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The Autumn Statement 2022

It comes as no surprise that the 2022 Autumn statement has little in way of tax cuts.

We summarise below the key announcements made by The Chancellor.

Income Tax

The personal tax thresholds for basic and higher rate taxpayers will be maintained at their current levels of £12,570 and £50,270.

The threshold for the additional rate of tax has been reduced from £150,000 to £125,140 effective 6 April 2023. This will bring more individuals within the threshold and increase current additional rate taxpayers tax bill by £1,243.00.

This increase applies to taxpayers in England, Wales, and Northern Ireland; Scotland has different tax rates. 

 The additional rate of tax for savings and dividend income will apply UK- wide. 

Married couples’ allowance and Blind Person’s Allowance will be increased by 10.1% from 6 April 2023.

Dividend allowance will be reduced from £2,000 to £1,000 from April 2023, and £500.00 from April 2024

National Insurance

All national insurance thresholds for all classes will remain fixed at their current levels until April 2028.

The rate at which employer’s start to pay national insurance will be fixed at £9,100 from April 2023 until April 2028.

The employment allowance will remain at its current level of £5,000.

National Living Wage

From 1 April 2023, the government will increase the National Living Wage by 9.7% to £10.42 an hour for individuals aged 23 years and over.

Capital gains 

The capital gains allowance will reduce from £12,300 to £6,000 from April 2023 and £3,000 from April 2024.

Business Tax

VAT registration and deregistration thresholds will be maintained at the current levels of £85,000 for an additional two years from 1 April 2024.

Annual Investment Allowances

Annual Investment Allowance has been confirmed at a permanent rate of £1 million from 1 April 2023.

Research and Development

For expenditure on or after 1 April 2023, the Research & Development Expenditure Credit rate will increase from 13% to 20%, the SME additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%.

Other measures

Stamp Duty

The SDLT cuts announced on the 23 Sep 22 will remain in place until Mar 2025. The nil threshold was increased from £125,000 to £250,000 for all purchases of residential properties, the nil threshold for first time buyers was increased from £300,000 to £425,000. These rates apply to purchasers in England and Northern Ireland.

The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000. 

Energy price guarantee

The Energy price guarantee will continue from April 2023 though support will be less generous based on a higher average usage price of £3,000 up from £2,500.

Business rates

The planned revaluation for England will proceed in April 2023 for business rates to reflect property values as at 1 April 2021. Current values have been in effect since April 2017 and are based on market values as at 1 April 2015.

A transitional rates scheme to phase in changes with the new values will be in place for 3 years following revaluation. The rates multiplier will be frozen in 2023-24 and relief provided to businesses in retail, hospitality, and leisure sectors from 50% to 75%.

Business can check with their local councils for other non-domestic relief that might be available to them. https://www.gov.uk/apply-for-business-rate-relief

Eligibility for start-up loans

The eligibility for start-up loans has been widened to include businesses that have been trading for up to 3 years. Qualifying business can borrow up to £25,000 (businesses that have been trading for up to 3 years, this was previously for businesses that had been trading for two years)

New second loans are available to businesses that have been trading for up to 5 years.

Find out more here

Recovery loan scheme

The Recovery Loan Scheme, launched in April 2021 to help businesses recovering from the pandemic, has been extended to 2024. Details of the scheme and eligibility criteria can be found on the British Business Bank website FAQs

Car tax

Electric cars, vans and motorcycles will begin to pay Vehicle excise duty in the same way as petrol and diesel vehicles from April 2025.

Company car taxes are going to be set up until April 2028 to provide long term certainty for taxpayers and industry in Autumn Finance Bill 2022. 

Rates will continue to incentivise the take up of electric vehicles:

  • appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1 percentage point in 2025-26: a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars
  • rates for all other vehicles bands will be increased by 1 percentage point for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28.

Inheritance tax

The inheritance tax nil band rates will remain at the current levels.

