Tear Allowance. Other barriers to entry to the property marketplace include the increasing SDLT costs for buy to let and second homes over £40,000.

In many cases, property is commonly held personally either by the individual or as part of a partnership. These portfolios are often built up over a number of years, going through the property lifecycle and morphing into a property business. Holding a property in this manner allows freedom of choice in respect of the type of property, i.e. it can be either residential or commercial, whilst also offering the investor flexibility with the asset, access to income and capital, and all within a reasonably straightforward legal and compliance environment. The question these businesses now face is what to do next?

A common theme amongst property investors is around the concept of incorporating their property business, that is taking the investors’ property business and incorporating into a UK limited company. This is suitable for those who run an active property business and want to create an Income Tax (“IT”) and Capital Gains Tax (“CGT”) efficient environment.

Whilst the advantages and disadvantages of various ownership structures are often discussed, for many property investors who wish to consider a change of ownership structure, the CGT consequences of property incorporation can be prohibitive without the ability to claim Incorporation Relief under the Taxation of Chargeable Gains Act (TCGA) 1992

Incorporation Relief

Incorporation Relief allows the investor to defer their charge to CGT by rolling over the chargeable gain arising on transfer of the property to the company against the base cost of the new company shares. Therefore, the gain will become subject to CGT when the shares in the new company are sold.

Incorporation Relief is automatic and no election is required by the taxpayer.

There are three conditions to be satisfied before Incorporation Relief is given:

  1. The business transferred must be a “going concern”;
  2. All assets (except cash) must be transferred to the company to obtain the relief;
  3. The consideration paid to the partner/individual by the company must be wholly or partly in shares.

While the partner/individual, when determining the availability of this relief, can manage Conditions 2 and 3, the concept of “business” in condition 1 is critical. Below, the concept of “business” for the purposes of Incorporation Relief is considered and the practical steps a Property Businesses can take to ensure they qualify for this valuable relief are identified.

Transfer of a ‘Business’ as a going concern

Business is not defined for the purposes of TCGA 1992, so HMRC agree that the word must be given its normal meaning. Whilst the term ‘Business’ includes a `trade’, the two words are not synonymous.

The question arises whether the individual/partnership conducts a business for the purposes of Incorporation Relief, or whether it would be considered a passive investment. This is a question of fact and in the absence of clear definitions in legislation or from HMRC, each case must be judged on its own merits.

Six criteria for determining whether an activity is a business was set out in the case of Customs and Excise Commissioners v Lord Fisher [1981] (“the Fisher case”) heard in the High Court in 1981:

  1. Whether the activity is a ‘serious undertaking earnestly pursued’;
  2. Whether the activity is an ‘occupation or function actively pursued with a reasonable or recognisable continuity’;
  3. Whether the activity has ‘a certain measure of substance as measured by the quarterly or annual value of taxable supplies made’;
  4. Whether the activity was ‘conducted in a regular manner and on sound and recognised business principles’;
  5. Whether the activity is ‘predominantly concerned with the making of taxable supplies to consumers for a consideration’; and
  6. Whether the taxable supplies are ‘of a kind which…are commonly made by those who seek to profit by them’.

Conclusions

In the absence of a definition of a “Business” for the purposes of claiming Incorporation Relief, determining a client’s entitlement to the relief is a subjective exercise. As the burden of proof lies on the taxpayer, it is imperative that the partner/individual maintains their records to ensure that any enquiry into the claim can be meet with a robust and convincing response.

All evidence should point towards the property business being a serious undertaking earnestly pursued, and not a passive holding of investments.

As the property environment continues to come under further scrutiny and taxpayers, owning residential property, look at ways of improving their tax position, advisors should have a selective and robust procedure for analysing a scenario. This will ensure that the business is a qualifying business for the purposes of Incorporation Relief, to avoid challenges in the future.

If there is anything in this article that you would like to discuss further, please contact Richard Fleming or Andy Wilson

A complex tax system in this country can make it difficult to understand your liability as a company director. Failing to register for VAT for example, or submit your tax payments as an employer, could result in HM Revenue and Customs taking action against you, including issuing a range of financial penalties.

