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a friendly service covering audit, tax, accounts, self assessment,
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02/12/2015
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If you are starting your own business, running it as a sole trader is the quickest and easiest way to do it. However, you will have unlimited liability which means you are personally responsible for business debts.
Another important aspect is that you are taxed on all the profits with little opportunity for tax planning. This is why most businesses will incorporate as profits increase.
We can support you through business registration and provide advice on all aspects of tax including:
◦ Accounts for HMRC ◦ Self assessment ◦ VAT returns ◦
◦ Payroll services ◦ Tax planning ◦
Partnerships are similar to sole trades, except that they are used when more than one person owns the business.
Each profit share is determined by the partners and best practice is to record this in a partnership agreement.
With partnerships each partner has joint and several liability for the debts of the partnership, so that if one partner cannot pay their share of any business debts, the debt will fall on the other partners.
Setting up a partnership agreement from the outset is essential.
Corporate tax planning can result in significant improvements in your bottom line. Our services will help to minimise your corporate tax exposure.
Services include:
Self assessment tax returns are becoming increasingly complex and failing to submit your return on time, or correctly, can result in substantial penalties.
We use the latest tax software to ensure that tax returns are completed efficiently, accurately and on-time.
Self assessment: Taking
away the hassles of tax
We provide a comprehensive personal tax compliance service for individuals that includes:
Invoicing your contracting work through a limited company is tax efficient. We will advise you on how to structure your contract to minimise IR35 risk. We will ensure you claim all the expenses that you are entitled to and work out if you can save money by joining the VAT Flat Rate Scheme. We will complete your accounts and tax returns and provide you with clarity over your tax payments.
Included in the service • IRIS KashFlow + Snap • Annual accounts • Corporate tax return • Personal tax return • Payroll • Dividend administration • VAT returns • Contract reviews • Dealing with HMRC
VAT • is one of the most complex tax regimes imposed on business. We provide a cost effective service including assistance with registration & completing your returns.
Payroll • Administering your payroll can be time consuming. We provide a comprehensive payroll service.
Your Payroll Solution
Construction Industry Scheme • CIS returns & payments
Book-keeping • Maintenance of accounting records
Provision of management accounts
For more about these services please contact us.
Keeping the Books
Assurance
If your business does not require a statutory audit then our Assurance Service will provide reassurance that your accounts stand up to close scrutiny from your bank or other finance providers.
Work is tailored to your specific requirements and the level of confidence that you are looking to achieve and will provide credibility to your accounts by the issuing of an assurance review report.
Audit
We strive to provide an auditing service that adds more value than merely the statutory compliance requirement of an audit.
We tailor the audit to meet your circumstances and needs. Using the latest techniques and software we deliver a cost-effective audit that provides real value.
Before starting out you may need help with business planning, cash flow and profit & loss forecasts.
You may also want help identifying the best structure for your business. From sole trades and partnerships to limited companies and limited liability partnerships, we have the experience to advise on the best solution for you both operationally and from a tax point of view.
We also advise on accounting software selection, profit improvement, profit extraction & tax saving.
If you wish to know more about our Business Start-up service please contact us on 01332 202660.
Accountancy and taxation of property is a specialist area. We have the expertise and experience to work effectively with private landlords and property investors. We deal with self-assessment tax, accounts preparation & tax advice for all aspects of property portfolios.
Whether you are a first time buy to let landlord or a long established developer we will discuss and understand your situation in order to advise and recommend the most appropriate medium through which to carry out your property investments. We will guide you through the accounting and tax issues and help you to plan effectively.
We take the time to explain your accounts to you so that you understand what is going on in your business.
Up to date, relevant and quickly produced management information for better control.
As part of our accounts service we prepare your annual accounts and complete yearly personal and business tax returns.
As your year-end approaches we will agree a timetable with you for completion of the accounts that minimises disruption to your business and leaves no late surprises when it comes to your tax liabilities.
We can also prepare management accounts to help you run your business and make effective business decisions. Management accounts are also very useful when approaching lending institutions when no year end accounts are available. We offer:
For a meeting to discuss your requirements please call us on 01332 202660.
We understand the issues facing owner-managed businesses.
We provide advice on personal tax & planning opportunities.
Running a small business places many demands on your time. We can help lift the load with our complete payroll service.
Designed to ease your administrative burden, our service removes what is often a time consuming task, leaving you free to concentrate on managing your business.
We can also prepare your benefits and expenses forms and advise you of any filing requirements and national insurance due. Benefits and expenses can be a complicated area and knowing what to report can be tricky.
We can file all your in-year and year end returns with HMRC and provide you with P60s to distribute to your employees at the year end.
We also offer a solution to meet your auto-enrolment obligations.
Businesses dealing with the requirements of VAT legislation will agree that this is often a complex area.
Our compliance services offer support for all stages of completing your VAT returns, whether you need advice on the treatment of specific transactions or have produced your records and would like verification that they are correct.
We can also advise on the pros and cons of voluntary registration, extracting maximum benefit from the rules on de-registration and the Flat rate VAT scheme.
Our consultancy service guides you through the intricacies of the legislation, pinpointing areas where you may be able to relieve or partly relieve the cost of VAT for your business, for example when purchasing new equipment or undertaking new projects such as property development.
For a meeting to discuss VAT and obtain further advice please call us on 01332 202660.
We can conduct a full tax review of your business and determine the most efficient tax structure for you.
We give personal tax advice to a wide variety of individuals, including higher rate tax payers, company directors & sole traders.
We can assist with:
For a meeting to discuss your requirements please call us on 01332 202660.
Understand your needs
Firstly we listen and gain an understanding of your business and what you are aiming to achieve.
Continuous improvement
We seek your opinions on the service we provide and respond to feedback in order to upgrade and improve what we do.
Build a relationship
Success in business is based around relationships and trust. Our objective is to develop and build strong relationships with our clients, based on two way trust and respect.
Confirm your expectations
Our aim is to help you maximise your business potential and we tailor our service to meet your requirements and agree a timetable for delivering them.
Actively communicate
Communication is important to the success of any commercial venture. It is therefore a vital part of our work with you, sharing the knowledge and ideas that help you to realise your ambitions.
Understand your needs
Confirm your expectations
Actively communicate
Build a relationship
Continuous improvement
Straightforward and easy to deal with Adrian Mooy & Co provide an efficient, friendly and professional service - payroll, tax returns, annual accounts and VAT returns are always done on time. Eddie Morris
Call us on 01332 202660
Claiming rent-a-room relief - Part 1
The tax implications of renting a room to another family member such as a sibling.