£325,000, residence nil band rate £175,000 and the residence nil-rate band taper will continue to start at £2m.

Contact us regarding this article

The Autumn Statement 2022

It comes as no surprise that the 2022 Autumn statement has little in way of tax cuts.

We summarise below the key announcements made by The Chancellor.

Income Tax

The personal tax thresholds for basic and higher rate taxpayers will be maintained at their current levels of £12,570 and £50,270.

The threshold for the additional rate of tax has been reduced from £150,000 to £125,140 effective 6 April 2023. This will bring more individuals within the threshold and increase current additional rate taxpayers tax bill by £1,243.00.

This increase applies to taxpayers in England, Wales, and Northern Ireland; Scotland has different tax rates. 

 The additional rate of tax for savings and dividend income will apply UK- wide. 

Married couples’ allowance and Blind Person’s Allowance will be increased by 10.1% from 6 April 2023.

Dividend allowance will be reduced from £2,000 to £1,000 from April 2023, and £500.00 from April 2024

National Insurance

All national insurance thresholds for all classes will remain fixed at their current levels until April 2028.

The rate at which employer’s start to pay national insurance will be fixed at £9,100 from April 2023 until April 2028.

The employment allowance will remain at its current level of £5,000.

National Living Wage

From 1 April 2023, the government will increase the National Living Wage by 9.7% to £10.42 an hour for individuals aged 23 years and over.

Capital gains 

The capital gains allowance will reduce from £12,300 to £6,000 from April 2023 and £3,000 from April 2024.

Business Tax

VAT registration and deregistration thresholds will be maintained at the current levels of £85,000 for an additional two years from 1 April 2024.

Annual Investment Allowances

Annual Investment Allowance has been confirmed at a permanent rate of £1 million from 1 April 2023.

Research and Development

For expenditure on or after 1 April 2023, the Research & Development Expenditure Credit rate will increase from 13% to 20%, the SME additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%.

Other measures

Stamp Duty

The SDLT cuts announced on the 23 Sep 22 will remain in place until Mar 2025. The nil threshold was increased from £125,000 to £250,000 for all purchases of residential properties, the nil threshold for first time buyers was increased from £300,000 to £425,000. These rates apply to purchasers in England and Northern Ireland.

The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000. 

Energy price guarantee

The Energy price guarantee will continue from April 2023 though support will be less generous based on a higher average usage price of £3,000 up from £2,500.

Business rates

The planned revaluation for England will proceed in April 2023 for business rates to reflect property values as at 1 April 2021. Current values have been in effect since April 2017 and are based on market values as at 1 April 2015.

A transitional rates scheme to phase in changes with the new values will be in place for 3 years following revaluation. The rates multiplier will be frozen in 2023-24 and relief provided to businesses in retail, hospitality, and leisure sectors from 50% to 75%.

Business can check with their local councils for other non-domestic relief that might be available to them. https://www.gov.uk/apply-for-business-rate-relief

Eligibility for start-up loans

The eligibility for start-up loans has been widened to include businesses that have been trading for up to 3 years. Qualifying business can borrow up to £25,000 (businesses that have been trading for up to 3 years, this was previously for businesses that had been trading for two years)

New second loans are available to businesses that have been trading for up to 5 years.

Find out more here

Recovery loan scheme

The Recovery Loan Scheme, launched in April 2021 to help businesses recovering from the pandemic, has been extended to 2024. Details of the scheme and eligibility criteria can be found on the British Business Bank website FAQs

Car tax

Electric cars, vans and motorcycles will begin to pay Vehicle excise duty in the same way as petrol and diesel vehicles from April 2025.

Company car taxes are going to be set up until April 2028 to provide long term certainty for taxpayers and industry in Autumn Finance Bill 2022. 

Rates will continue to incentivise the take up of electric vehicles:

  • appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1 percentage point in 2025-26: a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars
  • rates for all other vehicles bands will be increased by 1 percentage point for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28.

