Newsletter June 2013

The newsletter this month includes articles covering: business property relief for Furnished Holiday Lets, National Insurance changes for sleeping partners, transferring the unused IHT nil rate band and a reminder for tax credits claimants.

Our next newsletter will be published Thursday 4 July 2013.

Furnished Holiday Let set-back

Last year a case was heard before the First-tier Tribunal that found a Furnished Holiday Let (FHL) property should not be considered an investment for Business Property Relief (BPR) purposes. This was an important decision for owners of FHL businesses as it confirmed the availability of BPR for Inheritance Tax purposes. If the property in this case had been considered an investment property, BPR would have been denied.

HMRC appealed the First-tier ruling to the Upper Tribunal who have reversed the previous decision.

It would appear that FHL property owners again need to demonstrate that the nature of any additional services provided to persons letting their property are substantial and not merely incidental to the letting of the property. If the additional services are considered to be substantial then a BPR claim may succeed. Otherwise the letting activity will be treated as an investment and BPR will be denied.

In the light of the further ruling FHL property owners should re-examine their Inheritance Tax position. It is possible that an appeal will be made but until then this case remains the current authority.

For Income Tax purposes there is a clear definition of a FHL property. As long as your letting of a property falls within the following criteria it will be considered a FHL and treated as a trade or business.

The definition for Inheritance Tax BPR is again at odds with the Income Tax definition which merely considers periods of letting thus:

  • The minimum period over which a qualifying property must be available for letting to the public in the relevant period is 210 days in a year
  • The minimum period over which a qualifying property is actually let to the public in the relevant period is 105 days in a year.
  • The accommodation must not be let for periods of longer-term occupation for more than 155 days during a year.
  • A “period of grace” allows FHL businesses that don’t continue to meet the “actually let” requirement for one or two years to elect to continue to qualify throughout that period.
  • The property must be situated within the UK or EEA.

Sleeping partners wake-up call

Due to a re-interpretation of the law, HMRC announced that from 6 April 2013 sleeping partners will be liable to pay National Insurance. Affected persons should consider the following:

  • Sleeping and inactive limited partners who are not already paying Class 2 NICs will need to register. They can claim for exception from these contributions if their circumstances allow, for instance if their profit share is below the required limit.
  • For 2013-14 and subsequent tax years Class 4 contributions will also arise.
  • Sleeping partners who have not paid contributions in prior years will not be required to do so. However they may consider making voluntary contributions to improve their accessibility to benefits.

If you have been treated as a sleeping partner up to 5 April 2013 you should take action to register for Class 2 purposes otherwise you run the risk of incurring penalties.

Transferring the unused Inheritance Tax nil rate band

Married couples and registered civil partners are allowed to transfer assets to each other during their lifetime or when they die without incurring an Inheritance Tax charge. There is no limit to this relief as long as the receiving spouse or civil partner is UK domiciled.

This relief is known as the spouse or civil partner exemption.

Everyone’s estate is currently exempt from Inheritance Tax if valued, including gifts in the last seven years, at £325,000 or less – the so-called nil rate band. If the entire estate is passed to a surviving spouse or civil partner no Inheritance Tax would be payable due to the spouse or civil partner exemption, so for these couples the nil rate band used to be potentially wasted on the first death. To counter this, legislation was introduced that allowed the unused nil rate band on a first death to be passed, by claim, to the surviving spouse. This applies to second deaths on or after 9 October 2007.

Accordingly a surviving spouse or civil partner could have a nil rate band of up to £650,000 on their death.

This additional relief should be taken into account when you are planning your estate tax position. Evidence of the position from the first death should be retained.

Don’t miss tax credits renewal deadline

Individuals who were claiming tax credits for 2012-13 should be receiving a “Renewing your tax credits – Getting it right” pack.

It is vital that you complete the Annual Review form for the year ended 5 April 2013 and send it to the Tax Credits Office (TCO) Preston before 31 July 2013. Failure to do this will result in your tax credit payments being stopped and you may have to pay money back.

Claimants should note:

  • If you are self-employed, or if your other joint income details for 2012-13 are not available by 31 July 2013, you can submit estimated figures. Actual figures must be submitted by 31 January 2014.
  • Once your income is reported to the TCO they will send you a revised award notice.

It is possible to call TCO and advise them of changes. The help line is 0345 300 3900. You can also use this number to chase up your renewal pack if not received by 28 June.

Tax Diary June/July 2013

1 June 2013 - Due date for Corporation Tax due for the year ended 31 August 2012.

19 June 2013 - PAYE and NIC deductions due for month ended 5 June 2013. (If you pay your tax electronically the due date is 22 June 2013.)

19 June 2013 - Filing deadline for the CIS300 monthly return for the month ended 5 June 2013.

19 June 2013 - CIS tax deducted for the month ended 5 June 2013 is payable by today.

1 July 2013 - Due date for Corporation Tax due for the year ended 30 September 2012.

6 July 2013 - Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2013 - Pay Class 1A NICs (by the 22 July 2013 if paid electronically).

19 July 2013 - PAYE and NIC deductions due for month ended 5 July 2013. (If you pay your tax electronically the due date is 22 July 2013.)

19 July 2013 - Filing deadline for the CIS300 monthly return for the month ended 5 July 2013.

19 July 2013 - CIS tax deducted for the month ended 5 July 2013 is payable by today.

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