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Property Taxes

If you are a landlord letting out property in the UK, then it is important to consider your responsibilities with respect to reporting income and/or gains on your property and paying any tax due.

By taking pro-active advice, you may be able to reduce your tax bill – particularly where you are selling property or considering expanding your property portfolio.

If you receive rental income from a tenant, either from a UK or overseas property, then you may be subject to income tax on your profits.  You may also be required to submit a Self Assessment tax return and report your income and expenses to HMRC.

We have assisted many clients in identifying their allowable expenses and helping them reduce their tax bills.

If you have been receiving rental income and have not reported it to HMRC, then you may be able to make a disclosure under the Let Property Campaign.

We can help you make this disclose and make sure you only pay the right amount of tax whilst minimising interest and penalties payable.

SDLT applies on the purchase of interests in land in England and Northern Ireland (Scotland and Wales have their own Land and Buildings Transaction Tax and Land Transaction Tax respectively– not covered here).

With recent changes to SDLT and the introduction of the 3% surcharge, many taxpayers are finding it increasingly difficult to determine if and how much SDLT they may have to pay.

Expert tax advice can make sure you don’t face an unexpected and unwelcome tax bill or overpay tax unnecessarily.

As your property portfolio grows, you may wish to consider the benefits and drawbacks of incorporating your rental business into a company.

Taking into account the rental income received, your personal circumstances, and your future intentions for the business, we can help guide you through this process and ensure that your business is structured in the most tax efficient manner in a way that suits you.

If you are thinking of selling your rental property, you may benefit from tax advice prior to the sale to ensure that the sale goes ahead in the most tax efficient way and that all available allowances and deductions are claimed.

When considering your liability to capital gains tax, we will always consider the availability of tax reliefs such as Principal Private Residence Relief (PPR) and Lettings Relief to make the most out of your sale.

If you are selling commercial property, then VAT and capital allowance considerations should also be taken into account.

Stamp Duty Land Tax: Further Reading

Stamp duty land tax (SDLT) was introduced in 2003* and since then has been subject to extensive reform.

SDLT is charged on the purchase of interests in land and is payable by the purchaser. It is calculated based on the consideration paid, and includes not only money but also money’s worth (e.g. the assumption of a mortgage).

SDLT is currently charged on a ‘slice’ basis (like income tax). This means that SDLT is charged at increasing rates for the amount of consideration that falls into the different SDLT bands.

Different rates apply depending upon whether or not the property is residential or mixed/commercial and whether the individual buying the property is an individual or non-natural person (e.g. a company).

Higher SDLT Rates

Since 1 April 2016, all purchases of residential properties have been subject to an extra 3% on SDLT in each band where the purchaser is either:

  • a non-natural person (e.g. a company), or
  • an individual who already has a dwelling and isn’t replacing their main residence.

These new rates are subject to a number of special rules and transitional provisions. Extra care must be taken when considering whether the higher rates will apply as these rules can catch taxpayers by surprise leaving them with unexpected tax bills or having paid the higher rates when they aren’t applicable.

Since 2012, a special rate of 15% on the total consideration paid has applied to the purchase of residential properties by non-natural persons. This special rate is separate to the recent 3% increase to each SDLT band.

The threshold for this special 15% rate was originally set at £2 million but from 2014 has been reduced to £500,000.

* From 1 April 2015 land in Scotland is subject to the Land and Buildings Transaction Tax. From 1 April 2018 land in Wales is subject to the Land transaction Tax. Neither of these taxes are covered here.

The Problem

A husband and wife owned a portfolio of 28 rental properties comprising both residential and commercial properties.

They were keen to transfer the properties into a newly incorporated company but were unsure of the capital gains tax (CGT) and stamp duty land tax (SDLT) implications of the arrangement or the availability of reliefs.

The Solution

We set out the tax implications of the proposed transfer and calculated the estimated tax due.

We considered the availability SDLT reliefs, with a particular focus on the “partnership exemption”. As part of this advice, it was necessary to examine whether there was a partnership in place and whether the activities undertaken amounted to a “business”.

In terms of the couple’s CGT liability, we determined the most tax efficient way to allocate losses and the availability of incorporation relief.

The taxpayers’ compliance obligations were also considered, such as the time frames for making the relief claims and reporting the transfer on their tax returns.

The Result

The level of activities carried on by the taxpayers in respect of their properties was significant, therefore there was a strong claim that incorporation relief would be available. As a result, the gain was deferred and there was no immediate charge to CGT on the transfer.