Inheritance tax

The inheritance tax nil band rates will remain at the current levels.

£325,000, residence nil band rate £175,000 and the residence nil-rate band taper will continue to start at £2m.

Contact us regarding this article

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The Mini-budget reversal

Yesterday, the 17th of October, the government brought forward the announcement of most the UK’s fiscal measures that were due to take place on the 31st of October. A decision on whether benefits will be increased in line with inflation is expected to be announced on the 31st of October 2022 when further fiscal measures will be announced. 

This comes after a turbulent few weeks since the announcement of the mini budget on the 23rd of September 2022. 

Before getting into the announcements made on the 17th October 2022, here is a quick recap of what has happened since the mini-budget 

  • Pound against dollar at its lowest. 
  • U-turn on the reversal of the scrapping of the 45% tax rate. 
  • U-turn on the decision to not increase corporation tax to 25% from April 2023. 
  • Chancellor Kwasi Kwarteng sacked; Jeremy Hunt appointed new chancellor.  
  • Jeremy Hunt announces some of the fiscal measures that were due to be announced on 31 October 2022. 

Okay, so what was announced on the 17th October 2022 

  • The basic rate of tax will remain at 20% for the foreseeable future. 
  • Off payroll reforms introduced in April 2017 and 2021 will remain. 
  • Increase in dividend tax will remain.  
  • The cap on energy prices, previously meant to stay in place for 2 years will now stay in place until April 2023 at which point support will be reviewed. This is obviously a huge disappointment for many.  
  • No new VAT- free shopping scheme for overseas visitors to the UK. 
  • No freeze on alcohol duty. 

The only tax cuts to that survived Jeremy Hunt are the reversal of the 1.25% national insurance increase as well as the increase in thresholds for stamp duty. 

The celebrations for the scrapping of the off-payroll reforms will have to wait! 

However, following the announcements, the pound recovered against the dollar and yields on 30 year gilts are easing back. 

Contact us about this article 

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The Mini Budget

There is nothing mini about the mini budget. With the biggest tax cuts since 1972, the lowest drop of the pound against the dollar in history, there is definitely nothing mini about it.

Here are the key changes/announcements

Income tax cut 

The basic rate income tax has been reduced from 20% to 19%, effective 5 April 2023; this has been brought forward a year. The previous chancellor Rushi Sunak had pledged to reduce the basic rate of tax to 19% in 2024.

The current chancellor Kwasi Kwarteng has abolished the additional rate of tax of 45% which is currently paid on income over £150,000 a year.

Income tax bands are different in Scotland,  the cuts on income tax and abolishing of the additional rate of tax will not apply to Scotland.

National insurance

The 1.25% national insurance increase introduced this April, will be reversed effective November 2022.

The health and social care levy will not be introduced 

Stamp Duty

No stamp duty due on the first £250,000, previously £125,000.

No stamp duty on the first £425,000 for first time buyers, previously £300,000.

Bankers’ bonuses

The cap on bankers’ bonuses has been scrapped.

Corporation tax

The planned raise which was due to take place in April 2023 of 25% from 19% has been scrapped.

IR35

The 2017 and 2021 IR35 reforms have been scrapped. This means that the responsibility for working out whether one falls within IR35 is now back to the contractor instead of the end user. This change will be mostly welcomed by contractors and those in the industry.

Other announcements

  • The amount companies can invest tax free in qualifying equipment, fixtures, business cars and plant and machinery (Annual investment allowance) will remain at £1m indefinitely.
  • Freeze on energy bills 
  • The amount of funds new and start-up companies can raise has been increased from £150,000 to £250,000 under the SEIS scheme.
  • The EIS (Enterprise Investment Scheme) and VCT (Venture capital trusts) both due to expire April 2025 have been extended.

It remains to be seen whether the drive for the growth of the economy will pay off.

Please contact us here, if you have any questions.