Recent statistics show that in 2023, 28% of all young people aged 20 to 34 years were living at home with their parents. Whatever the scenario, having an extra adult in the household means extra costs such as increased utility bills, groceries, and other living expenses, leading many to pay rent.
That’s a relief
There are tax implications in doing so, although if the amount is kept under £7,500, the amount received may be covered by rent-a-room relief.
The rent-a-room relief scheme was introduced in the UK on 6 April 1997, its objectives being to increase the supply and variety of low cost accommodation, and labour mobility (e.g., enabling workers to use short-term accommodation to move around the country). In addition, by allowing individuals to earn tax-free income from letting out furnished accommodation in their main residence, HMRC’s administration has been reduced by simplifying the tax reporting requirements.
Over the years, the threshold has been updated, and as of the tax year 2023/24 (and 2024/25) it stands at a gross amount of £7,500 per year. A quirk in the rules allows more than two persons a share of the property income, with relief being set at £3,750 each.
Therefore, should three persons own (and live in) a property together and sub-let a room to a lodger, overall the relief is £11,250 (i.e., 3 x £3,750 relief). There are no National Insurance contributions levied on this income.
The relief is automatically applied, eliminating the need for a claim. The income limit covers all charges relating to the rental service, such as cleaning, laundry, or meals. This simplicity makes the relief accessible to a wide range of homeowners, including those running a bed-and-breakfast or a guest house.
Conditions for the relief
As ever with tax, there are conditions to be met.
The relief cannot be applied where:
• the room is let as office accommodation, a storeroom or a garage;
• the taxpayer is absent from the residence due to working overseas;
• the letting is to or by a company or partnership;
• the residence is permanently divided into two or more residences; or
• the property is buy-to-let, or a holiday let not also occupied by the landlord.
Note that the rules state that the room must be in a property that is the landlord’s main residence and as such, a claim could be possible should the landlord rent the property from another (although permission to sublet would be needed from the actual owner).
Rental income less than £7,500
If the rental income is less than the limit, the relief applies automatically, and there is no tax to pay or anything to report. If the sibling does not pay market rent but contributes to household expenses, it might not be considered as taxable rental income for the parents and, as such, non-declarable in any event.
However, if the rent charged is significantly below market rate, HMRC could consider the payment to be an informal gift rather than rent, which may trigger inheritance tax considerations in the future.
Rental income in excess of £7,500
The landlord can still benefit from the scheme should the rental income exceed £7,500 (or more than £3,750 per person where more than one person receives the income).
In this instance, tax is payable on the excess over the rent-a-room limit. This time, the relief is not automatic, and a claim is required via completion of a tax return. ... continued ...
Claiming rent-a-room relief Part 2
Disapplying the relief
Rent-a-room relief is not compulsory, and the taxpayer may elect to disapply, calculating profits using the usual income less expenses method. Once the election is made for a tax year, it is applied for all subsequent years until such time as it is withdrawn, or the receipts are under the £7,500 (or £3,750) limit and the taxpayer chooses to claim rent-a-room relief.
Under the election, HMRC must be advised within the time limit, which is within one year of 31 January following the end of the tax year. Disapplying the relief is more likely where there is a loss.
Losses
A loss cannot be created by deducting the rent-a-room limit from the gross amount received rather than actual expenses incurred. If a loss has been calculated under the usual income less expenses method, it will be more tax-efficient to opt out of the scheme and preserve the loss, which is then available to be carried forward and set against any future profits. To opt out, a tax return needs to be completed.
Importantly, a loss brought forward from previous years may be deducted from any excess of rental income over the limit in the subsequent years under a rent-a-room claim.
Impact on capital gains tax
HMRC accepts that the letting of accommodation which is an integral part of a main residence will not affect the principal private residence capital gains tax (CGT) exemption when the property is sold.
Note that should more than one property be owned, it is a question of fact which is the main residence. No election is possible, unlike the position for CGT generally.
Renting a room for short periods
The relief is intended to cover short-term rental and is aimed at people who take in lodgers. However, rent-a-room relief is increasingly being claimed by people who let their homes while being temporarily absent (e.g., where the property is near to a major sporting venue, such as Wimbledon). Also, HMRC has been concerned that the relief is being ‘abused’ by the letting out of entire properties via websites such as Airbnb and the property owner temporarily staying elsewhere.
As a result, HMRC undertook a consultation on the workings of the relief in 2018, proposing that it be restricted to situations where the taxpayer was resident for most of the letting period when the ‘lodger’ was paying. However, this condition would have prevented people from claiming the relief whilst they were on holiday and the property remains a main residence; therefore, the relief for such properties remains.
Let whilst absent
The question of whether rent-a-room relief is possible while the taxpayer is away for an extended work period could be denied because to claim, the property must be the taxpayer’s main residence.
Whether a property is a ‘main residence’ is a question of fact, but it may be difficult to prove (e.g., if the taxpayer is working away for an extended period and a room is being rented out). However, rent-a-room relief may still be possible even if HMRC can successfully argue against the property being a main residence.
A property only needs to be a main residence at any time during the ‘basis period’ for rent-a-room relief to apply. The basis period starts either at the beginning of the tax year or, if later, when the letting begins and ends on the last day of the tax year or, if earlier, when the letting income ceases. Therefore, by allowing a lodger to move in before the owner moves to the ‘temporary property’, a rent-a-room claim can be valid for that tax year. Equally, the relief will be available for the tax year in which they return so long as the owner moves back while the lodger is still in residence.
Practical tip
Rent-a-room relief is a valuable relief should the conditions apply. Even if not, a measure of tax relief may be possible under the property allowance, which permits annual gross property income to be received of £1,000 or less, with no tax implications.
Reclaiming VAT on a car – notoriously difficult to claim
The VAT tax rules are clear - input tax cannot be claimed on the purchase of a new or used car that is made available for any private use. However, input tax can usually be claimed on cars used as a tool of a trade such as by a driving school, taxi firm or private car hire business, even if there is minor private use.
This strict rule was tested in a recent tax case of Maddison and Ben Firth T/A Church Farm v HMRC 2002. This case also underlines the importance of documents when submitting a claim to HMRC.
Mr and Mrs Firth were in business registered for VAT as 'subcontracting glam/camping, weddings and events' - mainly organising weddings and other events. The business claimed input tax on the purchase of two new cars, on the basis that they were used exclusively for business purposes and not available for private use. However, the Tribunal agreed with HMRC that there was insufficient evidence to prove a business-only intention. Importantly they came to this conclusion based on the insurance policy which included insurance for 'Social, Domestic and Pleasure' (SDP). Although Mr Firth explained that it was very difficult to obtain insurance without SDP the option was still available and that was enough to refuse the claim. The Tribunal stated that fact that the insurance policies did not cover the carrying of passengers on a commercial charge basis was an important point and refused the claim. Relevant factors quoted in the case were 'who has access to the car and when; what is the likelihood that the car will never be used for mixed business and private journeys; what is the availability of the car; whether the user keeps a log of journeys; whether the car is insured for private use; and whether the vehicle has any peculiar feature or adaptations for a particular kind of business use?'
