Adrian Mooy & Co - Accountants Derby

The VAT flat rate scheme is a simplified flat rate scheme which can be used by smaller businesses to save work. Under the scheme, businesses pay a set percentage of their VAT inclusive turnover to HMRC rather than the difference between the VAT that they charge and the VAT they suffer on the goods and services that they buy. The percentage that they need to pay depends on the sector in which they operate, and also on whether they are a limited cost business. The main advantage of the scheme is that it reduces the work in complying with VAT. For example, there is no need to record the VAT on purchases. However, for some businesses this may come at a cost, as the amount that they pay over to HMRC may be more than would be payable under traditional VAT accounting. Before joining the scheme, it is advisable to do the sums.

Eligibility

A business is eligible to join the scheme if it is VAT registered and it expects its VAT taxable turnover to be £150,000 or less in the next 12 months. This is everything that is sold that is not exempt from VAT. However, a business is not allowed to rejoin the scheme if it has used it previously and left within the previous 12 months. The VAT flat rate scheme cannot be used by businesses that use a margin or capital goods scheme, nor can it be used with the cash accounting scheme; instead, the flat rate scheme has its own cash-based method to determine turnover.

A business must leave the scheme if, on the anniversary of joining, its turnover in the last 12 months was more than £230,000 including VAT, or it is expected to be so in the next 12 months. A business must also leave if they expect their turnover in the next 30 days to be more than £230,000 including VAT.

The flat rate

The flat rate depends on the type of business. The percentages can be found on the Gov.uk website at www.gov.uk/vat-flat-rate-scheme. A business benefits from a discount of 1% in its first year of VAT registration.

Businesses that are classed as a limited cost business pay a higher rate of 16.5% regardless of the sector in which they operate. This is a business whose spend om relevant goods is less than either 2% of its turnover or £1,000 a year (£250 a quarter) if more than 2% of turnover. Where costs are close to 2% of turnover, the business may need to perform the calculation each quarter to ascertain whether they need to use the limited cost business percentage of 16.5% or that for their sector.

Not everything that a business purchases counts as ‘goods’ for the purposes of the calculation – only ‘relevant goods’ count. The main exceptions are services, such as accounting and advertising, car fuel (unless the business operates in the transport sector) and rent. Where a business incurs significant costs on services or fuel but their other goods amount to less than 2% of their turnover, they may be better off using traditional accounting. The limited cost business percentage of 16.5% of VAT inclusive turnover equates to 19.8% of VAT exclusive turnover, leaving only a narrow margin to cover any VAT suffered.

Example

A photography business joins the VAT flat rate scheme and in its first quarter has VAT inclusive turnover of £24,000 (£20,000 plus VAT). Its relevant goods in the quarter are £1,250. As this is more than 2% of the turnover, the business is not a limited cost business.

The flat rate percentage for its sector is 11%. However, as it is in the first year as a VAT registered business it benefits from a discount of 1%. Therefore, it must pay VAT of £2,400 to HMRC (10% of £24,000).

Capital goods

If you opt for the flat rate scheme, you will not normally be able to claim back VAT separately on capital goods unless they cost more than £2,000 and you do not intend to resell them.

Overview

• Many possible changes were the subject of speculation leading up to the Budget: this list includes things that have been ruled out, as well as changes that the Chancellor announced
• These key points include measures that were announced previously but are about to come into force
• Measures which will not take effect until future dates are listed separately below

​​​​​​​​​​​​Implemented immediately

• Capital Gains Tax rates for disposals on or after 30 October 2024 rise from 10% to 18% (basic rate taxpayers) and 20% to 24% (higher rate taxpayers); the higher rate for residential property remains 24%
• Lifetime limit for gains qualifying for Investors’ Relief is reduced from £10 million to £1 million for disposals on or after 30 October 2024
• Stamp Duty Land Tax surcharge for purchase of additional dwellings increased from 3% to 5% for purchases from 31 October 2024
• Rules tightened for close company loans to participators, transfers of UK pension funds abroad, Employee Ownership Trusts, Employment Benefit Trusts and liquidation of Limited Liability Partnerships to close loopholes from 30 October 2024