2022,Is,A,Good,Year,For,Business.,Grass,Growing,In

Spring Statement 2022

Here are the key takeaways from this year’s Spring statement

Income Tax and National insurance

The primary national insurance threshold and lower profits limit have been increased from £9,880 to £12,570 which brings both thresholds in line with the income tax threshold. The increase is set for July 2022 which should make for an interesting payroll run just as most payroll professionals were getting over the furlough calculations.

The employment allowance will increase to £5,000 from April and the basic rate tax rate will be reduced by 1% to 19% from April 2024.

The 1.25% “NHS Tax” will remain.

Business investment

To help small businesses, the chancellor announced an increase to the annual investment allowance from £200,000 to £1 million until March 2023.

R&D tax credits are to be made more generous to boost UK productivity.

Cost of living

With the cost of living set to raise even further, a temporary 12 month cut to duty on petrol and diesel was announced of 5p per litre.

Households installing energy saving items to their homes like solar panels and insulation will have 0% VAT on the items as opposed to 5% VAT.

Has the spring statement delivered to your expectations?

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Tax-efficient childcare

Childcare is expensive; however, the tax system can provide a helping hand. In recent years, there has been a shift from tax relief for employer-supported childcare and vouchers to a Government top-up scheme. 

Government scheme

The Government operate a tax-free childcare scheme whereby parents deposit money into an account which can be used to meet childcare costs and the Government provide a tax-free top up.

To qualify for the scheme, the parent (and their partner if they have one) must each expect to earn at least £1,853.28 over the next 3 months. This is equivalent to 16 hours a week at the National Living Wage of £8.91 an hour. However, if either the claimant or their partner expect to have adjusted net income of more than £100,000 in the current tax year, they cannot benefit from the tax-free top up.

Eligible parents can access the tax-free top up by setting up an online childcare account for their child. For every £8 that is deposited into the account, the Government will add a further £2, to a maximum of £2,000 a year (or £4,000 a year where the child is disabled). The funds can be used to provide approved childcare, including that provided by childminders, nurseries, nannies, after-school clubs and playschemes, as long as the provider has signed up to the scheme. The care can be provided until the September after the child’s 11th birthday (or up to the child’s 17th birthday if the child is disabled). 

The Government top-up scheme is not available to universal credit claimants, and cannot be used in addition to employer-provided vouchers or employer-supported care.

Employer-supported childcare and childcare vouchers

Where an employee joined their employer’s childcare or childcare voucher scheme on or before 4 October 2018, they can continue to benefit from the associated tax relief while their employer continues to operate the scheme. Childcare vouchers and/or employer supported childcare are tax-free up to the employee’s exempt amount. Where the employee is a basic rate taxpayer or joined the scheme prior to 6 April 2011, the exempt amount is £55 per week. Otherwise the exempt amount is £28 per week where the employee is a higher rate taxpayer and £25 per week where the employee is an additional rate taxpayer. The exemption also applies for National Insurance purposes. Employees only have one exempt amount for employer-supported care and vouchers, regardless of the number of children that they have.

It is also possible for employer-provided childcare and childcare vouchers to be made available under a salary sacrifice scheme without triggering the alternative valuation rules. 

Workplace nurseries

No tax charge arises under the benefit in kind rules where childcare is provided in a workplace nursery. Unlike the exemption for employer-supported care and vouchers, there is no cap on the value of childcare that can be provided tax-free in a workplace nursery. However, there are stringent conditions that must be met for exemption to be forthcoming.

Which is best?

Where a parent could potentially benefit from more than one scheme, they should evaluate the options and can choose the one best suited to their needs. Employees in an employer-supported scheme or employer voucher scheme will need to leave that scheme if they sign up for the Government scheme, and will not be able to re-join the employer’s scheme if they change their minds.

Please get in touch here, if you have any questions.

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SDLT and uninhabitable properties

For many the lure of a renovation project is strong and for those looking to generate rental income, doing up a dilapidated property to let out may make commercial sense.