Keeping up with current and new legislation as a director is crucial to your company’s success, so here we look at five of the most common types of tax that you should be aware of as a company director.

Corporation tax

Corporation tax is paid on the taxable profits of your company, and currently stands at a rate of 20%. As soon as the company was formed you should have registered to pay this tax, which is applied to all profits, as there is no equivalent to the personal allowance for limited companies.

Corporation tax becomes due nine months and one day after the end of your accounting year, and you have an obligation to complete a CT600 which is the annual corporation tax return.

So what might taxable profits include? Profits made during normal trading activities, most investments, and profits from the sale of assets are generally included in the figure. You may be entitled to claim reliefs and capital allowances to reduce your corporation tax bill.

Income tax

If you are director of a limited company, you may be liable to pay income tax on the dividends and salary you take out of the business. The lower threshold is currently £11,000, so any income above this amount will be taxed under the Pay As You Earn scheme, and deducted at source by your company’s payroll system.

A new dividend taxation regime came into force on 1st April 2016, whereby individuals have a tax-free dividend allowance of £5,000 in addition to the personal allowance mentioned above.

New dividend tax rates have also been introduced:

  • Basic Rate: 7.5%
  • Higher Rate: 32.5%
  • Additional Rate: 38.1%

National Insurance

If you are paid a salary of £8,060 or more from your company, then you’ll be liable for Class 1 National Insurance contributions as an employee. The company itself will also need to pay Class 1 employer’s contributions to HMRC.

The New Employment Allowance was introduced in 2014, however, which means that you can claim back up to £3,000 of employer’s Class 1 National Insurance contributions in a tax year, if you are the director and you employ other staff.

VAT

From 1st April 2016, the threshold to register for VAT is £83,000. If your turnover exceeds this figure at any point during a rolling 12-month period, you must inform HMRC. Failing to register for VAT, non-payment of the tax, or sending late payments, will all incur financial penalties.

VAT is paid on many goods in the UK, and your company collects it on behalf of HMRC. The difference between how much you receive in VAT, and how much you pay, is the amount sent to HMRC.

The standard rate of VAT is currently 20%, but schemes are available to make the collection and reporting process easier for eligible companies. For example:

  • Cash accounting: helps eligible companies with their cash flow, as VAT is only paid out once the money has been received by the business.
  • Flat rate scheme: this simplifies the calculation process, and makes administration easier.

Business rates

Business rates are similar to the council tax you pay on your home, so if you operate from business premises you will probably be liable to pay this type of tax. The money received from non-domestic properties is used to pay for local services, including education and social care.

The amount you pay is based on the rateable value of your premises multiplied by the government-set business rate multiplier, which is reassessed every few years. Two different figures are used – the ‘standard’ multiplier and a small business multiplier which takes account of lower turnover levels.

Rateable values are generally reassessed every few years, and there are various reliefs available to eligible businesses. Some premises such as farm buildings receive automatic exemption from business rate liability, and there are various other reliefs available depending on the size and nature of your business.

Home-based companies are not always subject to business rates, but this depends on whether you employ staff to work from your home, and also the nature of the business.

Ascendis can ensure you comply with all your tax liabilities as a company director, and avoid the hefty penalties imposed by HMRC for late or non-payment.

 

Call if you want to discuss any of the above on 0161 359 4227/0845 054 8560

The tax implications of taking a director’s loan.

HMRC introduced provisions a number of years ago which targeted company directors who took loans from their personal companies. Prior to these provisions they could effectively avoid income tax and national insurance charges by paying themselves through loans or advances instead of taking dividends or salary.

The tax charge introduced was known originally as ‘section 419’ and later as ‘section 455’. The tax charge was set at 25% of the loan to ‘participators’.

Where the loan is not repaid within nine months of the company’s accounting period, the rate of tax charged on loans to participators and other arrangements will increase to 32.5%. The Chancellor has specifically chosen this percentage charge to align it to the dividend upper rate.