From January 2025

• Confirmation that VAT will apply to private school fees from 1 January 2025

From April 2025

• Increase in rate of Employer National Insurance Contributions (ERNIC) from 13.8% to 15%, together with reduction of Secondary Threshold from £9,100 to £5,000
• Increase in Employment Allowance for small businesses’ ERNIC from £5,000 to £10,500 for 2025/26
• Certain ‘double cab pickup vans’ to be treated as cars for some tax purposes
• Extension until March 2026 of the 100% first year allowance for qualifying expenditure on zero-emission cars and charging points for electric vehicles
• Abolition of the remittance basis of taxation for foreign domiciled individuals, to be replaced by a ‘residence-based scheme’
• CGT rate on disposals qualifying for Business Asset Disposal Relief increased from 10% to 14%
• CGT rate on ‘carried interest’ increased to 32%
• IHT Agricultural Property Relief to be extended to land managed under an environmental agreement with government or other approved bodies
• 40% business rates relief for retail, hospitality and leisure businesses for 2025-26 on values up to £110,000
• Charitable business rates relief no longer available for private schools
• Fuel duty remains frozen, and the temporary 5p cut announced in March 2024 will be extended to 22 March 2026
• Rate of interest on late paid tax will increase by 1.5 percentage points
• Security for certain tax reclaims increased by introduction of a requirement for a digital signature
• Above inflation increases in National Living Wage and State pension
• As previously announced, the advantageous tax treatment of Furnished Holiday Lettings no longer applies in 2025/26

From April 2026

• CGT rate on disposals qualifying for Business Asset Disposal Relief increased from 14% to 18%
• ‘Carried interest’ moved to the income tax regime, with a discount for certain qualifying disposals
• IHT Agricultural Property Relief and Business Property Relief at 100% will only apply to the first £1 million of combined value; above that limit, the maximum relief will be 50%
• IHT Business Property Relief restricted to 50% for all ‘unlisted’ shares which are quoted on recognised stock exchanges such as the Alternative Investment Market
• Tightening of rules on charitable tax reliefs and closure of an avoidance scheme involving company cars from 6 April 2026
• Confirmation of the introduction of Making Tax Digital for Income Tax Self-Assessment from April 2026

No change, or later

• Unused pension funds and death benefits payable from a pension will be included in a person’s death estate for IHT purposes from 6 April 2027
• No changes to the ability to draw tax-free lump sums from pension funds, or reintroduction of a lifetime allowance
• The freezing of personal income tax allowances and rate bands will end with 2027/28: inflationary increases will be reintroduced for 2028/29
• Corporation tax rates appear to be fixed for the duration of the Parliament
• Inheritance tax nil rate bands will be frozen at their present levels until April 2030 (extended by two years from the previously announced date); no change to the availability of the additional Residence Nil Rate Band
• ISA and Junior ISA investment limits fixed at their current levels until April 2030
• Company car tax rates announced for 2028-29 and 2029-30, to provide long-term certainty; the incentives for purchasing electric vehicles will be maintained
• Previous Government’s proposal to base High Income Child Benefit Charge on combined household income will not be taken forward – HICBC still based only on the income of the higher earner of a couple

The payment of National Insurance contributions is linked to entitlement to the state pension. If sufficient National Insurance contributions of the right type are paid for a tax year, that year counts as a qualifying year for state pension and benefit purposes. A person may also secure a qualifying year if they are awarded National Insurance credits for that year. This may be because they have low earnings or are in receipt of certain benefits, such as child benefit or carer’s allowance.

People reaching state pension age on or after 6 April 2016 need 35 qualifying years for a full state pension and at least ten qualifying years to receive a reduced state pension.