When buying an investment property, the addition of the 3% SDLT supplement means that the SDLT hit may be significant. However, as this only applies to residential dwellings, buying a derelict property that does not meet the definition of a ‘dwelling’ can deliver substantial SDLT savings. Not only is the purchase price on which SDLT payable low as the renovation costs are incurred post sale and SDLT-free, SDLT is charged at the non-residential rates and the 3% supplement does not apply.

The Bewley case

In 2019, the First Tier Tribunal ruled in the case of Bewley v HMRC that a bungalow and plot of land, which had planning permission for the demolition of the existing building and the construction of a new dwelling was not suitable for residential use at the effective date of the transaction. As a result, SDLT was payable at the non-residential rates rather than the residential rates, and consequently the 3% SDLT supplement did not apply.

Use or suitable for use as a dwelling

The legislation defines a ‘dwelling’ as a building that is used or suitable for use as a single dwelling or which is in the process of being constructed or adapted for such use.

In the Bewley case, the property was not used as a dwelling on the effective date of the transaction; the question therefore was whether it was ‘suitable’ for use at that date. 

The radiators and heating pipes had been removed from the bungalow and the presence of asbestos prevented repairs and alterations being carried out without posing risks. As a result, the tribunal found that the property was not suitable for use as a dwelling. Consequently, SDLT was payable at the lower non-residential rates, in respect of which the 3% supplement does not apply.

Effective date

The test as to whether the property is a dwelling is undertaken at the effective date of the transaction – the completion date. All that matters is whether it is used as or is suitable for use as a dwelling at that date or in the process of being constructed or adapted at that date – it is irrelevant whether it has previously been used as a dwelling, or may be used as one in the future.

More than modernisation

The test of whether a property is uninhabitable is a strict one and an uninhabitable property will lack basic facilities necessary to live in it, such as a functioning bathroom and kitchen and heating. A property which is in need of modernisation and redecoration may still be habitable and count as a dwelling – the fact that a property is a renovation project will not in itself mean that non-residential rates apply.

Please get in touch here, if you have any questions.

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2021 Autumn Budget – brief overview

No big surprises in this year’s autumn budget, given some of the announcements leading up to the budget and the “leaks” of information too.

Below is a brief summary on the key areas of personal and business tax.

Personal tax

Tax rates and allowances for 2022/23

Personal tax rates and the personal allowance remain unchanged

Personal allowance of £12,570

Basic rate limit £37,700

Basic rate, higher rate and additional rate income tax will remain at 20%, 40% and 45%.

The additional income tax rate threshold will remain at £150,000

The capital gains tax (CGT) annual exempt amount will remain at £12,300 – CGT rates are unchanged for 2022/23.

Scotland has its own rates and rate bands, to be set for 2022/23 by the Scottish Parliament at its Budget on 9 December 2021, and the Welsh Parliament could also modify income tax rates for Welsh taxpayers at its Budget on 20 December 2021.

The starting rate for savings limit (applicable throughout the UK) will remain at £5,000 for 2022/23, and the starting rate itself at 0%. The Personal Savings Allowance also remains unchanged.

Inheritance tax thresholds and rates are unchanged, and the nil rate band is fixed until April 2026.

Dividend tax rates

As previously announced, tax on dividends will increase by 1.25% on all three rates for 2022/23 onwards.

The dividend nil rate will remain at £2,000. 

The increase is meant to fund the NHS and social care.

National Insurance contributions rates and thresholds

The Upper Earnings Limit and Upper Profits Limit will be maintained at 2021/22 levels, in line with the higher rate threshold for income tax.

A 1.25% Health and Social Care Levy from 6 April 2023 that had already been announced will be added to the national insurance rates.

Van benefit charge and fuel benefit charges for cars and vans

The van benefit charge will increase to £3,600, the multiplier for the car fuel benefit will increase to £25,300, and the van fuel benefit charge will increase to £688.

