If you leave the UK and let your property here, your letting agent (or the tenant where there is no agent) should deduct basic rate (20%) tax from the rents paid after deduction of certain expenses, under the non-resident landlord scheme (NRL). This ensures that at least some tax is paid on the income in the UK.
You can avoid having 20% tax deducted if you successfully apply for approval under the NRL scheme from HMRC. Approval will be granted where your UK tax affairs are up to date, or you don't expect to be liable to pay UK tax in the year you apply.
The NRL scheme applies if the landlord's usual place of abode is not in the UK. This is not the same as being not resident in the UK for tax purposes. An absence from the UK for as little as six months can be enough to establish your usual place of abode as being outside the UK.
The NRL scheme applies to members of the armed forces and diplomats, just as it does to any other non-resident landlord. It also applies to overseas trusts and companies, which must have income tax (not corporation tax) deducted from their rental income.
If your UK property is let as holiday accommodation, you may need to register for VAT in the UK as holiday lets are subject to standard rate VAT. As an overseas person you have a zero turnover threshold for VAT registration, so you may have to register for VAT immediately on letting holiday accommodation. However, where a UK letting agent manages the property on your behalf, the VAT registration threshold of £79,000 applies for that landlord.
Showing posts with label property advice. Show all posts
Showing posts with label property advice. Show all posts
Friday, 31 January 2014
CGT on Home Developments
Your main home is exempt from capital gains tax when you sell it, but only if you bought the property with the intention of living in it on a permanent basis, not as a project to renovate and sell. People who are required to live in job related accommodation, such as prison warders and church ministers, can have a separate tax-exempt home without having to live in it.
Some taxpayers who have taken on renovation projects have found the gain on their property doesn't qualify for the tax exemption, because they can't prove they occupied the property on a permanent basis while it was being renovated before the sale.
For example, Jason Moore bought a property with his girlfriend in December 1999. He claimed to have lived there while he renovated it in the period to late February 2000, when he returned to live with his girlfriend. The property was then let to tenants until it was sold for a profit in June 2004. Jason had no documentary evidence of his time at the property in the three months to February 2000, so his claim for the tax exemption failed.
Paul Gibson went much further in knocking down his whole home and constructing a new one on the same site, which he sold shortly after it was completed. Although Paul intended to live in the new property, he was forced to sell it to repay the loans he had taken out. He claimed to have occupied the finished house for about five months before the sale, but he couldn't prove this with any documents.
If you are planning a "grand design" conversion for your own home talk to us first about the tax implications.
Some taxpayers who have taken on renovation projects have found the gain on their property doesn't qualify for the tax exemption, because they can't prove they occupied the property on a permanent basis while it was being renovated before the sale.
For example, Jason Moore bought a property with his girlfriend in December 1999. He claimed to have lived there while he renovated it in the period to late February 2000, when he returned to live with his girlfriend. The property was then let to tenants until it was sold for a profit in June 2004. Jason had no documentary evidence of his time at the property in the three months to February 2000, so his claim for the tax exemption failed.
Paul Gibson went much further in knocking down his whole home and constructing a new one on the same site, which he sold shortly after it was completed. Although Paul intended to live in the new property, he was forced to sell it to repay the loans he had taken out. He claimed to have occupied the finished house for about five months before the sale, but he couldn't prove this with any documents.
If you are planning a "grand design" conversion for your own home talk to us first about the tax implications.
Friday, 31 May 2013
Letting Business Tax Reliefs
The tax treatment of businesses which involve the letting of property is not consistent across all taxes and tax reliefs. It's not logical, but just because the letting business qualifies for one tax relief it will not necessarily qualify for an apparently similar tax relief.
For example if you have a property letting enterprise which you wish to transfer into a company in return for shares in the company, a capital gain will arise in your hands when you transfer the properties to the company. This gain can be rolled into the value of shares of the company if the property enterprise is deemed to be a 'business'. This relief is known as incorporation relief, but it will only apply if the business owner is more than just a passive property investor. The courts have decided that the business must have some substance in terms of turnover, be conducted on sound business principles with a view to a profit, and be activity pursued with reasonable continuity.
The holding of let properties is considered to be a 'business' for the inheritance tax, but it is excluded from the IHT relief called business property relief (BPR), as letting is considered to be mainly the holding of investments (i.e. the let properties). In order to qualify for BPR the business owner has to offer the tenants additional services which would generally only be available in a holiday letting business, bed and breakfast, or hotel business. Even then the owners of self-catering holiday cottages have to jump through some hoops to get the letting business to qualify for BPR.
