Transferring IHT unused nil rate band

Posted on 5th October 2023 by Solutions Accountancy

The Inheritance Tax residence nil rate band (RNRB) is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent, such as children or grandchildren, after their death.

The allowance increased to the present maximum level of £175,000 from 6 April 2020. Any unused portion of the RNRB can be transferred to a surviving spouse or partner. The RNRB is in addition to the existing £325,000 Inheritance Tax nil-rate band.

Taken together with the current Inheritance Tax limit of £325,000, this means that married couples and civil partners can pass on property worth up to £1 million free of Inheritance Tax to their direct descendants.

The transfer does not happen automatically and must be claimed from HMRC when the second spouse or civil partner dies. This is usually done by the executor making a claim to transfer the unused RNRB from the estate of the spouse or civil partner that died first. This transfer can also happen even if the first spouse or civil partner died before the RNRB was introduced on 6 April 2017.

There is a tapering of the RNRB for estates worth more than £2 million even where the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This can result in the full amount of the RNRB being tapered away.

The RNRB maximum rate of £175,000 and the taper threshold are currently frozen until at least April 2028.

When you can and cannot use the Rent-a-Room Scheme

Posted on 5th October 2023 by Solutions Accountancy

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home. If you are using this scheme, you should ensure that rents received from lodgers during the current tax year do not exceed £7,500. The tax exemption is automatic if you earn less than £7,500 ;there are no specific tax reporting requirements. If required, homeowners can opt out of the scheme and record property income and expenses as usual.

You can use the scheme if:

you let a furnished room to a lodger; or
your letting activity amounts to a trade, for example, if you run a guest house or bed and breakfast business, or provide services, such as meals and cleaning.

You cannot use the scheme if the accommodation is:

not part of your main home when you let it;
not furnished;
used as an office or for any business — you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities; or
in your UK home and is let while you live abroad.

The relief also simplifies the tax and administrative burden for those with rent-a-room income up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.

The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry. If gross receipts are more than the limit taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances.

Paying tax by Certificate of Tax Deposit

Posted on 5th October 2023 by Solutions Accountancy

The Certificate of Tax Deposit scheme allowed users to deposit money with HMRC and use it later to pay tax liabilities. The date that the certificate was purchased was known as the effective date of payment. The scheme closed for new purchases on 23 November 2017.

However, at the time, HMRC had committed to honour existing certificates until 23 November 2023. As this date approaches, it is important that holders of an existing certificate take appropriate action.

There are a number of options, including contacting the Certificate of Tax Deposit team before the scheme closes to tell HMRC how you want to use the certificate. Users who think they will still have certificates open after 23 November 2023, can contact HMRC to arrange a refund.

After 23 November 2023 HMRC will try to repay the balance of any certificate that remain unpaid and unclaimed. If they cannot (for example, because they were unable to contact the current certificate holder after reasonable effort) they will consider the balance as forfeited.

Until 23 November 2023, users can use their deposits to pay liabilities for:

Income Tax (Self-Assessment)
Class 4 National Insurance contributions
Capital Gains Tax — not including Annual Tax on Enveloped Dwellings-related Capital Gains Tax
Corporation Tax — only Series 6 certificates bought in 1993 or earlier can be used
Petroleum Revenue Tax
Inheritance Tax

Income Tax in Scotland if you have more than one home

Posted on 5th October 2023 by Solutions Accountancy

There is an interesting anomaly that can affect taxpayers with homes in Scotland and other parts of the UK. Where this is the case, the question arises as to whether or not the taxpayer is liable to pay Income Tax in Scotland or elsewhere.

As a general rule, the Scottish rate of Income Tax (SRIT) is payable on the non-savings and non-dividend income of those defined as Scottish taxpayers. The definition of a Scottish taxpayer generally focusses on the question of whether the taxpayer has a 'close connection' with Scotland or elsewhere in the UK. The liability to SRIT is not based on nationalist identity, location of work or the source of a person’s income, e.g., receiving a salary from a Scottish business.

Where a taxpayer has a home in Scotland and also elsewhere in the UK, they need to ascertain which is their main home based on published guidance and the facts of the case.

HMRC’s guidance on the issue states the following:

Your main home is usually where you live and spend most of your time. It does not matter whether you own it, rent it or live in it for free. Your main home may be the home where you spend less time if that’s where:

most of your possessions are;
your family lives if you are married or in a civil partnership;
you are registered for matters such as your bank account, GP or car insurance; or
you are a member of clubs or societies.