Different classes of NIC

Employed and self-employed earners pay different classes of contribution. Employed earners pay Class 1 contributions if their earnings exceed the primary threshold. For 2024/25 this is set at £242 per week, £1,048 per month and £12,570 per year. However, where their earnings are between the lower earnings limit (set at £123 per week, £533 per month and £6,396 per year) and the primary threshold, the employee is treated as if they had paid National Insurance contributions, albeit it at a zero cost. Where earnings in the tax year are equal to 52 times the weekly lower earnings limit (so, £6,396 for 2024/25), the earner secures a qualifying year for state pension purposes. Employed earners whose earnings are below this level will not build up state pension entitlement via their earnings. Contributions payable by the employer (secondary Class 1, Class 1A and Class 1B) do not provide any pension or benefit rights for employees.

Self-employed earners now build up entitlement through the payment of Class 4 contributions, in respect of which a liability arises where their profits from self-employment are more than the lower profits limit (set at £12,570 for 2024/25). Where profits are between the small profits threshold (set at £6,725 for 2024/25) and the lower profits limit, the self-employed earner receives a National Insurance credit which provides them with a qualifying year.

For 2023/24 and earlier tax years, self-employed earners built up their state pension entitlement through the payment of Class 2 contributions; for 2023/24 and earlier tax years, the payment of Class 4 contributions did not provide any pension or benefit rights.

Self-employed earners whose profits are below the small profits threshold can pay voluntary Class 2 contributions to preserve their state pension entitlement.

Voluntary Class 3 contributions

Individuals who will not have 35 qualifying years by the time that they reach state pension age may want to pay voluntary Class 3 contributions in order to boost their state pension. However, before paying the contributions, it is important to check that doing so will be beneficial. An individual can check their National Insurance record and state pension forecast online on the Gov.uk website or via the HMRC app. Making voluntary contributions is only worthwhile if a person will not otherwise have 35 qualifying years when they reach state pension age and if, after making the contributions, they will have at least ten qualifying years. This is the minimum needed for a reduced state pension. An individual may also be able to pay voluntary contributions if they have reached state pension age and want to plug gaps in their record to boost their state pension.

Class 3 contributions for 2024/25 are payable at the rate of £17.45 per week. Class 3 contributions must normally be paid no later than six years from the end of the tax year to which they relate (so by 5 April 2031 for 2024/25 contributions). Where contributions are paid after the end of the tax year to which they relate, they are usually paid at the current rate where this is higher. Individuals who have gaps in their National Insurance record between 6 April 2006 and 5 April 2016 can make voluntary contributions at the 2022/23 rate of £15.85 per week until 5 April 2025 to plug those gaps.

Self-employed earners with profits below the small profits threshold can pay voluntary Class 2 contributions instead of voluntary Class 3. This is a much cheaper option (£3.45 per week for 2024/25 rather than £17.45 per week). They can also plug gaps in their record between 6 April 2006 and 5 April 2016 by making contributions at the 2022/23 Class 2 rate of £3.15 per week by 5 April 2025.

Protests by farmers following the October 2024 Budget have catapulted agricultural property relief (APR) into the spotlight. But what is the relief, who can benefit and how is it changing?

Nature of APR

APR and its companion relief, business property relief (BPR), are inheritance tax reliefs which reduce or eliminate the inheritance tax payable when qualifying assets are passed on, either during the transferor’s lifetime or on their death. There are two rates of relief – 100% and 50%.

APR is available in respect of land or pasture that is used to grow crops or to rear animals. It is also available in respect of:

• growing crops;
• stud farms for breeding and rearing horses;
• short rotation coppice – trees that are planted and harvested every ten years;
• land not currently being farmed under the habitat scheme;
• land not currently being farmed under a crop rotation scheme;
• the value of milk quotas associated with the land;
• some agricultural shares and securities; and
• farm buildings, farm cottages and farmhouses (which must be appropriate to the size of the farming activity taking place).

The property must be part of a working farm in the UK.

Farm equipment and machinery does not qualify (although this may benefit from BPR). Similarly, APR is not available in respect of derelict buildings, harvested crops, livestock or any property subject to a binding contract for sale.

