Skip to main content

Month: April 2024

Thoughts for buy-to-let owners selling up

Written by admin on . Posted in Capital Gains Tax, Income Tax, Landlord, Leasehold, self-assessment. No Comments on Thoughts for buy-to-let owners selling up

While the higher rate of capital gains tax (CGT) on residential property disposals has dropped by 4%, from 28% to 24%, from 6 April 2024, the vast majority of landlords who sell up are facing a higher CGT bill when compared to two years ago.

Buy-to-let landlords may be selling because of the implications of the Renters Reform Bill, while furnished holiday homeowners will see their advantageous tax benefits removed from April 2025.

Higher CGT bills

Landlords will generally be worse off despite the 4% rate cut, because it generally doesn’t compensate for the recent reduction of the annual exempt amount from £12,300 to £3,000.

  • Basic rate taxpaying sellers: will be worse off as the lower rate for gains falling within the basic rate tax band is unchanged at 18%.
  • Higher/additional rate taxpaying sellers: with a gain of less than £68,000, will be worse off; such as newer landlords who have benefited from less price growth and northern landlords where property values are generally lower.

Only higher and additional rate taxpayers with a gain in excess of £68,000 will find themselves better off.

Already sold up

 Landlords who have already sold their property and face a CGT liability at the previous higher rate of 28% could consider a risky strategy of potentially benefiting from the 4% rate reduction – by deferring the gain through an enterprise investment scheme (EIS). The gain will come back into charge when the EIS investment is realised.

There are two main risks associated with this plan:

  • EIS investment risk: some or all of the investment could be lost; and
  • CGT rate change: the rate of CGT could go up again by the time the gain comes back into charge.

While not worth it solely for the rate reduction, this is a useful bonus if considering an EIS investment for the 30% income tax relief.

HMRC’s guide to tax when you sell property can be found on the government website.

Photo by Tierra Mallorca on Unsplash

 

The onward march of the higher rate taxpayer

Written by admin on . Posted in Company Director, Employment Tax, Income Tax, self-assessment, Self-Employed. No Comments on The onward march of the higher rate taxpayer

New calculations issued alongside the Spring Budget show just how higher rate taxpaying status is becoming ever more common.

The Office for Budget Responsibility (OBR) received plenty of attention leading up to the Budget. It was widely portrayed in the media as the body that placed constraints on the Chancellor’s tax-cutting options ahead of the coming election.

That portrayal of the OBR’s powers is an over-simplification. While the OBR does calculate whether the Chancellor can meet his fiscal rules, it neither sets those rules nor, crucially, the assumptions underlying the calculations. For example, in projecting how much tax revenue the government will receive from 2025/26 onwards, the OBR is obliged to follow the Treasury’s assumption that the ‘temporary’ 5p cut in fuel duty will be scrapped and duty itself will rise in line with the Retail Price Index (RPI) inflation. Nobody, least of all the OBR, believes this will happen. Fuel duty rates last rose in 2010.

Despite these limitations, or perhaps because of them, the OBR has paid increasing attention to the impact of planned tax changes (or lack thereof), highlighting facts that the Chancellor might prefer not to discuss.

A good example, which the OBR has regularly highlighted in its reports, is the consequences of freezing the personal allowance and higher rate income tax threshold until April 2028. The impact of this freeze on the population of higher rate taxpayers is demonstrated in the graph below. By 2028/29, the OBR estimates that there will be 7.3 million falling into this category, 2.7 million (59%) more than if indexation had applied to the higher rate threshold.

That is not the entire story – the near-£25,000 cut to the additional rate threshold in 2023, followed by an indeterminate freeze, will result in 0.6 million more additional rate taxpayers. Overall, the OBR estimates that about two in nine income taxpayers will be paying more than the basic rate by 2028/29.

Source: OBR EFO March 2024

Buy-to-let owners selling up

Written by admin on . Posted in Capital Gains Tax, self-assessment. No Comments on Buy-to-let owners selling up

While the higher rate of capital gains tax (CGT) on residential property disposals has dropped by 4%, from 28% to 24%, from 6 April 2024, the vast majority of landlords who sell up are facing a higher CGT bill when compared to two years ago.

Buy-to-let landlords may be selling because of the implications of the Renters Reform Bill, while furnished holiday homeowners will see their advantageous tax benefits removed from April 2025.