It is also possible to change which home counts as your main home if there has been a material change in the underlying facts. Scottish taxpayer status applies for a whole tax year. It is not possible to be a Scottish taxpayer for part of a tax year.

CIS contractors monthly tax chores

Posted on 5th October 2023 by Solutions Accountancy

The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and should be aware of the tax implications of the scheme.

Under the scheme, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Monthly returns must be submitted online. The monthly return relates to each tax month (i.e., running from the 6th of one month to the 5th of the next). The deadline for submission is 14 days after the end of the tax month. Even if no subcontractors have been paid during a month, contractors still have to make a nil return. All contractors are obliged to file monthly returns even if they are entitled to pay their PAYE quarterly. The returns can be filed using the HMRC CIS online service or approved commercial CIS software. There are penalties for late returns.

Contractors who have not paid subcontractors in a particular month are required to submit a 'CIS nil return' or notify HMRC that no return is due. If this is likely to be a longer term ‘nil return’, the contractor can contact HMRC to make an inactivity request stating they have temporarily stopped using subcontractors. This request lasts for 6 months. You must notify HMRC if you start using subcontractors again during this period.

Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction during a year in the 12 months since they made their first payment.

National Living Wage potential boost

Posted on 3rd October 2023 by Solutions Accountancy

The government looks likely to accept the recommendations of the Low Pay Commission with a boost to the National Living Wage rate.

In summary:

National Living Wage will rise to two-thirds of average earnings.
Chancellor commits to Low Pay Commission recommendations, with latest forecasts showing a pay boost next year worth over £1,000 for 2 million low-paid workers.
Successive rises mean a full-time worker on the National Living Wage will be over £9,000 better off than they would have been in 2010.

A formal announcement will be made November 2023, presumably as part of the Autumn Statement.

Based on the Low Pay Commission’s latest forecasts, this would see the National Living Wage increase to over £11 an hour from April 2024.

People currently aged 23 and over are eligible for the National Living Wage, with over 2 million workers on low pay set to benefit from the increase. The announcement, after successive rises since its introduction in July 2015, means a full-time worker on the National Living Wage will be over £9,000 better off than they would have been in 2010.

Each year, the independent Low Pay Commission produces recommendations to the Government on National Living Wage and National Minimum Wage rates. This year it is due to make recommendations for the rates that will take effect from April 2024, based on their remit which sets a target for the National Living Wage to reach two-thirds of median earnings by 2024 for workers aged 21 and over, taking economic conditions into account.

Government to support action against late payers

Posted on 3rd October 2023 by Solutions Accountancy

Most smaller businesses will have spent time chasing customers for payment beyond their agreed payment terms.

These demands take entrepreneurs away from their core tasks of business building and place unnecessary pressures on cashflow.

To assist, government is stepping in with new regulatory powers. The new measures will include:

Extending the Reporting on Payment Practices and Performance Regulations 2017. Following consultation, Government will take forward legislation to extend payment performance reporting obligations. They will include new metrics for reporting, including a value metric, so businesses and commentators can see the value of invoices, including invoices paid late, and a disputed invoices metric. They will also introduce reporting on retention payments for businesses in the construction sector.
Providing greater advice to small businesses on negotiating payment terms that better suit them, and on how going digital can help them get paid quicker and manage their cash flow.
Broadening the powers of the Small Business Commissioner: Introducing broader responsibilities, enabling the Commissioner to undertake investigations and publish reports where necessary on the basis of anonymous information and intelligence. This will require primary legislation, so will be subject to the legislative timetable.

The stronger measures will benefit UK businesses by fostering a stronger payment culture and providing businesses with more predictable and reliable cash flow, allowing businesses to spend and invest with greater certainty.

It will reduce the time spent by businesses chasing payments, freeing up more time for other activities that will help them to grow. Tackling late and long payments provides an opportunity to increase investment and productivity across the economy.

This will improve payment culture in the UK to support smaller businesses, many of whom do not have the resources to accommodate long or late payments from their business customers.

Do you need to register for Self-Assessment?