In terms of the SDLT partnership exemption, whilst the level of activities carried on were likely sufficient to amount to a business, as partnership returns had not been submitted and there was no partnership agreement there was a risk that HMRC would challenge the position that the couple ran their property business as a partnership. With this in mind, we provided advice on how they may be able to strengthen their claim.

We also considered an alternative scenario where the taxpayers did not make a claim for the exemption. Whilst the 3% surcharge would apply on the acquisition of the properties by the company, multiple dwellings relief should be available in respect of the residential properties to reduce the overall SDLT liability.

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Pensions

Whether you want to make contributions to your pension fund, or are already in receipt of a pension and unsure of the tax consequences, PD Tax can ensure help you understand the UK tax implications of pensions.

Pensions can be an efficient method of saving for many taxpayers as they benefit from a range of tax reliefs designed to encourage people to save for their retirement.  However these reliefs can come with certain restrictions based on things like your income, available annual allowance, and the amounts already saved in a pension.

We can assess your circumstances and help you understand the tax implications of your pension, including determining what are the maximum contributions you can make whilst retaining your eligibility for relief as well as identifying any useful tax claims that can be made.

Alternatively, you may be keen to withdraw funds on retirement and are unsure of what tax you may have to pay. Taking into account your future goals, we can help identify the most tax efficient route to access your funds while ensuring that your objectives can be met.

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Overseas Income/Gains

If you are resident in the UK and receive income or gains from overseas sources, it is important to consider whether it will be liable to UK tax, and if so, your compliance obligations.

In identifying your liability to UK tax, we will consider the impact of any Double Tax Treaties (if applicable) and the availability of any reliefs – particularly if the income or gains have already been subject to foreign tax.

If you are required to report and pay UK tax on your overseas income/gains, we can also assist in calculating the tax due and making all necessary submissions to HMRC.

Please note that we can only advise in respect of your UK tax liability, however we have connections with a number of non-UK tax advisors who can help you in relation to your tax liability in the overseas jurisdiction.

The Problem

Our client had undisclosed income and gains from a Swiss bank account and wanted to bring his tax affairs up to date whilst ensuring that the tax was calculated correctly and penalties minimised.

Our client was also concerned about the impact of the UK-Swiss tax treaty, under which he would have suffered a one levy of over £300,000 unless action was taken prior to 31 May 2013.

The Solution 

We provided advice and illustrative computations comparing the Swiss Tax Treaty with the Liechtenstein Disclosure Facility (LDF) and a voluntary disclosure to HMRC.

Following our clients decision to proceed with the LDF, we prepared detailed calculations of the UK tax liabilities, liaised with advisers in both Switzerland and Liechtenstein, provided a detailed analysis of the more complex areas of the disclosure and finally corresponded the disclosure to HMRC on our clients’ behalf.

The Result 

HMRC accepted our disclosure and the calculations of tax, interest and penalties without amendment.

We saved our client over £166,000 compared to the charge he would have suffered under the UK-Swiss Tax Treaty.

Specific benefits of making the disclosure through the LDF included:

  • Reduced rate of penalties as compared to a voluntary disclosure or unprompted HMRC enquiry/investigation
  • Guarantee of no criminal prosecution
  • Past tax liabilities brought up to date giving relief to our client and preventing an enquiry by HMRC

Testimonial provided by Mr T in September 2013

The review that you initially provided of my situation allowed me to understand that it was probably going to be better to make a disclosure under the Liechtenstein Disclosure Facility (LDF) rather than suffer the UK-Swiss Tax Treaty one off levy. This certainly proved to be the case.

Your thorough and robust approach to the calculations and their presentation allowed me to make my disclosure in a confident manner and I was very pleased that HMRC did not enquire into the disclosure.

In general, I was delighted with the service and results delivered by Vikki and yourself.

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Inheritance Tax Planning

Inheritance tax can be charged at a rate of up to 20% on certain gifts during your lifetime and, after you pass away, it can be charged at a rate of up to 40% on the value of your estate in excess of the nil-rate band.

So if you want to ensure your loved ones can benefit from your estate it’s important to plan for inheritance tax as soon possible, as procrastination on this matter is likely to cost you money.

Pro-active inheritance tax and succession planning can help protect your assets for the future and have a significant impact on the value of assets for your beneficiaries. We can provide you with a wide range of bespoke inheritance tax solutions, from inheritance tax and Will review services, to tailored tax planning for your estate (including trusts).