In addition, although there was a valid council issued private operator licence, private hire was not covered by the policy. It also did not help Mr Firth's case that although an Audi TT has five seats it is, in effect, a two-seat car and as such not a practical car for private hire (one of the exceptions to the VAT rules).
Finally, HMRC refused a claim for the VAT input on a personalised number plate fixed to a motorcycle, finding that it was personalised to include Mr Firth’s first name. The claim was for business advertising but HMRC disagreed and refused the claim as the number plate (BS70 BEN) did not refer to the business named 'Church Farm'.
As ever in such cases, looking at the facts, this case should probably not have reached as far as a Tribunal Hearing. However, this case underlines the importance of 'intention' and of documents in supporting any claim for input VAT.
Going up: Employers’ NIC from April 2025 - Part 1
The impact of the increases to employers’ National Insurance contributions announced in Autumn Budget 2024 and what action might be taken in mitigation.
Employers fared badly in Autumn Budget 2024 as the Chancellor looked to them to provide £25bn of the additional £40bn that she needed to raise. The revenue target will be achieved by raising the rate of employers’ National Insurance contributions (NICs) and reducing the secondary threshold so that employers will be required to make contributions at a higher rate on more of their employees’ earnings.
However, the axe will not fall evenly, as the employment allowance is also increased from £5,000 to £10,500, which will mean some of the smallest employers will not pay any more in employers’ contributions than they do currently, and may even pay less. However, despite increased access to the employment allowance, the cost to larger employers will be significant. The changes take effect from 6 April 2025. Employers providing taxable benefitsin-kind or using a PAYE settlement agreement will face further increases. The rate of Class 1A and Class 1B NICs are aligned with the secondary Class 1 NICs rate and these, too, are increased to 15% from 6 April 2025. There are no changes to the contributions paid by employees which will remain at their current level for 2025/26.
Nature of employer contributions Employers pay secondary Class 1 NICs on their employees’ earnings. The liability arises on all earnings over the relevant secondary threshold. Unlike primary contributions, there is a single secondary rate, and contributions are payable at this rate on all earnings above the threshold.
The secondary threshold is set at £9,100 a year (£175 per week, £758 per month). From 6 April 2025, it will fall to £5,000 (£96 per week, £416 per month). To encourage employers to take on certain categories of workers, higher secondary thresholds apply to workers under the age of 21, apprentices under the age of 25, armed forces veterans in the first year of their first civilian employment since leaving the armed forces and new employees working in special tax sites. Where an upper secondary threshold applies, the employer only pays secondary contributions if earnings exceed that threshold, and only on earnings in excess of that threshold.
The upper secondary threshold for under 21s, the apprentice upper secondary threshold and the veterans upper secondary threshold are set at £50,270 (£967 per week; £4,189 per month) for 2024/25. They remain at this level for 2025/26. The special tax site upper secondary threshold, which applies in respect of the earnings of a new employee for the first 36 months of their employment in a freeport or investment zone is set at £25,000 (£481 per week, £2,083 per month) for 2024/25. It, too, remains at this level for 2025/26.
Employment allowance
Eligible employers are able to claim an employment allowance, which they offset against their secondary Class 1 NICs liability until it is used up. This reduces the amount that they need to pay over to HMRC. If an employer’s liability for the year is less than the employment allowance, they do not pay any employers’ NICs. However, the allowance is capped at their liability for the year. For 2024/25, the allowance is set at £5,000. It is increased to £10,500 for 2025/26.
Not all employers benefit from the employment allowance. For 2024/25, it is only available to employers whose Class 1 NICs liability in 2023/24 was £100,000 or less. This restriction is lifted from 6 April 2026, meaning larger employers will be able to benefit from the allowance, mitigating some of the impact of the rise in employer contributions. However, the employment allowance is not available to personal companies where the sole employee is also a director, and this remains the same for 2025/26. However, family companies with at least two employees are able to claim the allowance.
Impact of the changes
The impact of the changes to employers’ secondary Class 1 NICs from April 2026 will depend on the number of employees that they have and the amount that they are paid. The following table shows the increase in employer contributions at different salary levels before taking account of the employment allowance.
Going up: Employers’ NIC from April 2025 - Part 2
Starting a business as a sole trader
When starting a business, there are various decisions to make and tasks to perform. One of the first questions to address is whether to run the business as a sole trader, whether to set up a partnership with others or whether to form a company. The way in which a business is operated will determine the taxes that are payable and legal obligations that must be met.
A person operating as a sole trader is in business for themselves. This is arguably the simplest way to run a business.
Registering with HMRC
A person operating as a sole trader will need to register with HMRC for Self Assessment if they have trading income of £1,000 or more. This is the total from all unincorporated businesses, not per business.
If a person is already registered for Self Assessment, for example, because they have investment income or income from property to report to HMRC, they do not need to register again. Rather, they will simply need to complete the Self-Employment pages of the return to report details of their business income.
If a new trader is not registered for Self Assessment, they will need to do so by 5 October following the end of the tax year in which they first became liable to register. For example, if a person started a business in 2024/25 and their turnover was more than £1,000, they will need to register for Self Assessment no later than 5 October 2025. A person can register via the Gov.uk website (see www.gov.uk/register-for-self-assessment).
A person who has previously been registered for Self Assessment, but did not file a return for the last tax year, will need to register again to reactivate their account.
Tax and National Insurance
A sole trader must pay income tax on their profits. Their profits form part of their total taxable income, which will be liable to income tax to the extent that it exceeds their personal allowance for the tax year. For 2024/25 and 2025/26, the personal allowance is £12,570. Income tax is charged at 20% on the first £37,700 of taxable income. Taxable income in excess of £37,700 up to £125,140 is taxed at 40%, and anything over £125,140 is taxed at 45%. Where adjusted net income exceeds £100,000, the personal allowance is reduced by £1 for every £2 of income in excess of £100,000, such that anyone with adjusted net income in excess of £125,140 does not receive a personal allowance.