To benefit from APR, the agricultural property must have been owned and occupied immediately before the transfer for at least two years if occupied by the owner, a company controlled by them or by their spouse or civil partner, or for at least seven years if occupied by someone else.

APR is given at the rate of 100% (so no inheritance tax is payable) if the person who owned the land farmed it themselves or if the land was used by someone else on a short-term grazing licence or let on a tenancy that began on or after 1 September 1995. In any other case, the relief is given at 50%.

Budget changes

A cap on the 100% rate of APR and BPR was announced in the October 2024 Budget. From 6 April 2026, the 100% rate will only be available on the first £1 million of combined agricultural and business property. Once this limit has been used up, agricultural and business property that would otherwise attract relief at 100% will instead only receive relief at 50% – an effective inheritance tax rate of 20%.

As APR and BPR are available in addition to the standard nil rate band of £325,000 and the residence nil rate band of £175,000 where a residence is left to a direct descendant, a couple can give away a farm worth £3 million before inheritance tax is payable (as long as neither leaves an estate valued at more than £2 million as this will reduce or eliminate the availability of the residence nil rate band).

Where the changes will expose the farm to a potential inheritance tax bill, it is advisable to take professional advice. Consideration could be given to passing on the farm earlier; there will be no inheritance tax to pay if the transferor survives seven years from the date of the gift. To avoid an immediate capital gains tax charge, gift hold-over relief can be claimed jointly by the transferor and transferee. Agricultural land which would not qualify for gift hold-over relief as a business asset qualifies if it counts as agricultural property for inheritance tax purposes. This will delay payment of the capital gains tax until the farm is sold.

As the cost of living crisis continues to bite, you may find that come 31 January 2025 you are struggling to pay your Self Assessment tax bill. If this is the case, it is important that you do not bury your head in the sand – the bill will not go away and, with the addition of interest and penalties, will become bigger. However, there are options available which may allow you to pay what you owe over a longer period.

Coding out

If you filed your 2023/24 tax return online by 30 December 2024 or filed a paper return before 31 October 2024 and you have PAYE income, if you owe £3,000 or less, HMRC will collect what you owe by adjusting your tax code for 2025/26. This effectively allows you to pay in interest-free instalments and is something of a good deal.

Time to Pay Arrangements

To spread the cost, you may be able to pay your bill in instalments by setting up a Time to Pay Arrangement with HMRC. You may be able to do this online if all of the following apply:

You have filed your 2023/24 tax return.

You owe £30,000 or less.

You are within 60 days of the 31 January deadline.

You do not have any other payment plans with HMRC.

You can do this by logging into your HMRC account.

If you are unable to set a plan up online, you may be able to do so by calling HMRC on 0300 200 3820. You will need to provide details of your income and outgoings.

Where an arrangement is set up, you will be charged interest on the tax paid after the due date. However, penalties are not applied. The arrangement is designed to be flexible and if you are able to you can clear it early to save interest. If you struggle to meet the repayments under the arrangement, the best course of action is to contact HMRC to try and renegotiate the agreement, for example to pay your tax over a longer period. If you fall behind or do not pay what you owe and do not agree a revised plan with HMRC, they may take action to recover what you owe.

HMRC currently charge interest at 2.5% above base. This is to increase to 4% above base from April 2025. If you are able to borrow money at a lower rate, it may be preferable to take out a loan to pay your tax than to use a Time to Pay Arrangement.

Budget Payment Plans

Looking ahead, you may find it easier to set aside some money to pay your tax bills. While you can simply have a separate bank account for this purpose, you may prefer instead to set up a Budget Payment Plan with HMRC so that you cannot dip into the account in the year. A Budget Payment Plan allows you to put money aside for your next Self Assessment bill by making regular weekly or monthly payments to HMRC. If the amount put aside is less than the amount you owe, the balance must be paid by the due date. If you have put aside more than you need, you can ask for a refund. You can pause payments for up to six months.