ISAs, junior ISAs and child trust funds

The annual subscription limits for ISAs, junior ISAs and child trust funds will remain unchanged for 2022/23 – the limit for ISAs will be £20,000, and the limit for junior ISAs and child trust funds will be £9,000.

Increase in normal minimum pension age

The earliest age at which most individuals can access their pensions without incurring an unauthorised payments tax charge, is to increase from 55 to 57. The increase will have effect from 6 April 2028.

Pensions tax relief administration: top-up for low earners in net pay arrangements

The Government is set to introduce a system to make top-up payments directly to lower earners (those with taxable incomes below the personal allowance) who are saving in pension schemes using a net pay arrangement from 2024/25 onwards. These top-ups will be paid after the end of the relevant tax year, with the first payments being made in 2025/26. 

Business tax

Residential property developer tax

The Government had previously announced a new residential property developer tax as part of its measures to address unsafe cladding on high-rise buildings. It will apply with effect from 1 April 2022 to the relevant profits arising on or after this date of companies undertaking residential property development activities. It was confirmed in the Budget that the tax will be charged at 4% on profits exceeding an annual allowance of £25 million.

Basis period reform

The basis period rules for self-employed individuals and partners are to be reformed. A business’s profit or loss for a tax year will be the profit or loss arising in the tax year itself, regardless of the accounting date of the business. On transition, all basis periods will be aligned to the tax year and all outstanding overlap relief given.

The rules will come into place from April 2024.

Capital allowances

The increased annual investment allowance (AIA) of £1 million has been extended for a further 15 months to 31 March 2023.

Research and development (R&D)

From April 2023, research and development (R&D) tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs. 

Cross-border group relief

Due to Brexit, the existing beneficial cross border group reliefs relating to EEA-resident companies have been repealed for accounting period ending on or after 27 October 2021.

Creative industries

From 27 October 2021, there will be a temporary increase in the rate of theatre tax relief, orchestra tax relief and museums and galleries exhibition tax relief.

Other announcements

  • The national living wage has been increased from £8.91 per hour to £9.50 per hour
  • Businesses in leisure and hospitality and retail will benefit from reduced rates on business rates.
  • Business rates will now be re-evaluated every 3 years instead of 5 years for all businesses.

Please get in touch here, if you have any questions.

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FHLs and interest costs

For tax purposes, furnished holiday lettings are something of a special case and benefit from a number of advantages not available to standard residential lets. One of these advantages is in relation to the treatment of interest and finance costs.

Residential landlord – Restriction of relief

Residential landlords can now only obtain relief for interest and finance costs, such as mortgage interest, as a basic rate tax reduction, regardless of the rate at which the residential landlord pays tax. The interest and finance costs are not deducted when working out the taxable profit, and the tax is initially worked out on the profit without taking account of the interest and finance costs. The resulting tax liability is then reduced by 20% of the interest and finance costs, capped at the lower of 20% of the taxable profit or the amount that reduces the tax liability to nil. Any unrelieved interest and finance costs can be carried forward for relief as an income tax deduction in calculating the tax liability of the same property business in a later tax year, with the costs being relieved at the first available opportunity.

This approach has a number of downsides – relief is only given at 20% even if the landlord is a higher or additional rate taxpayer and relief may not be given in full in the tax year in which the costs are incurred.

Furnished holidays lettings – Deduction in full

The changes to interest rate relief do not apply to furnished holiday lettings, and where a let qualifies as furnished holiday let, interest and finance costs can be deducted in full when working out the taxable profit. The deduction is not capped, and can give rise to a loss which may be carried forward and set against future profits from the same furnished holiday business. Also, as relief is by deduction, relief is given at the landlord’s marginal rate of tax not at 20% where the landlord is a higher or additional rate taxpayer.