Self-employed individuals must pay Class 4 National Insurance if their profits exceed £12,570. This is payable at a rate of 6% on profits between £12,570 and £50,270 and at 2% on any profits in excess of £50,270. Where profits exceed the small profits threshold (set at £6,725 for 2024/25 and increasing to £6,845 for 2025/26), no Class 4 National Insurance contributions are payable. However, the trader will earn a National Insurance credit which will provide them with a qualifying year for state pension purposes. Sole traders with profits which are below the small profits threshold can opt to pay voluntary Class 2 contributions to build up their state pension entitlement. At £3.45 per week for 2024/25 (increasing to £3.50per week for 2025/26), this is a much cheaper option than paying voluntary Class 3 contributions, and may be beneficial if the sole trader would not otherwise secure a qualifying year.
Tax and Class 4 National Insurance contributions must be paid by 31 January following the end of the tax year. Once the tax and Class 4 liability reaches £1,000, payments on account must be made for future tax years.
VAT
A sole trader will need to register for VAT if their VATable turnover exceeds the VAT registration threshold of £90,000 in the previous 12 months, or is expected to do so in the next 30 days.
Records
The sole trader will need to keep records of their business income and expenses to enable them to work out their taxable profits. It is a good idea to have separate personal and business bank accounts to avoid personal and business expenses getting mixed up. The trader should also keep invoices, receipts, etc.
Planned changes to agricultural property relief
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:
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.
CGT main residence relief - Part 1
When does the ‘clock’ start? A recent capital gains tax case that seems to have upset HMRC. The relatively few sections of legislation starting at TCGA 1992 s 222, governing ‘only or main residence relief’ (commonly known as principal private residence (PPR) relief) have been the subject of numerous fierce debates over the years.
A series of cases culminating in a Court of Appeal hearing in 2019 has caused HMRC some serious introspection, followed by some sulky ‘reforms’ of the tax code (through FA 2020, s 24) that, despite ostensibly being aimed at making the regime fairer, somehow conspired to net around £150m per annum in additional tax revenue by 2023/24.
Unfortunately for HMRC, the adverse rulings just keep coming.
The legislation on ‘period of ownership’
The code basically starts by relieving any capital gain arising on the disposal of a dwelling house that has been a taxpayer’s PPR during their ‘period of ownership’. The relief is restricted according to various parameters, such as any periods where the dwelling house has not qualified as the taxpayer’s PPR during that period of ownership.
HMRC has long maintained that the ‘period of ownership’ commences immediately when the taxpayer acquires any interest on which expenditure might be deductible in computing a capital gain (see, for instance, HMRC’s Capital Gains Manual at CG64930).
For example, this could include acquiring an interest in the land on which a dwelling house is to be built later (or first acquiring a leasehold that is later enfranchised into the freehold).
However, HMRC has also insisted that only the period in which the PPR is physically occupied as the taxpayer’s main residence will qualify as their PPR. Following HMRC’s approach, if there is a significant delay between first ‘signing contracts’ and moving into the property, PPR relief will not cover that initial phase of the period of ownership.
Case law
HMRC’s position has been supported by case law, such as Henke v HMRC [2006] STC (SCD) 561, wherein a married couple purchased a bare plot of land in 1982 but did not build a house and start to live in it until around 1993. The Special Commissioner upheld HMRC’s argument that the first decade or so of the taxpayers’ period of ownership, starting with the purchase of the land, did not qualify for PPR relief, as they did not occupy a residence there until 1993.
However, in Higgins v HMRC [2017] UKFTT 236 (TC), a case involving a delay in taking up occupation of an off-plan apartment, the First Tier Tribunal decided that the four-year interval between the taxpayer entering into the contract in 2006 and the property being ready to move into around 2010, should not make up part of Mr Higgins’ overarching period of ownership, so as to dilute the PPR-qualifying period afterwards. Rather, his period of ownership began only when the purchase finally completed.
The case went against the taxpayer at the Upper Tribunal, but in Higgins v HMRC [2019] EWCA Civ 1860, the Court of Appeal agreed with the original ruling in favour of the taxpayer, noting:
• When contracts were exchanged in 2006, Mr. Higgins’ apartment (his dwelling house for PPR relief purposes) was no more than an empty space in the tower and did not physically exist until November 2009 at the earliest; and
• it would be illogical for the relief to be unable to fully cover people buying a new-build home and waiting some considerable time between signing contracts and completion or being able to move in.
The final ruling carried some weight as a Court of Appeal case, forcing HMRC into a bout of soulsearching. Amongst other things, this resulted in a new TCGA 1992, s 223ZA, which broadly set out that a delay of up to two years between acquiring an initial interest in the land and physical occupation of the dwelling would qualify for PPR relief. However, a greater delay in moving in would mean none of the interval would qualify for PPR relief – it should be treated as ‘all-or-nothing’. ... continued ...
CGT main residence relief - Part 2
The Lees case
In Lee & Another v HMRC [2022] UKFTT 175 (TC), Gerald and Sarah Lee acquired a house in late 2010 for around £1.7m but demolished it in order to build a new house. The new property was completed on 15 March 2013 and the Lees took up residence four days later. They sold the property 14 months afterwards for circa £6m.
As usual, HMRC argued that the ‘period of ownership’ had started back in 2010, on the first acquisition of an interest in the land and also that the delay in taking up occupation had exceeded two years, so the saving at (what is now) section 223ZA did not apply, and the majority of the gain on disposal was ineligible for PPR relief and therefore taxable.
The taxpayers argued that the ‘clock’ could not start until the property was capable of occupation, the broad effect being that the ‘period of ownership’ was much shorter than HMRC had arrived at and was fully covered by PPR.
In Lees, the First Tier Tribunal considered Henke v HMRC (see above) but refused it, preferring the spirit of the more recent Higgins v HMRC (see above), and found for the taxpayers.
The tribunal observed that in the legislation, the period of ownership referred to the dwelling house, not mere land, and the clock should not start until the dwelling house was there to be occupied. Of course, HMRC appealed (once it had managed to calm down!).
At the Upper Tribunal, in HMRC v G Lee & Another [2023] UKUT 00242 (TCC), HMRC introduced no fewer than eight grounds of appeal, including briefly:
1. The underlying asset giving rise to the capital gain was the land, so the clock must start on acquiring an interest in the land.
2. A dwelling house is not capable of ownership separately from the ground on which it stands, so it is essentially subordinate to the land.
3. In English law, the dwelling house is itself ‘land’, so ownership must commence when the first relevant interest in land is acquired.
4. The FTT was wrong not to have followed the Henke case, particularly because, in HMRC’s eyes, the Higgins case endorsed Henke (based on an obiter dictum comment about acquiring bare land to develop).
5. Numerous tax consequences would arise so mind-bogglingly awful that parliament could not possibly have intended for them to arise.