As long as your tax affairs are up to date, you can set up a Budget Payment Plan through your online HMRC account.

Review payments on account

If your 2023/24 tax and Class 4 NIC bill is more than £1,000 and you do not pay at least 80% of your tax through deduction at source, such as via PAYE, you will need to make payments on account of your 2024/25 tax liability. Each payment is 50% of your tax and Class 4 bill for 2023/24 and payments are due on 31 January 2025 and 31 July 2025. It is advisable to review your payments on account. If your income has fallen and you expect to owe less for 2024/25 than for 2023/24, you can opt to reduce your payments on account. However, if you reduce them too much, interest will be charged on the shortfall.

CGT ‘traps’

A selection of capital gains tax issues involving trusts.

Trusts can be used for a wide variety of purposes, such as asset protection or passing family wealth down generations. From a tax perspective, trusts need to be handled carefully to prevent unexpected and unwelcome consequences. This article highlights a selection of capital gains tax (CGT) issues. However, remember to also consider other potentially relevant taxes (e.g., inheritance tax (IHT) and income tax) in advance of any events or transactions involving trusts.

Give it away…properly!

If the trust’s creator (settlor) gifts an asset to the trust (e.g., an investment property), this will be a deemed disposal at market value for CGT purposes. This could result in a chargeable gain for the settlor, even though no proceeds are received for the property. A form of CGT relief (holdover relief) generally applies to defer gains on transfers of assets on which IHT is immediately chargeable, such as the gift of a property to a discretionary trust (TCGA 1992, s 260(2)(d)). However, this relief is subject to various conditions and exceptions, including that the trust must not be ‘settlor interested’, such as where a ‘dependent child’ of the settlor (i.e., a child, including a stepchild, who is under 18 years old, unmarried and does not have a civil partner) can benefit from the trust. Thus, when setting up a trust, consider the trust’s potential beneficiaries carefully.

Sharp claws

A separate form of holdover relief is potentially available for gifts of business assets (TCGA 1992, s 165). However, the held-over gain on the disposal may be ‘clawed back’ from the transferor in certain circumstances. For example, this can arise if during the ‘clawback period’ (i.e., up to six years after the end of the tax year of disposal) the trust becomes settlor-interested. There are only limited exceptions to this anti-avoidance rule, so it would be prudent to keep a close eye on events involving the trust during the clawback period.

Timing is everything!

If seeking to rely on holdover relief under TCGA 1992, s 260 on the basis that a transfer out of the trust to a beneficiary results in an immediate IHT charge, the timing of the transfer may be critical to the availability of that holdover relief.

For example, no IHT is chargeable (so no CGT holdover relief is available) on a transfer which occurs within three months of the day on which the trust commenced, or within three months following a ten-year anniversary of the trust. In other words, if no IHT is chargeable on the transfer, no holdover relief under section 260 is available either.

Practical tip

 A holdover relief claim under TCGA 1992, s 260 can have unfortunate implications where the asset transferred is a house. For example, a parent may wish to gift a buy-to-let property into trust, which subsequently becomes the main residence of their adult child as a trust beneficiary. The parent might intend holding over any gain on the property disposal for CGT purposes (under section 260), and the trustees may intend claiming principal private residence (PPR) relief on a subsequent disposal of the property.

However, PPR relief may be restricted or denied on the disposal of a dwelling by an individual or settlement trustees in such circumstances, if the property’s base cost has been reduced following one or more section 260 holdover claims on its earlier disposal (TCGA 1992, s 226A).

Stamp duty land tax (SDLT) is charged at the residential rates on residential property and at the non-residential rates on non-residential or mixed property. For the residential rates to apply, the building must be ‘used or suitable for use as a dwelling or in the process of being constructed or adapted for such use’. Where the property is derelict and cannot be used as a dwelling, SDLT is charged at the non-residential rates. If the property in question is a second or subsequent residential property, such as an investment property, this may result in a lower bill.