Example

Toby is a residential landlord. For 2021/22 his taxable profit before taking account of interest costs on the associated mortgage is £30,000. Mortgage interest paid in the year is £8,000. 

Toby has other income from his photography business and pays tax at the higher rate of 40%.

Before applying the basic rate tax reduction, the tax on the property income is £12,000 (£30,000 @ 40%). The basic rate tax reduction in respect of the mortgage interest reduces this by £1,600 (£8,000 @ 20%) to £10,400.

Tom has a furnished holiday let on which profit before deduction of interest costs is also £30,000. He too pays mortgage interest of £8,000 and, like Toby, has other income and is a higher rate taxpayer.

However, unlike Toby, he can deduct the full amount of the mortgage interest, reducing the taxable profit to £22,000, on which tax of £8,800 (£22,000 @ 40%) is payable.

Despite identical profit and interest, Tom pays £1,600 less in tax than Toby as he is able to obtain relief for his interest costs at his marginal rate of 40%.

Please get in touch here, if you have any questions

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Stamp duty land tax refunds

The additional stamp duty land tax (SDLT) rate of 3% is payable by purchasers of residential properties costing £40,000 or more and if all of the following conditions apply:

  • it will not be the only residential property worth £40,000 or more owned (or part owned) by the purchaser anywhere in the world
  • the previous main home has not been sold or gifted and
  • no one else has a lease on it which has more than 21 years left to run

The charge applies even where the second property is the buyer’s new home (main residence), and they intend to sell the other property but have not done so because, for example, they have not been able to find a buyer. However, the legislation recognises that such difficulties can arise and allows a refund to be claimed in specific circumstances. The buyer will initially have to pay the 3% SDLT surcharge and then apply for the refund provided that their existing main residence is disposed of within 36 months of completing the purchase of the ‘replacement’ home. 

Extensions due to exceptional circumstances

In the vast majority of cases, this 36-month timeframe provides sufficient time for people to sell but, in certain specific cases, an extension to the 36 months can be granted if an affected taxpayer has not been able to sell due to exceptional circumstances outside of their control. Such taxpayers must make a sale as soon as practicable once the exceptional impediment to sale ceases to apply; this applies to those whose refund window ended on or after 1 January 2020.

SDLT refunds can also be claimed on property transactions where the purchaser was a first-time buyer who has purchased a shared ownership property for £500,000 or less and paid on the purchase. The chancellor removed the liability for SDLT payable on these transactions in the autumn Budget and made the change retrospective thereby applying to first-time buyers who purchased their homes on or after 22 November 2017.

SDLT refunds for uninhabitable properties

In addition, SDLT refunds may also be available in situations where a second property has been purchased, which was unfit to live in at the time of purchase but was purchased with intent to renovate it as a buy-to-let investment. The additional 3% may have been charged at the time of purchase but following the tax case of P N Bewley Ltd v HMRC[2019] UKFTT 65 (TC), it was ruled that properties that are not habitable at the time of completion do not constitute a ‘dwelling’ and therefore are not liable to the 3% additional SDLT charge. The judge ruled that ‘a dwelling will, as a minimum, contain facilities for personal hygiene, the consumption of food and drink, the storage of personal belongings, and a place for an individual to rest and to sleep’.

Purchasers of property who have incurred the surcharge since 2016 (on properties that they believe were uninhabitable at the time of purchase) can apply for a SDLT refund if they are able to prove that the property is not a dwelling. Furthermore, a property deemed not suitable to be a dwelling is not only not subject to the 3% surcharge, but it is treated as a non-residential property liable to SDLT at the applicable rates.

Applying for a refund under the 36 months ‘replacement’ rules can be online with the time limit for making the refund being 12 months after the sale of the previous main residence (or 12 months from the filing date of the return for a new return). HMRC may permit this deadline to be extended in exceptional circumstances such as if the house could not be sold due to Covid. Refunds under other circumstances are usually via a letter.

Please get in touch here, if you have any questions.