6. Following the approach in Lees, when living in one eligible PPR, while owning a plot of bare land that was developed alongside and promptly occupied as a main residence, both the first PPR and the developed plot might effectively enjoy PPR relief for increased value that had accrued over the overlapping initial stage – occupation of one, and development of the other. In fact, endorsing the taxpayers’ approach meant that demolishing then replacing property might achieve more overall PPR relief than simply renovating the original!
7. The legislation carefully crafted by HMRC at section 223ZA in 2020 and dealing with delays in taking up occupation would be redundant, and TCGA 1992, s 38 that deals with allowable costs might as well be cancelled.
8. The long-standing anti-avoidance provision at TCGA 1992, s 224(3) (which broadly states that PPR relief will not apply where a dwelling house has been acquired with the purpose of realising a capital gain on its disposal) might not be sufficiently wide or robust as to prevent someone from masking a large gain on valuable land by building a modest dwelling on it and occupying it as a residence to access PPR relief across all of the land gain accrued.
The Upper Tribunal disagreed with or simply discounted all HMRC’s arguments (which are simplified here for brevity), dismissed HMRC’s appeal and upheld the FTT’s decision.
Conclusion
On its own, the Higgins cases represented a significant challenge to HMRC’s approach to marking the taxpayer’s period of ownership. But it now seems to have swayed the courts (at least as far as the Upper Tribunal) to reconsider what really matters for PPR relief claims and the period of ownership – the underlying land or the dwelling itself? Time will tell if HMRC is prepared to face up to the possibility that it may have been getting these cases quite wrong for all these years – or whether it decides to double down on ‘clarifying’ the legislation – all in the interests of fairness, of course.
Useful Links
How will Making Tax Digital affect landlords?
Landlords will be impacted by Making Tax Digital when it comes into effect in April 2026.
Making Tax Digital (MTD) is going to mean big changes for the majority of landlords who submit self assessments.
You’ll need to use software to keep track of your income and expenses and to make quarterly MTD submissions.
This applies to income from rental properties or self-employment is over £50,000 a year from April 2026 and over £30,000 from April 2027.
Instead of submitting a yearly Self Assessment you’ll need to update HMRC every quarter.
Will all landlords be affected by MTD?
MTD impacts all landlords with personally owned properties earning more than £50,000 a year from rental properties or self-employment from 2026, and those earning £30,000 or more from 2027.
Property income in scope for MTD includes:
This is £50,000 of rental income, so gross profit before deducting your expenses, rather than net profit.
I own rental property in a partnership. Will MTD affect me? - HMRC has said it will announce dates for other types of partnerships, including LLPs and those with corporate partners, at a later date.
I’m a landlord that’s registered as a limited company. Will MTD affect me? - lf You own your properties in a limited company, you don’t need to worry about MTD for Income Tax yet.
Does MTD mean you need to pay tax four times a year? - No, how you pay self-assessed income tax is not changing.
How does Making Tax Digital work for joint landlords? - If the rental income is from a jointly owned property, this is based on the share of ownership - i.e. 50% if both parties have equal shares in the property. If your share of the rental income is over £50,000, then you'll be in scope for MTD from April 2026.
To conclude - if you currently complete a Self Assessment for your property income, and you earn over £50,000 from property or self-employment, you’re going to need to switch to use software to make quarterly MTD submissions from April 2026.
Beat the SDLT deadline
There is a stamp duty land tax (SDLT) deadline on the horizon – from 1 April 2025, there are changes to both the residential SDLT threshold and that applying to first-time buyers. Completing a purchase before that date could save the buyer £2,500 in SDLT. For a first-time buyer, the potential savings are more.
Residential SDLT threshold
The SDLT threshold was temporarily increased from £125,000 to £250,000 from 23 September 2022. It reverts to £125,000 from 1 April 2025. Prior to that date, purchasers pay no SDLT on the first £250,000 of the consideration. However, from 1 April 2025, while no SDLT will be payable on the first £125,000, SDLT is charged on the next £125,000 at 2%.
The rates are shown in the tables below.
Up to 31 March 2025
Slice of chargeable consideration SDLT rates
Up to £250,000 Zero
Next £675,000 (the portion from £250,001 to £925,000) 5%
Next £575,000 (the portion from £925,001 to £1.5 million) 10%
Remaining consideration (the portion above £1.5 million) 12%
From 1 April 2025
Slice of chargeable consideration SDLT rates
Up to £125,000 Zero
Next £125,000 (the portion from £125,001 to £250,000) 2%
Next £675,000 (the portion from £250,001 to £925,000) 5%
Next £575,000 (the portion from £925,001 to £1.5 million) 10%
Remaining consideration (the portion above £1.5 million) 12%
Example 1
Anna is in the process of moving home and is buying a new home for £500,000. If her purchase completes on or before 31 March 2025, she will pay SDLT of £12,500. However, if completion does not take place until on or after 1 April 2025, her SDLT bill will increase to £15,000.
First-time buyers
For first-time buyers, the rush to complete on or before 31 March 2025 is particularly acute, and delays resulting in completion after this date could increase their SDLT bill considerably. First-time buyers purchasing a home costing between £500,000 and £625,000 will only benefit from the first-time buyer threshold if they complete on or before 31 March 2025.
Prior to 31 March 2025, first-time buyers purchasing a property costing £625,000 or less pay no SDLT on the first £425,000 and 5% on the portion over £425,000. From 1 April 2025, the first-time buyer threshold is reduced to £300,000 and only applies where the amount that they pay for the property is £500,000 or less. From that date, there is nothing to pay on the first £300,000. Where the price exceeds £300,000 (up to £500,000), the remainder is liable to SDLT at 5%.
Where a property purchased by a first-time buyer is more than the first-time buyer ceiling price (£625,000 on and before 31 March 2025 and £500,000 from 1 April 2025), the normal residential rates and thresholds apply.
Example 2
Ben is a first-time buyer and is in the process of purchasing a flat costing £400,000. If the purchase completes before 1 April 2025, he will pay no SDLT. However, if it completes on or after that date, he must pay SDLT of £5,000 (£100,000 @ 5%).
Example 3
Caitlyn is purchasing her first home, a house costing £600,000. If she completes on or before 31 March 2025, she will benefit from the first-time buyer threshold and pay SDLT of £8,750 (£600,000 – £425,000) @ 5%).
However, if she completes on or after 1 April 2025, she will not benefit from the first-time buyer threshold and will pay SDLT at the usual residential rates. Her SDLT bill will be £20,000 ((£125,000 @ 2%) + (£350,000 @ 5%). Missing the deadline will cost her £11,250.
