If you are in a marriage or stable relationship, then buying as Joint Tenants is probably fine. With this method, you own the property jointly, you split income and costs equally and, on the death of one owner, the other owner automatically inherits the deceased person’s share of the property. This is the most common way married couples own their family home.
If you are in a relationship that has yet to be shown to be stable or long-term, then buying a property as Tenants In Common might be better. This way you each own an individual share of the property, which you can theoretically sell to a third party without the agreement of the other owner (although any mortgage lender may have to be satisfied). Also, if one of you dies, your Estate inherits your share of the property – not the other owner.
For buy-to-let properties, buying as Tenants In Common will generally allow couples to buy/own the property in the most tax efficient proportion – directing rental income to the lower earning person. However, any later change to the ownership proportion, could create a sale for Capital Gains Tax purposes. For married couples this is not a concern, but for unmarried couples this should not be done lightly.
If couples buy a property as Joint Tenants – and subsequently wish they owned it as Tenants In Common - a solicitor can fix this by drafting a simple Declaration of Trust, which defines the ownership proportions. A form 17 has to be submitted to HMRC as part of this process.
My investment property earns annual rent of £15,000 and is my only income. Should I transfer half to my husband to reduce my Capital Gains - he earns £60,000 p.a.
Transferring assets between husband and wife can reduce Capital Gains Tax – but timing is important
Possibly – but not yet. As he is currently a Higher Rate Taxpayer, transferring half the ownership to him now will result in him paying 40% tax on his share of the rent while you currently pay no more than 20% on it.
There happens to be no Capital Gains Tax on transfers between spouses so you don’t need to rush ahead with the transfer. It is probably better to keep things as they are, then, if you decide to sell the property, you should find out the likely Capital Gain, and Tax, for selling the property as sole owner. Then work out the same taxes for joint ownership and decide if you will benefit by transferring part of the property to your husband. It may be worth consulting an accountant or solicitor about owning the property as ‘tenants in common’.
Transferring from a sole-trader or partnership, to a Limited Company is sometimes recommended by accountants for tax planning reasons, or to benefit from Limited Liability, and they will consider the following issues.
Work out which side of a tax year end to transfer the business because this decision will affect taxable income (and rates) between tax years.
A Company is a separate legal entity; this needs to be reflected in all legal documents including invoices, contracts, your website and any insurance policies.
Capital Gains Tax and hold-over elections (s.162/s.165 elections):
Transfer of a business can result in Capital Gains Tax. Valuation of assets (particularly ‘goodwill’) may be necessary and ‘hold-over elections’ considered and, if necessary, submitted to HMRC in order to reduce/postpone Capital gains Tax.
I rent out my house and my mortgage interest is bigger than my rental income. Can I claim tax relief on this loss? And do I need to tell HMRC?
Yes, you can claim tax relief on a loss. But only against other net rental income - either in the same year or carried forward to future years.
I would advise you to notify HMRC that you are renting out your property by requesting a Tax Return. It will then be the case that any net losses you make are on the record, and can get future tax relief.
There is a web page that gives guidance on who needs to complete a tax return: http://www.hmrc.gov.uk/sa/need-tax-return.htm
Bad news for small businesses! When a Company/business goes bust, or into liquidation because it’s insolvent, the liquidator pays cash out in a specific order. Some creditors rank more highly than others, for instance secured bank loans and employee wages rank highly and trade creditors generally rank at the bottom of the list. HMRC has been ranked at the bottom of the list for many years but, from April 2020, 4 different taxes will become preferred and rank higher than normal trade creditors. These taxes are; Income Tax, VAT, CIS tax and Employee’s National Insurance. This means that, soon, trade creditors will rank even lower as a creditor when trading with a business that suddenly goes bust. But, two other taxes - Corporation Tax and Employer’s National insurance - will continue to rank at the bottom with trade creditors.
Contractors, who work through their own Limited Companies, sometimes think that the 24 Month Rule and IR35 are connected but they are not. You are caught by IR35 if you are working more like an employee than a self-employed person and in this case you would have to apply PAYE and NI to your sales income. The 24 month rule relates to travel and subsistence expenses. If you go to a work site which is temporary, you will get tax relief on your travel and subsistence, but if you work there for more than 40% of your time for more than 24 months, you must stop claiming for these costs. So, it is quite possible to be caught by the 24 month rule but to be outside of IR35.
If you sell digital products to EU consumers, and these require nil/minimal human intervention, you need to register for VAT in each EU country where the customers are based. The simplest way to do this is to join the UK VAT Mini One Stop Shop (MOSS) which will register for you. Google ‘HMRC VAT MOSS’ to find out more.
Under MOSS, you must charge foreign VAT on affected sales (different EU nations have different VAT rates), file a MOSS return every calendar quarter, and pay over any foreign VAT, charged by you, to HMRC. For small numbers of such sales, you could potentially avoid the issue by adding a human intervention to the sales process, for instance making a follow-up call. This then makes it a UK sale, rather than an EU sale, so you can then just charge UK VAT.
I’ve been doing part-time photography and I’m also employed full-time. My photography made a loss - can I get a tax refund?
Well, if you have made a serious time commitment to make the photography work as a business, then you have quite possibly made a “trading loss”. If you make a trading loss, you can set it against your other income – including your employment income – which could then result in a refund of tax. However, if you only made a minimal time commitment, then it will be seen as receiving a bit of income from a hobby. In this case HMRC would probably not allow the claim for loss relief. This is a very grey area with no clearly defined criteria but the question of time commitment is crucial.
Entrepreneurs’ Relief is a reduced rate of Capital Gains Tax that applies when ones sells certain business assets; or all/part of a business; or more than 5% of shares in a small company in which you work or hold office. It does not apply to non-business assets such as disposal of an investment property.
If you qualify for (and claim) Entrepreneurs’ Relief, you pay Capital Gains Tax at 10% - instead of the normal rate for such assets. Since 6th April 2017, the normal Capital Gains Tax rates for the disposal of business assets have reduced to 10% and 20% (depending on your total taxable income and capital gains). So, although Entrepreneurs’ Relief is still useful, it is less valuable than it used to be.
One of the most common times that taxpayers claimed Entrepreneurs’ Relief was when incorporating a sole-trader business (or partnership) – because Entrepreneurs’ Relief could be claimed on the value of any goodwill transferred. With effect from December 2014, the right to claim Entrepreneurs’ Relief when transferring one’s business to one’s own company was removed.
Another area where Entrepreneurs’ Relief was commonly claimed was when winding up a Company and making a capital distribution to the shareholders. It was the case that if one ceased trading and wound up one’s Company, any cash distributed to the director/shareholders could be treated as Capital rather than income and Entrepreneurs’ Relief could be claimed. Now this law has been tightened and if the taxpayer concerned returns to that trade within two years of winding up the original Company, then the cash distributed will be taxed as dividends and subject to income tax/dividend tax rather than Capital Gains Tax. This could mean HMRC going back and taxing the cash at 32.5% rather than the 10% Entrepreneurs’ Relief rate!