However, before purchasing an investment property in a poor state of repair on the basis that the non-residential rates will apply, it is important to check that your view of what constitutes an uninhabitable dwelling is in line with what HMRC will accept as being uninhabitable. It is important to note that in HMRC’s view, 95% of refund claims submitted on the basis that a property in need of repair is not suitable for use as a single dwelling are incorrect, so the advice here is to proceed with caution.

Mudan case

The question of whether a property was inhabitable was considered recently by the Upper Tribunal in the case of Mudan. The case concerned whether a building which had previously been used as a dwelling and which was in need of renovation and repair at the time of purchase was ‘suitable for use as a single dwelling’.

At the time of purchase, SDLT was paid on the basis that it was a residential property. A refund was subsequently claimed on the basis that SDLT should have been applied at the non-residential rates on the basis that the property was not suitable for occupation as a dwelling. The taxpayer contended that work needed to be done to make the property a safe place to live, as opposed to a pleasant place to live. This included rewiring and other electrical work, a new boiler, water pumps and pipes, a new roof, repairs to broken windows, new pipework and tanking of the basement due to flooding, removal of the kitchen to get rid of a bad smell and vermin and the removal of lots of rubbish.

The First Tier Tribunal found that, despite the fact that the property was not in a state such that a reasonable buyer might be expected to move in straight away, it was capable of use as a dwelling. It had been recently used as such and was structurally sound.

On appeal, the Upper Tribunal also found for HMRC, concluding that the property was suitable for use as a dwelling and liable to the residential rates of SDLT. The following findings are worthy of note:

Being suitable for ‘use as a dwelling’ is not the same thing as a property being ready for immediate occupation.

It is necessary to assess the extent to which the building has the fundamental characteristics of a dwelling and is structurally sound.

If a property has previously been used as a dwelling, this will be relevant in considering whether it is suitable for use as a dwelling.

The question to consider is whether the works of repair and renovation are such that the building no longer has the characteristics of dwelling.

Takeaways

A clear distinction is drawn between a derelict property and one that is in need of modernisation. Work such as replacing kitchens and bathrooms, new boilers, rewiring, substantial repairs to windows, floors or the roof, damp proofing and repairing flood damage do not make a property unsuitable for use as a dwelling, even if the need to do this work means that the property cannot be reasonably occupied until it is done. To count as derelict for SDLT purposes, it would need to be structurally unsound or damaged to the point that normal repair, renovation or modernisation work will not resolve the issue. Most doer-uppers will not fall into this category.

The favourable tax regime for furnished holiday lettings is to come to an end on 5 April 2025. This will mean that landlords of furnished holiday lettings will lose access to a range of valuable capital gains tax reliefs, including gift hold-over relief.

Nature of the relief

Gift hold-over relief is a capital gains tax relief that may be available on gifts of business assets. Where the relief is claimed, the capital gains tax that would otherwise be payable on the gift is deferred until the recipient sells or otherwise disposes of the business asset. Effect is given to the relief by reducing the transferee’s base cost of the asset by the amount of the gain held over. The relief may also be available where an asset is sold for less than it is worth to help the buyer.

As regards business assets, to qualify, the person giving away the assets must be a sole trader or a partner in a business, or have at least 5% of the voting rights in a personal company. The assets given away must be used in the business or by the personal company.

The relief must be claimed jointly by the transferor and the transferee by completing a claim for hold-over relief form. The form must be submitted with their Self Assessment tax returns.

Application to furnished holiday lets

From an inheritance tax perspective, it can be beneficial to give away a property during the transferor’s lifetime. As long as they survive seven years from the date of the gift, there will be no inheritance tax to pay. However, in the absence of a relief, a capital gains tax charge may arise on the gift. The capital gains tax payable on a gift to a connected person is calculated on the market value of the asset. Consequently, without relief, there may be tax to pay but no proceeds from which to pay it. Claiming gift hold-over relief overcomes this, delaying the capital gains tax bill until the recipient sells the asset. This is useful if, say, a landlord wants to pass on their holiday let to a son or daughter.