Investment buyers
Purchasers buying a second or subsequent residential property and who are not exchanging their main residence pay a supplement of 5% where the price is £40,000 or more. Prior to 1 April 2025, they will pay 5% on the first £250,000, whereas from 1 April 2025, they will pay 5% on the first £125,000 and 7% on the next £125,000. Where the consideration exceeds £250,000, SDLT is payable at the residential rates plus 5% on the excess.
Beat the deadline
Missing the deadline will prove costly. Buyers should, as far as they are able, ensure that they have all their ducks in a row to meet a completion date of 31 March 2025 or earlier.
Budget 2024
Overview
Implemented immediately
From January 2025
From April 2025
From April 2026
No change, or later
Reporting residential property gains
Owners of investment properties and second homes may decide to sell up for a variety of reasons. They may wish to take advantage of a more buoyant market as buyers rush to beat the reduction in the residential SDLT threshold from 1 April 2025. The end of the favourable tax regime for furnished holiday lets may see landlords sell up, while those sitting on a large capital gain may decide to realise that gain while the higher rate of capital gains tax on residential gains remains at 24%. Whatever the reason for the sale, where a capital gains tax liability arises on the disposal of a residential property, there is a limited window in which to report the gain to HMRC and to pay the capital gains tax due on that gain.
Residential property gains
While no capital gains tax is payable on a property that has been the owner’s only or main residence throughout their period of ownership, a capital gains tax liability may arise where this is not the case and private residence relief (alone or in conjunction with other reliefs, such as lettings relief) does not shelter the gain in full. This may be the case where the property has been used as a second home or has been let out.
Residential capital gains have their own rules.
Reporting the gain
Where a capital gains tax liability arises on the disposal of a UK residential property, this must be reported to HMRC within 60 days of the completion date. Where the property is jointly-owned, each co-owner must report their own gain.
A dedicated online service exists for reporting residential property gains, and the seller will need to set up an account to report the gain and pay the tax. This can be done online at www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020.
The following information will be required:
In the event that the seller is unable to use the online service to report the gain, they can instead contact HMRC and request a paper form.
Paying the tax
The seller must also pay the capital gains tax due on the residential property gain within 60 days of completion. This is the best estimate of the capital gains tax due at the time, taking account of any available annual exemption or capital losses. Capital gains tax on residential property gains are taxed at 18% to the extent that the seller’s income and gains do not exceed the basic rate band (£37,700 for 2024/25) and at 24% thereafter.
Payment can be made online through the online account using a debit or corporate credit card or by approving a payment through an online bank account. Payments can also be made by bank transfer or by cheque. The 14-character capital gains tax payment reference should be quoted.
There may be an adjustment once the overall capital gains tax position for the year is known. For example, the realisation of losses later in the tax year may give rise to a repayment. The position will be finalised in the Self Assessment tax return.
Remember to comply
Interest and penalties will be charged where a taxpayer fails to report and pay capital gains tax on a residential property gain within the required 60-day window.
The (property) tax advantages of being married - Part 1
An examination of the benefits or otherwise of getting married (or entering into a civil partnership) focusing on property tax in particular.
In the UK, property taxes are not as directly tied to marital status as they might have been in the past, but marriage can still influence how certain property taxes are applied.
1. Income tax By default, where a married couple (or civil partners) owns property as joint tenants, any rental income is usually split equally for tax purposes. Should the ownership shares be unequal as tenants in common, the couple can make a declaration (on HMRC form 17) to have the profits taxed in the proportion (or losses allocated) of the beneficial interest held in the property.
Being taxed using beneficial interest would be beneficial where one spouse or civil partner is a higher (or additional rate) taxpayer and the other spouse or civil partner is taxed at a lower rate (or is a non-taxpayer).
Under a form 17 election, the lower-rate spouse or civil partner can be allocated a larger share of the equity so as to be taxable on more of the rental income. The form must be submitted within 60 days of the date of signing a declaration of trust or a deed of arrangement. HMRC applies this restriction strictly.
Even if the property is held as tenants in common, without the form 17 declaration the couple will be taxed on an equal share of any profit from a jointly owned property. Should the owning spouse or civil partner not wish to transfer a material percentage of ownership but still wish to reduce their tax bill, a nominal amount (say, 5%) could be transferred to the other spouse or civil partner.
Note that this transfer of ownership must be undertaken formally via a solicitor. Therefore, should the property have been purchased jointly and the couple wishes to take advantage of form 17, legal costs of changing the deeds need to be factored into any tax benefit. If there is a mortgage on the property, there may be a stamp duty land tax (or devolved equivalent) charge, and the mortgagor should be advised.
The rule for form 17 applies to income only arising only from the date of the declaration. Therefore, a declaration made very late in the tax year may have little or no effect on the couple’s overall tax position for that year. Once made, the form 17 claim remains valid until one spouse or civil partner dies, or the couple separates permanently or divorces, or the spouse or civil partner’s beneficial interest in the property or income changes.
2. Capital gains tax One of the significant benefits of marriage is that there is no capital gains tax (CGT) on the transfer of property between spouses or civil partners. Therefore, should one spouse or civil partner transfer property to the other (either during their lifetime or upon death), no CGT is payable at the time of transfer.
The basic rule for CGT purposes is that interspouse (or inter-civil partner) transfers (assuming the couples are living together) take place at ‘no gain, no loss’ whatever the amount (if any) that is paid by the spouse or civil partner acquiring the asset and at the date of the transfer.
However, it is important to note that although the transfer takes place at no gain, no loss, a disposal for CGT purposes still occurs but is not taxable at the time of transfer. The receiving spouse or civil partner or partner acquires the interest in the property at the original cost to the transferor spouse or civil partner (plus indexation for pre5 April 2008 transfers). CGT is only potentially chargeable when the donee spouse or civil partner eventually sells the asset.
Such a transfer can be of overall benefit, potentially enabling optimum use of both individuals’ CGT annual exemptions. It can also avoid the situation where one spouse or civil partner has gains in excess of their annual exemption and the other spouse or civil partner has unrelieved losses.
Some caution is needed with the transfer of lossmaking assets incurred in the same or a previous tax year due to a ‘targeted anti-avoidance rule’. Essentially, this is directed at the artificial use of losses to avoid CGT. However, the rule may catch ‘innocent’ transactions. and anyone planning something involving their spouse or civil partner’s CGT losses should take advice to ensure they will not fall foul of the rule.
The (property) tax advantages of being married - Part 2
3. Inheritance tax The scope for married couples to reduce tax is perhaps greater under the inheritance tax (IHT) rules than under any other tax.
