Southside Accountants Wimbledon

How to Reduce Tax on Rental Income?

Feb4

On a buy to let mortgage you get tax relief on the interest on this mortgage and not on the capital repayment part.

With a repayment mortgage, the interest element decreases over the period of the loan as more of the mortgage is repaid. This means the amount of interest you can offset against your rental income decreases and your tax bill rises.

The solution  may be to take out an interest only mortgage…

  • Repayments would be less each month and the mortgage would not reduce so the interest would  remain high.
  • The saving on the lower mortgage payments can be  added to the repayments on say your normal home mortgage and so repay this off quicker instead.

By organising  your mortgage in this way, you ensure your tax on the rental income is minimised. What you are doing is paying less interest on your residential mortgage which is not tax deducible and more interest on your buy to let mortgage which is!

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Inheritance Tax – What is it All About?

Feb2

What is it?

Inheritance Tax is usually paid on your estate when you die. Most estates don’t have to pay Inheritance Tax because they are valued at less than the threshold (£325,000 in 2009-10).

 

Give It Away And Live For 7 Years

No inheritance tax (IHT) is payable on most gifts in your lifetime so long as you live 7 years after the gift. These gifts are known as a Potentially Exempt Transfers (PET)

If a gift is made but there is some reservation on it, such as gifting your house with the understanding you can still live there until you die, this will not count as a PET and will still form part of your estate that is subject to IHT on at death. However, the gift will be effective for capital gains tax, which can create a double tax charge for the person that inherits the house.

If you give away cash that is used to purchase your house, you can be liable to income tax on the benefit of living in the house. This is called the pre-owned asset charge.

There is a sliding for scale for the amount of IHT payable for death within the 7 years. Of course if your estate is worth less than £325,000, no IHT is ever payable.

 

Other Gifts That Are Always Free Of Inheritance Tax

The following will always be free on IHT, whenever they are made…

  • Small gifts to the same person of not more than £250 in a year.
  • Gifts in consideration of marriage of £5,000 from parents, £2,500 from grandparents and £1,000 from anyone else.
  • Normal expenditure out of income where the amounts given are part of your normal expenditure taking one year with another.
  • Amounts up to £3,000, with any unused amount being allowed to be carried forward to the following tax year.
  • Capital transfers for family maintenance – often connected with divorce.
  • Any gifts between spouses/civil partners, where the person who receives the gift is domiciled in the UK.
  • Any gifts to charities or political parties.

 

Husband and Wife (or civil partners)

 

No inheritance tax is payable on gifts between spouses or civil partners as long as both parties are domiciled in the UK. This is often used as a basic method of IHT avoidance. If the gift is a transfer to a foreign domiciled spouse it is only exempt up to £55,000.

With effect from 9th October 2007 spouses and civil partners will now be able to make full use of the nil rate band belonging to each spouse. This is retrospective and applies to anyone with a spouse or civil partner previously deceased. That gives a total inheritance tax exemption for a married couple of £650,000 (for 2009/10). The new rules allow any unused part of the nil rate band on the death of the first spouse or civil partner to be passed to the surviving spouse or civil partner for use on their death.

Say Fred dies on 1 October 2009 with an estate worth £650,000 and his wife did not use her nil rate band when she died previously, he now has the benefit of two nil rate bands totalling £650,000. Now Fred’s executors will pay no IHT at all. The amount of the nil rate band that can be transferred is the proportion of the nil rate band that was unused on the death of the first spouse or civil partner.

For example if on the first death, 50% of a 325K nil rate band was unused, if on the second death the nil rate band is 350K at that time, then 50% x £350K = £175K is available for use in addition to their own nil rate band. There is a maximum of an amount equal to the nil rate band in force at the time of the second death that can be used in addition. Therefore, it doesn’t matter how many ex-spouses or civil partners there are, it is not possible to have a total nil rate band of over 650K in 2009/10.

 

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Tax position where listed company shares are sold at a loss?

Jan17

Where you sell listed company shares at a loss this would be treated as capital loss. This loss can be offset against capital gains araising  in the same tax year or in future tax years.

Capital gains/ losses are calculated by deducting the orginal cost of the asset, plus any enhancement expenditure, from the selling price. The cost of the shares includes any fees paid on the purchase of the asset (shares)  and the money received on sale is reduced by any fees incurred on the sale of the asset (shares).  Tax allowable fees include legal fees, stamp duty and stockbroker’s fees.

Any Capital losses must be offset against any gains arising in the same tax year and if there is a net gain, then the annual tax free exemption (currently £10,100) is applied. If there is a net loss, it  is carried forward to future years until relief can be given.

Using  losses in this way is a key tax planning point, so it is  recommend you take advice from us before selling any shares at a  loss.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Is Personal Injury Compensation Taxable?

Jan17

Payments made on personal injury claims are not taxable, regardless of how this payment is received – lump sum or through periodic payments. Further, any interest paid as part of the damages is tax free but interest paid as result of late payment of the award is taxable.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

First Class Train Travel and 4 Star Hotel Costs Tax Deductible?

Dec27

HMRC Employment Manual paragrah 31835 says“The tests that apply to travel expense relate to the nature of the expense and not to the amount.” It goes on to say: “You should not refuse a deduction for first class rail travel, if that has been incurred, on the basis that the same journey could have been made more cheaply in standard class”. As long as the travel and hotel costs were incurred wholly and exclusive for your business the full cost is tax deductible.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London. 

Renting Out a Room – Tax Implications

Dec21

If you decide to rent a room in your house or flat to earn some dosh, the taxman cannot touch the rent you receive up to £4,250 per year ie this is tax free income. He has called this “Rent a Room Scheme”. This scheme would apply if you rent a room in your furnished family home where you live. Your lodger can take up either a single room or an entire floor of your home. If you charge extra for meals and laundry, you would need to add this to the rent you receive. If the total amount of money you receive from your lodger exceeds £4,250 then you have two options:

  • You pay tax on any income over £4,250 without deducting any expenses or
  • Take the rent you receive and deduct your expenses to work out your profit. You then pay tax on this profit.

This scheme will not apply if you split your home into separate flats and you let out the separate flat(s). If you do this than you declare the rent you receive from this in the normal way.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

How do I keep my Accounting Records?

Dec17

bookkeepingThis is a question we are asked very often. There is no simple answer to this. It depends on the type of business you run and the type of person  you are. There are certain records you need to keep. However, you have several options how you keep these records. The following link will take you to a Business Link website that explains this area extremely well:

http://www.businesslink.gov.uk/bdotg/action/detail?r.s=m&r.l1=1073858808&r.lc=en&r.l3=1073860617&r.l2=1073859227&r.i=1073789114&type=RESOURCES&itemId=1073789112&r.t=RESOURCES

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

How much can I earn before paying tax?

Dec16

doshIncome Tax

For the tax year 2009-2010 you can earn up to £6, 475 per year before you start paying income tax. If you are over 65  you can earn a bit more before you start paying tax.

National Insurance

For the tax year 2009-2010, you can earn up to £110 a week before you pay any National Insurance contributions.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

How Long to Wait Before Chasing for Payment?

Dec16

debtAfter your credit period (for example 30 days) there is no hard and fast rule on how long you should wait before taking further action.

The following is an excellent link that  provides an interactive questionnaire on process to follow when chasing a debt.

Link http://online.businesslink.gov.uk/bdotg/action/logicToolStarting?r.l1=1073858790&r.lc=en&r.l3=1075135408&r.l2=1074453392&r.i=1077731036&type=BLTTOOL&itemId=1077731036&r.t=BLTTOOL

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

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