Effect of the increase
Remember that the s.455 ‘charge’ is not actually a corporation tax charge similar to that on year end profits. The company pays it with regard to the amount of the outstanding loan but if the loan is repaid within the allotted time then the amount is repaid. The new tax on dividends may also impact on a director’s decision whether to repay their loans by way of distributions.

Points to remember:

  • It is often assumed that a director is also a participator – not necessarily so.  There are some exemptions for a director’s loan where that person does not have a material interest in the company.
  • The s.455 tax is due nine months and one day after the end of the accounting period in which the liability arises. This means that if the accounts are prepared, and the CT 600 produced, towards the end of the nine month filing deadline there will be a much higher cash outflow due to HMRC – made up of the normal corporation tax charge and also the s.455 charge. This might put a strain on the finances of the company.
  • If you’re a shareholder and director and you owe your company more than £10,000 (£5,000 in 2013 to 2014) at any time in the year, there will be a taxable benefit for the director and a P11d will be need to be filed. This will also mean additional entries on the director’s personal self assessment return.
  • When the loan is repaid either in full or in part, the s.455 tax is fully or proportionally repayable. The bad news is that this is not due back until after nine months and one day after the end of the Corporation Tax accounting period when the loan was repaid, written off or released. You won’t be repaid before this. This means that the charge paid to the government may be out of the company’s working capital for many months.
  • For accounting periods which straddle 6 April 2016 different rates will be applied to separate loans made or benefits conferred before, and on or after, 6 April 2016.
  • Reclaiming the charge is not always straightforward. If the company is reclaiming within two years of the end of the accounting period when the loan was taken out, the details can be included on form CT600A when they prepare a company tax return for that accounting period or amend it online.

Form 2LP can also be used with the company tax return instead if either:

  • the tax return is for a different accounting period than the one when the loan was taken out
  • the company is amending the tax return in writing.

If the company is reclaiming two years or more after the end of the accounting period when the loan was taken out, you will need to fill in form L2P and either include it with your latest company tax return or post it separately.

Questions on the subject asked by clients:

  1. Why not repay the loan just before the deadline, then immediately re-take the loan shortly into the new accounting period?
    Where a loan is repaid and then a similar sum advanced shortly after, there are measures that apply from 2013 that mean that the repayment may be matched to the later advance, the effect being that there is no actual repayment
  2. If there are two directors with one loan in credit and the other in debit can we amalgamate the two to avoid a charge?
    Two directors (possibly spouses) may agree between them to allow an offset so that one’s loan credit is set against the other’s loan debit. However, HMRC may not accept the offset unless there is evidence to prove the intention to create a joint loan account. Typical forms of evidence to use would be formal agreements and also board meeting minutes.

    Note that any agreements and minutes should be made at the time of the decision to offset and should not be back dated.

In addition, if one individual has two loan accounts that are accounted for separately for reporting purposes and one is overdrawn HMRC may try to resist aggregating them for tax and so will not treat the two as one net balance.

Summary
Due to the increased cost of borrowing and the interaction with the new dividends tax, companies and their participators must plan ahead so that they are aware of the tax liabilities and when they need to be paid.

Call us on 0161 359 4227/0845 054 8560 if you have any questions on the above.

When it comes to renting a room in your property you have two options on how to deal with this income:

  • You can treat the income as taxable rental income and from this you can deduct an apportionment of allowable property costs to determine your taxable rental profit
  • You can use rent a room relief

Rent a room relief is available to individuals renting out a room (or part of their home) in their own private residence.

There are a number of conditions attached to the relief with it being key that the accommodation is furnished and is part of the individuals main or only home for the tax year the relief relates to.

The relief cannot be claimed when the property is let to a business (so you can’t rent your room to your limited company and claim the allowance).

As long as the rental income is below the rent a room scheme threshold for the tax year then the income is automatically tax free.

However, no costs are allowed to be offset against your rental income if you use this scheme.