A legacy from one spouse or civil partner to another is generally free of IHT, and should the first spouse or civil partner to die leave everything to the spouse or civil partner, even greater savings can be made because the first spouse or civil partner’s nil-rate band passes to the survivor.
4. Stamp duty land tax Marriage does not directly affect stamp duty land tax (SDLT) rates as when purchasing property (in England or Northern Ireland), whether married or not, SDLT is payable based on the purchase price.
SDLT is also not charged on a gift of property unless there is a mortgage attached. The reason is that the recipient of the gift is deemed to have ‘paid for the gift by taking over responsibility for the same proportion of the mortgage as the gifted share of the property’. However, this would only create a problem if the value is above the SDLT threshold (currently £250,000 for residential property).
Additional reliefs regarding SDLT are available but not exclusively available to spouses or civil partners. For example, should both spouses or civil partners buy a property together, they may benefit from certain first-time buyer exemptions or reliefs if both meet the criteria, such as being first-time buyers and purchasing a property for under £425,000.
Making gifts Where a sale of property is envisaged, married couples and civil partners can generally transfer the property between one another with no tax liability, in order to take advantage of their combined CGT allowance; or they can transfer in full to the partner who is expected to incur the lesser charge.
When spouses or civil partners transfer assets between them, the transfer must be an outright gift with no conditions attached. The transferee spouse or civil partner must not continue to control the asset or derive a benefit from it afterwards. Otherwise, it will fall foul of the ‘settlements’ anti-avoidance provisions.
Property division during divorce can still lead to tax liabilities or complications, particularly if assets are sold or reallocated to a new partner.
HMRC’s stance
Such transfers have been known to be challenged by HMRC under what is termed ‘the Ramsay principle’ (based on W T Ramsay Ltd v IRC [1981] STC 174).
In that case, the House of Lords held that where there is a series of transactions, HMRC needs to look behind the individual steps when ascertaining the legal nature of a series of transactions and view the scheme as a whole.
The subsequent case Furness v Dawson [1984] STC 153 expanded the Ramsay principle by ruling that any transfers undertaken for no commercial purpose other than avoidance of tax should be disallowed, such as where the transferee spouse or civil partner agrees to return an equivalent sum to the transferor rather than keep a property, which would usually be the case with an outright gift, especially where the transfer was of a series of transactions designed to produce a tax benefit.
Practical tip
While being unmarried does not provide direct tax benefits, there are some situations where individuals may have more financial flexibility or fewer obligations than married couples. However, it is important to note that married couples can access certain allowances (such as the marriage allowance, whereby spouse or civil partners can transfer up to 10% of their personal allowance to their spouse or civil partner) and other tax exemptions that unmarried individuals do not, particularly for IHT, pension benefits, and tax credits.
Business property relief
A case on the distinction between qualifying and non-qualifying business activities for inheritance tax business property relief purposes.
Business property relief (BPR) offers inheritance tax (IHT) relief of 100% or 50% in respect of ‘relevant business property’. For example, BPR at up to 100% is presently available on an unincorporated business interest, or shares in an unquoted trading company.
All or nothing
An unincorporated business interest, and unquoted company shares, are not eligible for BPR if the business consists wholly or mainly of dealing in securities, stocks or shares, land or buildings or making or holding investments (NB these BPR exclusions are subject to limited exceptions, which are not considered here). This ‘wholly or mainly’ exclusion from BPR is an ‘all or nothing’ test. For example, shares in an unquoted company with activities comprising 51% qualifying trading and 49% investment business may qualify for BPR in full (assuming that these activities are measured accurately). Conversely, the company’s shares would be eligible for no BPR at all if its business activities were 49% trading and 51% investment. The practical difficulties in the interpretation and application of this test have resulted in a body of case law over the years.
Company shares
For example, in Executors of Keith Denis Lewis Beresford (Deceased) v Revenue and Customs [2024] UKFTT 952 (TC), a company’s main asset was a London property. Four out of six floors were used to provide serviced office facilities. The remainder was used for commercial lettings to tenants as shops and offices. A variety of facilities were available to the serviced office tenants, such as meeting rooms. When looking at what the company did in the round, the First-tier Tribunal (FTT) found that the nature of most activities was investment management. The advertising of the offices, negotiation of terms, maintenance of office equipment and provision of heating, air conditioning and electricity were all activities which maintained the value of the investment, rather than providing services to particular customers. The FTT concluded that the overall range of activities performed fell on the ‘managing investments’ side of the spectrum. The executors’ BPR claim on the company’s shares was unsuccessful.
Business interest
In Demetriou & Anor v Revenue and Customs [2024] UKFTT 830 (TC), the FTT had to consider whether a wild fishery business consisted of a business of holding investments. Prior to the deceased’s death, she had assisted her husband with the business and took it over on his death in 2003, becoming the river keeper. She continued to run the business until her death in 2020. The business changed from being a stocked fishery to managing and maintaining a wild fishery. This had an adverse impact on the business. The fishery’s income declined. She worked full-time running the wild fishery, even though it was increasingly unprofitable.
Standing back and looking at the business in the round, the FTT concluded that the wild fishery business was mainly one of holding investments. Accordingly, the business was not eligible for BPR.
Practical tip
HMRC admits: ‘The ‘wholly or mainly’ test is not an easy test to apply’ and offers some guidance in its Shares and Assets Valuation Manual at SVM111150. In addition, HMRC’s Inheritance Tax Manual at IHTM25265 advises its officers: ‘When you investigate this you should look at the main activities of the business, and to its assets and sources of income or gains, over a reasonable period preceding the transfer.’ Expert advice is highly recommended.
Mileage allowance payments
To save work, employers can pay employees a mileage allowance if they use their own car for business journeys. The Government have recently cleared up confusion as to what can be paid tax-free, confirming the maximum tax-free amount.
Mileage allowance payments
The approved mileage allowance payments system is a simplified system that allows employers to pay tax-free mileage allowance payments to employees who use their cars for business travel. Under the system, payments can be made tax-free up to the ‘approved amount’.
A similar, but not identical, system applies for National Insurance purposes.
The approved amount
The approved amount for tax is calculated for the tax year as a whole and is simply the reimbursed business mileage for the tax year multiplied by the tax-free mileage rates for the type of vehicle used by the employee. Rates are set for cars and vans, motor cycles and cycles and are as shown in the table below. They have been unchanged since 2011/12.
Example
Mo uses his own car for business and drives 12,350 miles in the tax year. The approved amount is £5,087.50 (10,000 miles @ 45p per mile + 2,350 miles @ 25p per mile).