Losses made in a property letting business cannot be set against profits or income from other sources, such as other trading businesses, interest or dividends.
Check with us as to whether your property business qualifies for a particular tax relief and don't assume anything.
For example if you have a property letting enterprise which you wish to transfer into a company in return for shares in the company, a capital gain will arise in your hands when you transfer the properties to the company. This gain can be rolled into the value of shares of the company if the property enterprise is deemed to be a 'business'. This relief is known as incorporation relief, but it will only apply if the business owner is more than just a passive property investor. The courts have decided that the business must have some substance in terms of turnover, be conducted on sound business principles with a view to a profit, and be activity pursued with reasonable continuity.
The holding of let properties is considered to be a 'business' for the inheritance tax, but it is excluded from the IHT relief called business property relief (BPR), as letting is considered to be mainly the holding of investments (i.e. the let properties). In order to qualify for BPR the business owner has to offer the tenants additional services which would generally only be available in a holiday letting business, bed and breakfast, or hotel business. Even then the owners of self-catering holiday cottages have to jump through some hoops to get the letting business to qualify for BPR.
Losses made in a property letting business cannot be set against profits or income from other sources, such as other trading businesses, interest or dividends.
Check with us as to whether your property business qualifies for a particular tax relief and don't assume anything.
Thursday, 1 November 2012
Avoid Property Trading Tax
Some people regularly purchase run-down houses, do them up and sell them on. If you do this as part of your building/property development business, the profits made on the sale of the properties may be taxed as trading income (tax rates: 20%, 40% or 50%).
If you let the renovated properties, then sell them at a later date, the profits made on those sales will be taxed as capital gains (tax rates: 18% or 28%). The position is less clear cut if you live in each property for a period either during or after the renovations are undertaken. The Taxman is keen to charge any profits made on the renovated property as trading income, because if the profits are categorised as a capital gain, that gain may well be exempt from tax on the basis that the property was your main residence.
For the Taxman to prove the money made from the property is trading income he must show the owner's motive for purchasing and renovating the property was to make a profit, and not simply to make the property more comfortable for the owner to reside in. This is difficult to prove.
If the owner is a builder by trade the Taxman may also argue that the property renovation was undertaken as part of his building business, even if he also lived in the property. The Taxman may say the profits should be taxed as a trade if the owner has a history of purchasing and renovating many properties and living in each for only a short period.
If you want to avoid profits you make on renovating and selling a property being taxed as a trade, make sure you make the property your real home for a significant period. Have a good reason for living in that location, eg locality to schools or work, and try not to make a habit of purchasing and renovating several properties within a short number of years.
If you let the renovated properties, then sell them at a later date, the profits made on those sales will be taxed as capital gains (tax rates: 18% or 28%). The position is less clear cut if you live in each property for a period either during or after the renovations are undertaken. The Taxman is keen to charge any profits made on the renovated property as trading income, because if the profits are categorised as a capital gain, that gain may well be exempt from tax on the basis that the property was your main residence.
For the Taxman to prove the money made from the property is trading income he must show the owner's motive for purchasing and renovating the property was to make a profit, and not simply to make the property more comfortable for the owner to reside in. This is difficult to prove.
If the owner is a builder by trade the Taxman may also argue that the property renovation was undertaken as part of his building business, even if he also lived in the property. The Taxman may say the profits should be taxed as a trade if the owner has a history of purchasing and renovating many properties and living in each for only a short period.
If you want to avoid profits you make on renovating and selling a property being taxed as a trade, make sure you make the property your real home for a significant period. Have a good reason for living in that location, eg locality to schools or work, and try not to make a habit of purchasing and renovating several properties within a short number of years.
Thursday, 15 September 2011
Jointly Held Property Tax Savings
With the threshold for 40% tax reducing every year (£35,000 after deducting allowances for 2011/12), it makes sense to review who pays the higher rates of tax within a family. Can some assets be transferred to the partner who pays a lower tax rate to reduce tax?
For example a let property could be transferred from one spouse into the joint ownership of the married couple or civil partners, or entirely into the other spouse's name. Joint ownership has advantages, as on the eventual sale of the property up to two annual exemptions (£10,600 each for 2011/12) may be available to reduce the chargeable gain. Transfers between husband and wife or civil partners who are living together do not create a capital gains tax charge at the time of the transfer.