However, time is running short to take advantage of this. From 6 April 2025, holiday lets will be treated in the same way as other residential lets, and will not be able to benefit from the relief. Consequently, the gift must be made on or before 5 April 2025 to access the relief.

Example

Betty has had a holiday let for many years. She is planning on retiring and wants to give her holiday let to her daughter, Lucy. Betty purchased the cottage in 2004 for £120,000. Its current market value is £380,000.

If Betty makes the gift before 6 April 2025 and Betty and Lucy claim gift hold-over relief, Betty will have no capital gains tax to pay on the gain of £260,000. The gain is held over. Lucy’s base cost is reduced by the amount of the held-over gain to £120,000 (£380,000 – £260,000). When Lucy sells the cottage, her gain will be worked out as if the cottage had cost her £120,000, rather than by reference to its market value when she acquired it.

If Betty does not make the gift until after 5 April 2025, she will not be able to claim gift hold-over relief and will pay capital gains tax on the gain of £260,000. If she is a higher rate taxpayer, the bill will be £62,400 (24% of £260,000), assuming she has already used her annual exempt amount. She will need to pay this within 60 days of completion.

A combination of higher interest rates and stealth taxation may mean that you are now paying tax on savings income for the first time. If this is the case, it may be worth taking out an Individual Savings Account (ISA) to enjoy more of your investment income tax-free. ISAs are available from a number of financial institutions, including banks and building societies, credit unions, friendly societies, stockbrokers, peer-to-peer lending services and crowdfunding companies.

There are different types of ISAs for persons aged 18 and over:

• cash ISA;
• stocks and shares ISA;
• innovative finance ISA;
• Lifetime ISA.

The previous Government had announced plans to introduce a British ISA. However, the current Government are not going ahead with it.

There is also a Junior ISA for children under the age of 18.

ISA limit

There is an annual ISA investment limit of £20,000 in a tax year. The limit may be invested in a single account or spread across different types of accounts. The maximum amount that can be invested in a Lifetime ISA is £4,000 a year. Spouses and civil partners each have their own limit.

A separate limit of £9,000 per year applies to Junior ISAs.

Cash ISA

Savings in a cash ISA can be held in bank and building society accounts and in some National Savings products. Interest earned on savings held within a cash ISA is tax-free.

Stocks and shares ISA

Investments within a stocks and shares ISA can include shares in companies, unit trusts and investment funds, corporate bonds and Government bonds. However, shares owned in a personal capacity cannot be transferred into a stocks and shares ISA, although it is possible to transfer shares from an employee share scheme into an ISA.

Income and gains from the investments held within the ISA are tax-free.

Innovative finance ISA

Investments within an innovative finance ISA can include peer-to-peer loans (i.e. loans given to other people or businesses without using a bank), crowdfunding debentures (i.e. investments in a business by buying its debt) and funds where the notice or redemption period means that the funds cannot be held in a stocks and shares ISA. Arrangements that are already in existence outside the innovative finance ISA cannot be transferred into an innovative finance ISA. Income and gains on investments within an innovative finance ISA are tax-free.

Lifetime ISA

A Lifetime ISA is designed to help people to save either for their first home or for retirement. Cash and stocks and shares can be held in a Lifetime ISA. Returns are tax-free. Lifetime ISAs also benefit from a tax-free Government bonus equal to 25% of the amount saved, capped at £1,000 a year. However, there are more conditions than for other ISAs.

The maximum amount that can be invested in a Lifetime ISA is £4,000 a year. This counts towards the overall limit on investments in ISAs, set at £20,000 per tax year.

A person must be aged 18 or over and under 40 to open a Lifetime ISA and the first payment must be made into the account before the individual turns 40. Once an account is open, the individual can continue to contribute up to £4,000 a year until they reach the age of 50. Beyond age 50, the account remains open and will continue to earn interest, but no further deposits can be made and no further government bonuses will be paid.