Any payments made in excess of the approved amount are taxable and must be reported to HMRC on the employee’s P11D. If, on the other hand, the employer does not pay a mileage allowance or pays less than the approved amount, the employee can claim a deduction for the difference between the approved amount and the amount actually paid, if any.
Confusion
Earlier in the year, a petition went before Parliament calling for an increase in the advisory rate from 45 pence per mile to 60 pence per mile to reflect the increases in fuel prices since 2011. Parliament rejected the petition stating that the rates remained adequate as they covered all running costs and the fuel element was only a small part. However, in their response, they pointed out that employers could pay higher amounts tax-free where this represented the amount of actual expenditure and could be substantiated:
‘The AMAP rate is advisory. Organisations can choose to reimburse more than the advisory rate, without the recipient being liable for a tax charge, provided that evidence of expenditure is provided.’
The Government subsequently backtracked on this, stating in a written Parliamentary statement that:
‘The response [to the petition] stated that actual expenditure in relation to business mileage could be reimbursed free of Income Tax and National Insurance contributions. This is in fact only possible for volunteer drivers. Where an employer reimburses more than the AMAP rate, Income Tax and National Insurance are due on the difference. The AMAP rate exists to reduce the administrative burden on employers.’
Maximum tax-free amount
The maximum amount that can therefore be paid tax-free to employees using their own car for work is the approved amount, regardless of the car that they drive or the actual costs incurred. However, if the employer wishes to pay more, car sharing could be encouraged and the employer could also pay passenger payments (of 5 pence per mile) for each colleague that the driver gives a lift to (providing the journey is also a business journey for them).
For company car drivers, the maximum tax-free amount that can be paid is governed by the prevailing advisory fuel rates published by HMRC.
When mileage is paid at more than the approved rate
When mileage payments of more than the approved amount are paid
Employees often use their own cars for business journeys and are paid a mileage allowance by their employer to cover the cost of fuel and associated costs, such as insurance and wear and tear. The amount that the employer is able to pay tax-free is governed by the approved mileage allowance payments (AMAPs) scheme. The scheme does not apply to employees with company cars.
The scheme
Under the AMAP scheme, an employer can make tax-free mileage payments to an employee using their own vehicle for business journeys up to the ‘approved amount’. This is found by multiplying the business mileage for the year by the approved mileage rate for the type of vehicle. The calculation is performed for the tax year as a whole, rather than per journey.
The approved rates are shown below.
Cars & vans - First 10,000 business miles in the tax year: 45p per mile.
Subsequent business miles: 25p per mile
Motorcycles - 24p per mile
Cycles - 20p per mile
Example
John drives 12,000 business miles in the tax year using his own car. The approved amount is £5,000. This is 10,000 miles @ 45p per mile plus 2,000 miles @ 25p per mile.
Maximum tax-free amount
The approved amount is the maximum amount that can be paid tax-free. This is the case even if actual costs exceed the approved amount.
Paying more than the approved amount
Where the amount paid for the tax year is more than the approved amount, the excess is taxable. It is important to appreciate that the calculation is performed for the tax year as a whole, rather than for each journey individually. Consequently, if the payment made for a journey is made at a rate higher than the approved rate, there will be no tax to pay if the total payments for the year are less than the approved amount.
Example
Shay drives 10,200 miles in the tax year and is paid a mileage rate of 30p per mile. The final journey in the tax year is a journey of 150 miles for which Shay is paid a mileage payment of £45 (150 miles @ 30p per mile). As he has already driven 10,000 miles, the approved rate for that journey is 25p per mile.
However, for the year as a whole, the approved amount is £4,550 (10,000 miles @ 45p per mile plus 200 miles @ 25p per mile). As the mileage allowance payments made to Shay in the year of £3,060 (10,200 miles @ 30p per mile) are less than the approved amount, the payments can be made tax-free. It does not matter that the rate paid for the final journey was above the approved rate.
However, had Shay been paid a mileage rate of 50p per mile, the mileage payments made for the year of £5,100 would exceed the approved amount of £4,550, and the excess of £550 would be taxable.
Paying less than the approved amount
If the employer pays less than the approved amount, the employee can claim tax relief for the shortfall. Likewise, if the employer does not make mileage allowance payments, the employee can claim tax relief for the approved amount.
National Insurance
A similar scheme applies for National Insurance, but rather than being calculated for the tax year as a whole, the NIC-free amount is calculated separately for each earnings period. Also, for NIC purposes, an NIC-free rate of 45p per mile applies for cars and vans irrespective of the number of business miles in the tax year.
FHL – relief for finance and investment costs from April 2025
Landlords letting furnished holiday accommodation have hitherto enjoyed a range of tax benefits, including the ability to deduct interest and finance costs in full when calculating their taxable profits. However, the favourable regime for furnished holiday lettings comes to an end on 5 April 2025. From that date, landlords letting furnished holiday accommodation will be subject to the same tax rules as apply to other residential lets. While corporate landlords will still be able to deduct interest and finance costs when calculating their taxable profits, unincorporated landlords letting furnished holiday accommodation will be subject to the more restrictive interest relief rules for residential lets.
The rules
Rather than deducting interest and finance costs when calculating their rental profits, from 6 April 2025, relief for interest and finance costs incurred by an unincorporated landlord letting furnished holiday accommodation will be given as a tax deduction at the basic rate. The deduction reduces the amount of tax that the landlord has to pay.
The tax deduction is 20% of the lowest of the following amounts:
There are some points worthy of note.
From April 2025, the profit on furnished holiday lettings is not calculated separately from that on any other residential lets. Consequently, the finance and interest costs relieved as a basic rate tax reduction are those incurred in relation to all residential lets, not just those relating to holiday lets. Likewise, when working out the amount of the reduction, the profits are those of the property business as a whole, not just the profit relating to the furnished holiday lets. The concept of a furnished holiday let will cease to exist from April 2025 and the landlord will no longer need to satisfy availability and letting conditions – properties let to holiday makers are simply treated as a residential let.
Where the interest and finance costs for the year cannot be relieved in full (for example, because the profits of the property business or the landlord’s adjusted net income are lower than the interest and finance costs), the unrelieved interest and finance costs are carried forward for relief in a future tax year when income and profits allow.
Impact
The measure will affect landlords with mortgages on their holiday lets. Deducting interest and finance costs in the calculation of taxable profits provides relief for those costs at the landlord’s marginal rate of tax. However, where relief is given as a basic rate tax reduction, relief is given at 20% regardless of the rate of tax that the landlord pays. For landlords paying tax at the higher and additional rates, this reduction in relief effectively increases the cost of their borrowings.
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Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd. Registered in England No. 05770414.
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