The type of inheritance tax planning devised will depend on the type of assets involved (i.e. property, cash, collectables, or business interests, e.g. shares) and, most importantly, your preferences for how and when your estate should be passed on.

The Problem

A landlord was keen to transfer his rental property portfolio to his children during his lifetime in order to mitigate inheritance tax, but was concerned that there may be significant capital gains tax implications on disposal.

The Solution 

After considering a number of different options, we concluded that a family trust route would be the most appropriate and tax efficient way to help our client achieve his goals.

This involved an outright gift of properties to the value of the annual exemption, meaning that no capital gains tax was chargeable on transfer.

We then arranged for our client and his wife to gift into trust the properties up to the value of their nil rate bands. The properties with the lowest gains in proportion to their value were transferred first so that they could benefit from an uplift in base cost, thereby reducing the capital gains tax liability on a future sale.

As our client intended to continue managing the properties, we suggested that he establish a property management company owned by him and his wife. They could then charge management fees to the trust and rental profits will be available through dividends.

The Result 

Provided that both clients survive seven years from the date of gift, the properties will be outside of their estates and they will have saved Inheritance Tax of approximately £260,000.

By extracting rental profits via a property management company, our client will continue to profit from the properties without invoking any anti-avoidance measures.

The Problem

The Will of a deceased’s estate with gross assets over £5 million contained complex provisions for determining the charitable legacy to be paid by the executors of the estate.

The executors and solicitors administering the estate needed assistance to determine the amount of the charitable gift.

The Solution 

After carefully examining the terms of the Will and the principles of the cases of Re Benham and Re Ratcliffe, we concluded that grossing up was not necessary to calculate the size of the residuary legacies and in particular the gift to charity.

As the charitable gift was more than 10% of the net estate, the reduced rate of IHT of 36% could be applied, saving the estate £170,000.

We also identified that a number of shares had been sold at undervalue and that loss relief could be claimed, saving a further £10,500.

The Result 

After finalising our calculation and the inheritance tax return, it became apparent that the estate had already overpaid inheritance tax and was, in fact, due a refund. HMRC duly issued a probate summery to the estate and the refund was issued shortly thereafter.

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Capital Gains Tax

Capital gains tax applies on the disposal of assets, such as property, land, and shares.

When considering your liability to capital gains tax, we will always make sure you can get the most out of the available allowances, reliefs, and deductions.

Where possible, it is good practice to obtain advice prior to selling or disposing of your assets as with careful planning it may be possible to reduce, defer, or avoid capital gains tax due by taking action in advance. This is particularly important if you intend to leave the UK or arrive from overseas.

We can also prepare the necessary paperwork to report gains and losses to HMRC, so you can rest assured that you have met all your compliance obligations.

Entrepreneurs’ Relief

Entrepreneurs’ Relief (often abbreviated to “ER”) is a valuable capital gains tax relief which may be available when you sell all or part of your business.

Provided that the relevant conditions are met, the effect of the relief is to reduce the rate of capital gains tax to 10% on the entirety of the gain.

As this is such a precious relief for entrepreneurs, PD Tax recommend that regular reviews are undertaken to ensure that you and your business meet the necessary requirements. We can advise you on whether you qualify for the relief, and if not, recommend steps you can take to ensure that you are eligible on a future sale.

The Problem

The client inherited a property from her parents many years ago. She was keen to gift the property to her three children but was worried about having to pay capital gains tax on the gift.

As she had never lived in the property she was not eligible for private residence relief (PRR).

The Solution

We provided the client with an illustrative calculation of the capital gains tax she would suffer on the gift to her children assuming that no other steps were taken prior to the gift.

Once the level of the tax at stake was quantified we could provide the client with a number of solutions to mitigate the upfront capital gains tax cost including:

  • Payment of the capital gains tax by instalments over 10 years,
  • Living in the property as her main residence for a period of time prior to the gift so that part of the gain could be exempted through private residence relief,
  • Transferring the property into a discretionary trust for the benefit of her three children. The property could either be retained in the trust or the trustees could choose to distribute the property to the children.

The Result

The availability of holdover relief for transfers into and out of a discretionary trust meant that it was possible to transfer the property to the three children without incurring an immediate liability to capital gains tax.

A tax saving of over £25,000 as compared to an outright gift.

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HMRC Enquiries & Voluntary Disclosures

If HMRC have enquired into your tax affairs, we can support you throughout the process and liaise with them on your behalf to ensure that any misunderstandings are resolved and that your best interests are protected.

