Iain Wallis

Proven Tax Strategies for High Net Worth Individuals

0191 603 0270

What’s the new rent a room relief legislation?

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From 6th April 2019, new legislation, and not necessarily for the better, will come into effect.

It will mean that you won’t be entitled to rent a room relief  unless you are living in your home for some or all of the time that you let your rooms to lodgers.

Current Situation

The current situation is that any property owner who lets all or part of their homes to lodgers receives rent a room relief. This is in the form of tax free income, the lesser of £7,500 or £3,750 per year. So, for a property owned jointly, each owner would be allowed to earn £3,750 tax free.

However, this current legislation is going to change. To help with domestic finances, there has been an increase in people letting out rooms. This is either from people working away from home and supplementing their income or short term cash benefits from sporting events. In July 2018, HMRC proposed new legislation with the aim of preventing this from happening in the future.

Changes to Rent a Room Relief

From 6 April 2019, as a property owner, in order to claim rent a room relief, you will have to live in your home for at least one day during the period when you have tenants. If you rent out your rooms or home on an Airbnb basis, rent a room relief is still available as long as you live in your home for at least one day during every period of letting. The legislation is slightly woolly. It refers to wholly or partly so that would suggest a minimum of one day.

Whilst not as generous, there is some good news. When rent a room relief doesn’t apply, you will be able to claim £1,000 tax free property allowance.

It is worth considering how these new rules may affect you. If there are any significant changes to the final proposed version of the legislation when the Finance Bill 2019 is published in December 2018, we will update you with a new blog.

Action

If you are interested in receiving further information or booking a strategic consultation with Iain to see where he can help you legally avoid tax, please contact Jacqueline on telephone 0191 603 0270 or email admin@iainwallis.com

Landlord & Letting Show Coventry 26-27 November

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Finalist Logo GeneralWe will be exhibiting at the Landlord & Letting Show taking place at Hall 2, Stoneleigh Park, Coventry, on Wednesday 26th & Thursday 27th November 2014, and we hope you can join us! Maybe on day two help us celebrate as we are finalists in the prestigious Landlord & Letting Show Awards with the winners to be announced during the show.
It’s free to attend and the event aims to educate and inform property professionals by offering access to:
• A comprehensive product and services exhibition

• Free seminars covering a wide range of topics delivered by leading industry experts.

• There are two presentations from me entitled “5 Top Tax Tips to Legally Avoid Property Taxes” one on Wednesday at 11.30 and one on Thursday at 14.00. These are always full so be sure to be there in plenty of time

• Associations and Government Bodies
• Fantastic networking opportunities
• Information on the latest legislation
Visit the website at http:www.warwickshire.landlordshow.info to find out more and book free show tickets, then come along and visit us on stand 38.

Always happy to chat legal tax avoidance and share the love.

Be careful how you treat Grandma’s house

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Have you noticed how the recent rise in house prices has encouraged a spot of optimism and got everyone to talk up the value of their property? All well and good until someone inherits a property and then the value rather interestingly seems to head the opposite way, downwards!

Understandable maybe, because with the Inheritance Tax (IHT) nil rate band remaining frozen at £325,000 and the rising property market pushing middle England into the arena of Inheritance Tax; next of kin are keen to make sure they don’t hand over too much IHT to the tax man. Regardless of who you are HMRC will take a flat 40% of all your estate over £325,000. OUCH!

A note of caution though, in 2012/13 HMRC collected an extra £108 million of IHT by challenging and “adjusting” property valuations. They have the right to investigate valuations and over the last few years have been exercising this more aggressively than in the past. This trend is I’m sure going to continue given the improving state of the property market and HMRC coming under even more pressure to maximise revenues.

HMRC has four years from the end of the tax year in which someone dies to challenge an IHT calculation, longer if it can prove that executors did not ensure the calculation was correct or they had been perhaps ‘negligent’. This gives them plenty of time to check and compare similar properties with the Land Registry. So, take care! If you decide to sell granny’s house not long after the funeral for a price markedly higher than the value declared on the IHT form you could be heading for trouble. If you declare a value which seems low compared to what granny paid for it beware! Both will raise the suspicions of HMRC and could see you with a fine of up to 100% of the extra liability. The average amount of tax collected from this type of investigation in 2012/13 was £34,000 – imagine yourself as a beneficiary and having to find that amount of extra tax totally out of the blue!

As with all IHT planning, it’s all about being prepared. If you’re a beneficiary or an executor of an estate take steps as soon as you can to record the condition of the property i.e. by taking photographs and keep records of any repairs you undertake.

Whilst it will cost you in fees, these could possibly be reclaimed from the estate later, have a professional valuation undertaken by a Chartered Surveyor, who specialises in valuing land and buildings for people’s estates. Ask them to provide a realistic price of the property’s market value – the ‘open market’ value and ensure they take into account anything which might increase or decrease the value, such as:

a) If the property is in need of repair, ask the valuer to consider reducing the value to take this work into account.

b) There may be something about the property which makes it particular appealing to buyers i.e. an unusually large garden or access to other development land. If the property has features which make it more attractive then the valuation may need to increase.

It’s probably less likely that HMRC will challenge a valuation carried out by a Chartered Surveyor, compared to one say done by the local estate agent or by yourself, so it may be worth paying someone to give you that peace of mind.

It’s not all bad though, if you discover that the property had been over valued at the time of probate and sold for less, then you have up to four years from the death to claim the IHT overpayment back from HMRC.

If you need any help with IHT planning, or are interested in receiving further information or booking a strategic session with Iain, please contact Jacqueline on 0191 206 4080 or email admin@iainwallis.com.

2013/14 Tax Return Deadline …… “Use the White Space”

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So, you were too busy and missed the self-assessment deadline of 31 October 2013 and are now you are frantically trying to complete and submit online by 31 January to avoid the £100 penalty, interest and potential penalties.

Yep that deadline is approaching far faster than you appreciate but equally with every passing day goes the need to be stuck in some detox vortex where you are forced to have a green smoothie for breakfast and eat more greens than a rabbit does in an average year.

However, what to do when you and/or your accountant , (though hopefully not your accountant but you’d be surprised ) can’t decide what or how to declare a complex transaction or one which may be open to a different interpretation by HMRC?

The law states “you must provide any additional information you think HMRC will need to check your tax bill” and this is where the ‘white space’ comes into its own. That said there is a degree of crystal ball gazing as who knows what HMRC think some days

Here are a few situations where I’d suggest you use the white space:

1. To back up a complicated entry on a tax return, for example, a capital gains tax calculation on the sale of your home where you have used part of it for business.

2. Where you’re claiming Principal Private Residence Relief on a property that’s been let out but used to be your main home.

3. Where you aren’t sure of a figure for example, where the tax rules require you to make a judgement, say, on the amount of a business expense to claim

In the majority of cases, not using the white space to explain a questionable tax return won’t cause you any trouble, but should HMRC question your tax return and thinks you haven’t declared information you ought to have, the result may be a penalty charge or a greater penalty if it turns out you made a mistake. Remember that the law does not require perfection, more that you take reasonable care when preparing the return.

As a reminder, you are responsible for the entries on your tax return, even where your accountant completes it for you. So, please don’t just check the figures; make sure the white space entry is completed if appropriate.

If you are struggling with the deadline approaching or are interested in receiving further information or booking a strategic session with Iain, please contact Jacqueline on 0191 206 4080 or email admin@iainwallis.com.

 

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