Posted on 28th September 2023 by Solutions Accountancy

Taxpayers that need to complete a Self-Assessment return for the first time are required to notify HMRC. This is a final reminder that the latest date that HMRC should be notified, by new Self-Assessment taxpayers, for the 2022-23 tax year, is 5 October 2023. The deadline for filing the 2022-23 Self-Assessment tax return online and paying any tax due is 31 January 2024.

There are a number of reasons why you might need to complete a Self-Assessment return for the first time. This includes if you are self-employed, have an annual income over £100,000 and / or have income from savings, investment or property.

The £100,000 income threshold for Self-Assessment changed for taxpayers who are only taxed through PAYE. It increased from £100,000 to £150,000 with effect from 6 April 2023. However, the Self-Assessment threshold for 2022-23 returns remains at £100,000. 

HMRC has an online tool www.gov.uk/check-if-you-need-tax-return/ that can help you check if you are required to submit a Self-Assessment return.

The following list summarises some of the reasons when taxpayers are usually required to submit a Self-Assessment return:

The newly self-employed (earning more than £1,000);
Multiple sources of income;
Taxpayers that have received any untaxed income, for example earning money for creating online content;
Income over £100,000;
earn income from property that they own and rent out;
are a new partner in a business partnership;
Taxpayers whose income (or that of their partner’s) was over £50,000 and one of you claimed Child Benefit;
Receiving interest on savings or investment income of £10,000 or more before tax;
Taxpayers who made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax; and
Taxpayers who are self-employed and earn less than £1,000 but wish to pay Class 2 NICs voluntarily to protect their entitlement to State Pension and certain benefits.

Unclaimed Child Trust Fund Accounts

Posted on 28th September 2023 by Solutions Accountancy

HMRC has published their latest statistics on Child Trust Funds (CTFs) that reveal that whilst around 500,000 accounts have now matured, there remains some 430,000 funds that have matured but remain unclaimed.

If you turned 18 on or after 1 September 2020 there may be cash waiting for you in a dormant CTF. The average market value of an unclaimed CTF can be £2,000. The actual amount of money depends on a number of factors.

Children born after 31 August 2002 and before 3 January 2011 were entitled to a CTF account provided they met the necessary conditions. These funds were invested in long term saving accounts for newly born children.

Around 7 million CTF accounts were set up since the scheme was launched in 2002, roughly 6 million by parents or guardians and a further 1 million set up by HMRC where parents or guardians did not open an account.

Around 55,000 accounts mature each month and HMRC has created a simple online tool to help young people find out where their account is held. If you’re unsure if you have an account or where it may be, it’s easy to track down your provider online.

The actual CTF accounts are not held by HMRC, but by a wide range of CTF providers who are financial services firms. Families can continue to pay into a CTF, until the maturity date. There is an annual limit of £9,000, and there is no tax to pay on the CTF savings interest or profit.

HMRC’s Second Permanent Secretary and Deputy Chief Executive, said:

'Many 18-21 year olds are starting out in first jobs or apprenticeships, starting university or moving into their first home and their Child Trust Fund is a pot of money with their name on. I would encourage young people to use the online tool to track it down or, for parents of teenagers, to speak to them to ensure they’re aware of their Child Trust Fund. It could make a real difference to their future plans.'

Accommodation that qualifies as Holiday Lets

Posted on 28th September 2023 by Solutions Accountancy

The furnished holiday lettings (FHL) rules allow holiday letting of properties that meet certain conditions to be treated as a trade for specific tax purposes.

In order to qualify as an FHL, the following criteria need to be met:

The property must be let on a commercial basis with a view to the realisation of profits. Second homes or properties that are only let occasionally or to family and friends do not qualify.
The property must be located in the UK, or in a country within the EEA.
The property must be furnished. This means that there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture.

In addition, the property must pass the following three occupancy conditions.

Pattern of occupation condition. The property must not be used, in total, for more than 155 days a year of longer term occupation (i.e., continuous periods of more than 31 days).
The availability condition. The property must be available for commercial letting at commercial rates for at least 210 days per year.
The letting condition. The property must be let for at least 105 days per year and property owners should be able to demonstrate the income from these lettings.

Where there are a number of FHL properties in a business, it is possible to average the days of lettings for the purposes of qualifying for the 105 days threshold. This is called an averaging election.

There is also a special period of grace election which allows homeowners to treat a year as a qualifying year for the purposes of the FHL rules where they genuinely intended to meet the occupancy threshold but were unable to do so subject to a number of qualifying conditions.