Also bear in mind that your rental income will include any money you receive from your lodger for meals and services such as cleaning.

In 2015/16 the rent a room relief limit was £4,250 per household but for the 2016/17 tax year (since 6th April 2016) the allowance has increased to £7,500 per household.

If you share the rental income with someone else such as a partner or spouse then the allowance is shared between you, so for the 2016/17 tax year it would be £3,750 each if applied on an 50/50 basis.

As long as your rental income is below the threshold then the scheme applies automatically and you won’t need to report anything on your tax return.

However, if you earn more than the rent a room allowance you have two options on your tax return:

  • (A) You can opt in to the rent a room relief allowance and pay tax on any rental income above it
  • (B) You can record your rental income and allowable costs on the property section of your tax return in the traditional manner

Where your rental income is above the rent a room allowance, HMRC will automatically assume option (B) unless you choose to use rent a room relief by ticking this option on your tax return.

You can change which method you use from tax year to tax year, which can be handy if your circumstances change.

Sometimes it can be beneficial to not use the rent a room scheme and instead report the rental income and costs on the property pages of your tax return.

For example, if you have a portfolio of rental properties and with apportioned costs the rental of a room in your home generates a loss, you could instead offset that loss against other property income, which would be more tax efficient than using rent a room relief.

The new tax changes for holding a rental property as an individual, or in a limited company, will need to be carefully considered by landlords. 

These changes impact:

  • allowable expenses
  • stamp duty
  • interest costs
  • treatment of future gains.

Wear and tear allowance
This has been abolished for individuals from 6 April 2016 and for companies from 1 April 2016. In its place landlords are able to claim as an allowable expense the actual cost of replacing furniture (such as tables, chairs and beds) and fittings (such as carpets and curtains). You can see the draft clauses; Clause 69: Property business deductions: replacement of domestic items and Clause 70: Property business deductions: wear and tear allowance; in the Finance Bill (No2) 2016

Stamp duty payable on purchase of property
An additional 3% stamp duty land tax is payable for properties purchased on or after 1 April 2016. This is to apply to both individuals and limited companies. There are detailed rules for individuals and for purchases through limited companies.

The surcharge applies to residential properties but not to commercial properties.

Interest payable on loans relating to the business
This measure will restrict relief for finance costs on residential properties to the basic rate of income tax and will be introduced over four years from 6 April 2017.

The measure will not affect companies renting out property, or individuals renting out commercial property or furnished holiday letting.

The measure will affect residential property in the UK and elsewhere, as well as mortgage interest, interest on loans to buy furnishings and fees incurred taking out or repaying mortgages or loans.

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:

Finance cost allowed in full                    Finance cost allowed at basic rate

Year to 5 April 2016          100%                                                            0%
Year to 5 April 2017          100%                                                            0%
Year to 5 April 2018          75%                                                            25%
Year to 5 April 2019          50%                                                            50%
Year to 5 April 2020          25%                                                            75%
Year to 5 April 2021          0%                                                            100%


Capital gains
In the March 2016 Budget it was announced that the capital gains tax rates for individuals would be reduced. However this reduction would not apply to sales of residential property. However, private residence relief (of principal private residence relief) is still available as before.

Basic Rate                 Higher or Additional
Taxpayer                    Rate Taxpayer

Rate on gains from residential property       18%                                   28%
Rate on gains from other assets                   10%                                  20%

Individuals are entitled to an annual tax-free allowance which is £11,100 for the year from 6 April 2016. It would seem that individuals selling shares in companies which own residential companies would be chargeable to capital gains tax at the lower rates shown above.

Companies pay corporation tax on their gains at the corporation tax rate (which for the year from 1 April 2016 is 20%). Companies can claim indexation allowance to reduce the taxable gain whereas individuals cannot.

With regards to the reduction in rate of capital gains tax, you can see the draft clause and schedules: Clause 72 and Schedules 11 and 12: Reduction in rate of capital gains tax; in the Finance Bill (No2) 2016

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