Where you have previously unreported income and are keen to settle your tax affairs, we can provide advice regarding the most appropriate avenue for pro-active disclosure, consider whether a disclosure can be made under one of HMRC’s targeted campaigns, prepare the relevant documentation, and negotiate with HMRC in order to secure the best possible result for you.

Testimonial provided by Ms Y in September 2015

Vikki was a tremendous asset to me in sorting out my tax affairs. Her excellent advice helped me to make a complicated situation straightforward. I would recommend her to anyone.

Testimonial provided by Ms C in October 2013

I just wanted to say how delighted I am with the outcome of your communication with HMRC on my behalf.

Where I would have struggled to say the right thing to the right departments, you knew exactly who to contact and how to approach them regarding this rather unusual partnership tax situation.

It’s a great relief to have it all resolved (in my favour!) and I won’t hesitate to use PD Tax Consultants again

Disclosure of Offshore Income & Gains

The Problem

Our client had undisclosed income and gains from a Swiss bank account and wanted to bring his tax affairs up to date whilst ensuring that the tax was calculated correctly and penalties minimised.

The Solution

We provided advice and illustrative computations comparing the Swiss Tax Treaty with the Liechtenstein Disclosure Facility (LDF) and a voluntary disclosure to HMRC.

The Result

HMRC accepted our disclosure and the calculations of tax, interest and penalties without amendment.

The Problem

Our client came to us as they had been advised by their overseas bank that it was likely they should be paying UK tax on their foreign pension income.

The client was unsure how to calculate his UK tax liability, or which years needed to be accounted for.

The Solution 

We provided our client with advice which set out:

  • The amount of his UK tax liabilities on the foreign income. As part of this work we converted the foreign income into sterling using the appropriate exchange rates and identified that only 90% of foreign pension income received was chargeable to UK tax.
  • Provided advice regarding which years were required to be disclosed to HMRC. In this case the taxpayer had received some inaccurate advice which may have limited the number of years that HMRC could assess to 4 tax years, however in practice this point was not tested because whilst reviewing the taxpayer’s bank statements we discovered that our client had paid the one-off levy under the UK-Swiss Cooperation agreement, the effect of which was to regularise his tax position up to 2013 thus restricting the number of years for which a disclosure was required.
  • How the tax liabilities should be dealt with. We advised that 2016/17 and 2015/16 were in time to be included on tax returns, whereas for earlier years a voluntary disclosure would be required and that the Worldwide Disclosure Facility (WDF) would be a suitable mechanism for the disclosure.

Once the client reviewed our advice and figures, we made the appropriate notifications to HMRC and subsequently submitted the tax returns and disclosure.

The Result 

The tax returns and disclosure report and accompanying calculations were accepted by HMRC, thereby giving our client the peace of mind that their compliance obligations had been met and that their tax affairs were in order.

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Trusts

Trusts are commonly used as a vehicle to pass assets down the generations whilst safeguarding the assets from falling outside the control of the immediate family.

There are many different types of trusts, and the type used will depend on your desired outcome as well as an analysis of the tax position for the settlor, the beneficiaries, and the trust itself.

For existing trusts, comprehensive tax advice may be required in relation to:

  • an ongoing tax problem. such as the discovery of historical inaccuracies in the trust tax returns
  • trust accounts
  • an HMRC enquiry
  • a one-off tax planning opportunity, such as the acquisition or disposal of an asset
  • establishing the tax consequences of making distributions to the beneficiaries and/or winding up the trust.

Trustees are responsible for disclosing income and gains to HMRC through the Self Assessment tax return system. With this in mind, we also offer a cost-effective and hassle-free tax return service to our trust clients.

Trustees are also responsible for reporting and paying inheritance tax on relevant transfers from the trust. We can also prepare the appropriate inheritance tax returns and calculate the tax due to help trustees ensure they met their tax compliance obligations.

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Deceased Estates

At PD Tax we recognise that the death of an individual is a difficult time. However, tax obligations, such as the requirement to file tax returns and pay the tax due on behalf of the deceased, do not cease upon death.

The taxes typically involved are inheritance tax, income tax, and capital gains tax, and it is the personal representatives’ responsibility to ensure that the returns have been submitted and the correct tax has been paid.