Money can only be withdrawn from a Lifetime ISA without penalty where it is used to buy a first home once the individual has reached age 60 or if they are terminally ill with less than 12 months to live.

On the face of it, the 25% Government bonus makes a Lifetime ISA an attractive option for saving for a deposit for a first home. However, the money in a Lifetime ISA can only be used in this way if the home is purchased with a mortgage and does not cost more than £450,000. In London and other areas with high property prices, buyers may struggle to find a first home within this price bracket. If a first home is purchased for more than this, the saver has the choice of either leaving the funds in the account until they reach the age of 60 or withdrawing the money saved and forfeiting the government bonus. The bonus will be clawed back if the funds are withdrawn other than for one of the three permitted reasons.

Junior ISAs

A Junior ISA is a long-term tax-free savings account for children. There are two types of Junior ISA, a cash ISA or a stocks and shares ISA and a child can have one or both types. The account can be opened by a parent or a guardian with parental responsibility. However, the money belongs to the child. As any interest is tax-free and not taxed on the parent, a Junior ISA is an attractive option for a parent wishing to save for their child. The child can take control of the account when they reach the age of 16, but cannot withdraw the money until they turn 18.

Purchasing a commercial property at auction is a common occurrence. Although usually the sale or lease of a commercial property is exempt from VAT, sometimes the commercial property listed for auction is being sold in circumstances where the question of whether a charge to VAT arises. HMRC deems 'commercial property' as a non-residential building such as a shop, office, warehouse, restaurant, farm, etc. and includes some student accommodation, hotels and care homes. If a business is selling a commercial property, it will be making an exempt supply, therefore it cannot recover any of the VAT associated with the selling costs.

When VAT is chargeable on commercial buildings

The exception to the sale of a commercial property being VAT exempt is on the freehold sale of a new (less than three years old) commercial property (which is standard rated for VAT). Student accommodation, including halls of residence, is exempt, provided that the appropriate certification is met, where necessary. Otherwise, no VAT is claimable unless the owner/seller has elected to 'opt to tax'.

Why would you 'opt to tax'?

The option to tax allows a business to charge VAT at the standard rate on the sale or rental of commercial property, transforming what would otherwise be an exempt supply into a taxable one. By taxing a property, a business can reclaim the VAT on costs related to that property, such as refurbishment or construction costs.

Most businesses do not need to opt to tax their trading premises as they will be using them to make taxable supplies in their everyday business (i.e. the business will not be making supplies of the property, but will be making supplies from the property). Therefore 'opting to tax' only needs to be considered if the intention is to rent out the property. The main benefit of the election is that the business can reclaim all the VAT suffered on the purchase, the associated professional costs and any ongoing expenses. The 'pay-off' for opting to tax will be that the landlord will have to charge VAT on rent and service charges and, importantly, when selling the property. If the tenant of the property is VAT registered, charging VAT would have no implications. However, if the tenant is not VAT registered, (e.g. small companies, charities, financial service companies, etc.), VAT would be an additional cost to the tenant.

Can you change your mind?

An election to opt to tax can be made at any time – it does not have to be on purchase or first occupation. The business may find that when it first occupies the property there is no need to opt to tax, but later may decide that it is beneficial to do so. If this is the case then it can then claim at a later date.

Option to tax on mixed-use property

When a property is of mixed-use, e.g. a shop below with flats above, the option to tax is only applicable on the commercial part of the property and not the residential part. When bidding at auction, the final bid price will be unknown until the hammer goes down. Therefore, with a mixed-use property, the split between the VAT standard rated commercial element (under the opt to tax) and the VAT exempt residential units will need to be apportioned on the purchase invoice. Note that VAT is charged on the buyer’s premium payable to the auctioneer (if applicable), whether or not the seller has opted to tax the property.

Practical point

When intending to purchase a commercial property at auction, it is important to make a claim to opt to tax beforehand, to enable recovery of the VAT paid on purchase. If the auction bid is unsuccessful, the election can be cancelled within six months or automatically lapses after six years.

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