Generally UK land can be held as joint tenants when the owners hold an equal undivided interest in the whole property, or as tenants-in-common where the individuals hold separate and identifiable shares, say 10% and 90% of the property (the legal terms may differ under Scottish law). However, where the owners are either married or in a civil partnership, the property will be treated for tax purposes as being held in equal shares (50:50), even if this is not the case. To be taxed on the actual interest each holds in the property the couple need to sign a declaration on Form 17 and submit it to HMRC.
Form 17 has recently been reissued. HMRC now require evidence of the actual beneficial interest held by each person in the property to be submitted with form 17. This evidence may be a copy of the property deeds, or the purchase or transfer document.
For example a let property could be transferred from one spouse into the joint ownership of the married couple or civil partners, or entirely into the other spouse's name. Joint ownership has advantages, as on the eventual sale of the property up to two annual exemptions (£10,600 each for 2011/12) may be available to reduce the chargeable gain. Transfers between husband and wife or civil partners who are living together do not create a capital gains tax charge at the time of the transfer.
Generally UK land can be held as joint tenants when the owners hold an equal undivided interest in the whole property, or as tenants-in-common where the individuals hold separate and identifiable shares, say 10% and 90% of the property (the legal terms may differ under Scottish law). However, where the owners are either married or in a civil partnership, the property will be treated for tax purposes as being held in equal shares (50:50), even if this is not the case. To be taxed on the actual interest each holds in the property the couple need to sign a declaration on Form 17 and submit it to HMRC.
Form 17 has recently been reissued. HMRC now require evidence of the actual beneficial interest held by each person in the property to be submitted with form 17. This evidence may be a copy of the property deeds, or the purchase or transfer document.
Wednesday, 1 June 2011
Property Development Issues
There are a wide range of tax issues to consider when developing properties. Here we touch on just a few of them...
- Your own home is normally free of capital gains tax when you sell it, but this tax exemption does not apply if you purchase a property with the intention of developing it and turning a profit. In this case the profit you make could be subject to income tax (at rates of up to 50%) rather than capital gains tax (18% or 28%), as the Taxman will want to view the development activity as a trade. It is very rare that the Taxman succeeds in proving the development of a single property is a trade, but if you make a habit of developing and selling on properties, while claiming capital gains exemption, you could lay yourself open to a tax investigation.
- Where your property includes a significant amount of land, the profit attributed to the land in excess of half a hectare will normally be subject to capital gains tax. This half-hectare limit can be stretched in circumstances where the land and any accompanying outbuildings are closely related to the main residential building.
- When purchasing a run-down property to develop you must think about the cost of VAT. If you are not a VAT registered builder you normally can't reclaim the VAT on the development costs. However there is a scheme that allows DIY builders to reclaim VAT when a non-residential building is being converted into a home. There are a number of other conditions that must be met for this DIY builders scheme to apply.
- VAT may be charged at the lower rate of 5% on certain building services when the building has been empty for at least two years, or the development changes the number of dwellings in the building. The rules that allow this lower rate of VAT to apply are very complicated so you need to take advice before you start the development project.
If you are looking at property development it is important to get advice before proceeding.
- Your own home is normally free of capital gains tax when you sell it, but this tax exemption does not apply if you purchase a property with the intention of developing it and turning a profit. In this case the profit you make could be subject to income tax (at rates of up to 50%) rather than capital gains tax (18% or 28%), as the Taxman will want to view the development activity as a trade. It is very rare that the Taxman succeeds in proving the development of a single property is a trade, but if you make a habit of developing and selling on properties, while claiming capital gains exemption, you could lay yourself open to a tax investigation.
- Where your property includes a significant amount of land, the profit attributed to the land in excess of half a hectare will normally be subject to capital gains tax. This half-hectare limit can be stretched in circumstances where the land and any accompanying outbuildings are closely related to the main residential building.
- When purchasing a run-down property to develop you must think about the cost of VAT. If you are not a VAT registered builder you normally can't reclaim the VAT on the development costs. However there is a scheme that allows DIY builders to reclaim VAT when a non-residential building is being converted into a home. There are a number of other conditions that must be met for this DIY builders scheme to apply.
- VAT may be charged at the lower rate of 5% on certain building services when the building has been empty for at least two years, or the development changes the number of dwellings in the building. The rules that allow this lower rate of VAT to apply are very complicated so you need to take advice before you start the development project.
If you are looking at property development it is important to get advice before proceeding.
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