From a tax perspective, the personal representatives may need to:

  • Calculate and pay any inheritance tax due on the estate
  • Prepare estate accounts
  • Submit inheritance tax returns as part of the probate process
  • Ensure that the deceased’s tax affairs are up to date for the period up to the date of death
  • Register the estate with HMRC, complete tax returns, and pay income tax and capital gains tax for the period of administration
  • Provide information to the beneficiaries regarding the amount of taxable income distributed to them by the estate (typically this is done using form R185).

Personal representatives can become personally liable for tax liabilities where the assets have already been distributed to beneficiaries (see Graham Usher & Martin Perkins Executors of Terence Guy Deceased v HMRC). It is therefore important that personal representatives seek professional tax advice when faced with complex or unfamiliar issues.

The Problem

We have recently been engaged by the Executors of a deceased individual’s estate.

Much of the individual’s wealth was held in a property company, and therefore the shares in that company generated a significant Inheritance Tax Liability.

The Solution 

We advised the Executors on how to restructure the estate so that they have a cash redeemable asset secured to the assets of the company, which can be drawn down from the company over a period to meet the Inheritance Tax Instalments as they fall due.

This was important for the Executors of the estate as it is in effect their personal responsibility to ensure that the liabilities of the estate are met out of the assets.

The Result 

The restructuring also allowed the executors to access the capital gains uplift in the base cost of the property company shares on death, in order to mitigate tax in obtaining money from the company to pay their liabilities. Clearance was obtained from HMRC in this regard.

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Residence & Domicile

Leaving or returning to the UK? Split your time between the UK and overseas?

Then it may be necessary to consider your residence status for UK tax purposes. As a general rule, UK residents are charged to UK tax on their worldwide income while non-UK residents are charged to UK tax on UK-source income only.

It is therefore crucial that your residence status is correctly determined as it may have a significant impact on your liability to UK tax. PD Tax have assisted many clients with various residence issues which have affected their UK tax bill and helped them identify areas where they can plan for UK tax efficiently.

Further complexities can arise where you are UK resident but domiciled elsewhere, and wish to claim the remittance basis.

PD Tax are experienced in advising both those coming to and those moving away from the UK as well as those with domiciled outside the UK.

The Problem

The clients were both born in the UK with British citizenship and emigrated to Australia where they lived and worked for over 30 years.

Following retirement, the clients purchased a property in England with the intention of spending up to 5 months a year in the UK and the remainder of the year in Australia.

They were worried that due to the recent introduction of the Statutory Residence Test (STR) they may be considered UK residents, making them subject to tax on their worldwide income including Australian pensions and bank interest.

The Solution 

Following an initial meeting, we provided detailed written advice which set out the key principals in relation to their residence status including the impact of the UK-Australia double tax treaty.

Due to the number of days they expect to spend in the UK, we advised that strictly they would be UK resident under the SRT.

However, we were further able to advise that the UK-Australia double tax treaty had a tiebreaker clause for dual residents, which in their circumstances would award residence to Australia.

The Result 

Both clients are non-UK resident therefore their Australian income is outside the scope of UK income tax.

Their residence position and double tax treaty exemptions will need to be carefully documented on their UK tax returns going forwards.

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Tax Returns

Tired of worrying about getting your tax return correct and submitted on time, and need a smooth and seamless tax return service?

We can help you meet every Self Assessment deadline, so you can sleep easy knowing that you have met your compliance obligations and you will not receive any unexpected penalties.

It is important that your tax return is prepared correctly and promptly and that any difficult issues are considered properly and disclosed to HM Revenue and Customs accordingly. This is why all our clients’ tax returns are considered in detail by a Chartered Tax Adviser, yet our team is structured to prepare your tax return in an efficient and cost-effective manner.

Do I Need To File a Tax Return?

If you are unsure about whether you need to submit a return then request a call back for a no-obligation conversation.

Submitting a tax return may be necessary for a particular tax year (running from 6 April to 5 April) if you:

  • Disposed of assets resulting in a capital gain;
  • Were self-employed or in a partnership;
  • Received untaxed income (such as rental income or dividends);
  • Have income of more than £100,000;
  • Earn more than £50,000 and you or your partner claim child benefit;
  • Claim expenses or reliefs (such as employment expenses or relief for pension contributions);
  • Want to utilise tax efficient investments such as Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS), or Venture Capital Trusts (VCT);
  • Have foreign income;
  • Receive income from a trust or estate;
  • Live or work abroad or
  • Are non-domiciled in the UK;

This list is not exhaustive and some exceptions do apply.

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