Higher CGT bills

Landlords will generally be worse off despite the 4% rate cut, because it generally doesn’t compensate for the recent reduction of the annual exempt amount from £12,300 to £3,000.

  • Basic rate taxpaying sellers: will be worse off as the lower rate for gains falling within the basic rate tax band is unchanged at 18%.
  • Higher/additional rate taxpaying sellers: with a gain of less than £68,000, will be worse off; such as newer landlords who have benefited from less price growth and northern landlords where property values are generally lower.

Only higher and additional rate taxpayers with a gain in excess of £68,000 will find themselves better off.

Already sold up

 Landlords who have already sold their property and face a CGT liability at the previous higher rate of 28% could consider a risky strategy of potentially benefiting from the 4% rate reduction – by deferring the gain through an enterprise investment scheme (EIS). The gain will come back into charge when the EIS investment is realised.

There are two main risks associated with this plan:

  • EIS investment risk: some or all of the investment could be lost; and
  • CGT rate change: the rate of CGT could go up again by the time the gain comes back into charge.

While not worth it solely for the rate reduction, this is a useful bonus if considering an EIS investment for the 30% income tax relief.

HMRC’s guide to tax when you sell property can be found on the government website.

Photo by George Pagan III on Unsplash

 

 

How much does retirement cost?

Written by admin on . Posted in Pensioners, Pensions, Retirement. No Comments on How much does retirement cost?

New research has put some surprising numbers on the income needed in retirement.

Each year since 2019, the Pensions and Lifetime Savings Association (PLSA) has set about answering the question of how much retirement costs for couples and single retirees. It considers three different Retirement Living Standards, which are summarised as:

  • Minimum: covers all your needs with some disposable income.
  • Moderate: more financial security and flexibility.
  • Comfortable: more financial freedom and some luxuries.

To give a more granular idea of what the different standards imply, these are how two sub-categories break down for food and drink, holidays and leisure:

  MINIMUM MODERATE COMFORTABLE
 Food and drink

 ·       Around £95 a week on groceries.

·       £50 a month per couple on food outside of the home.

·       £30 a month per couple on takeaways.

·       Around £100 a week on groceries.

·       £60 a week per couple on food outside of the home.

·       £20 a week per couple on takeaways.

·       £100 a month to take others out for a monthly meal.

 ·       Around £130 a week on food.

·       £80 a week per couple on food outside of the home.

·       £30 a week per couple on takeaways.

·       £100 a month to take others out for a monthly meal.
Holidays and leisure

 ·       A week-long UK holiday.

·       Basic TV and broadband plus a streaming service.

·       A fortnight three-star,
all-inclusive holiday in the Mediterranean and a long weekend break in
the UK.

·       Basic TV and broadband plus two streaming services.

 ·       A fortnight
four-star holiday in the Mediterranean with spending money and three long weekend breaks in
the UK.

·       Extensive bundled broadband
and TV subscription.

For the first time since 2019, the Moderate and Comfortable standards have been ‘rebased’ to allow for changed spending patterns. For example, out went two cars for the Comfortable standard and in came much higher spending on clothes in the Moderate standard. The rebasing means the gap between the 2023- and 2022-income requirements reflects more than just inflation – leading to the 34% jump for the Moderate single income requirement.

The bottom-line costs shown in the graph below are net (after-tax) income requirements and take no account of any rental expenditure. As a reminder, from April 2024 the new State pension will be £11,502 a year.

Source and credit to: Pensions and Lifetime Savings Association

 

The increasing cost of incorporating a company

Written by admin on . Posted in Company Director, Company Insolvency, Corporation Tax, Director Disqualification. No Comments on The increasing cost of incorporating a company

Perhaps not as widely known as the much publicised changes to company law is the fact that due to an increase in charges levied by Companies House, fees associated with incorporating and maintaining a company will rise from 1 May 2024.

Companies House has explained that fees are set on a cost recovery basis – meaning that the increases are intended to solely cover the cost of the services they deliver without making a profit.

Incorporation

Currently, the cost of registering a company with Companies House ranges from £10 to £40, depending on the channel used ie postal or online application. with fees increasing across-the-board from registration to exit, The increase in costs will include the following fees:

  • Online registration for a business or limited liability partnership: this is normally completed within 24 hours at the cost of £12. However, online registration fees will rise to £50, an uplift of 300%.
  • Same-day incorporation: the fee for this service is going up from £30 to £78.
  • Voluntary striking off: When a company is no longer required, voluntary striking off will now incur a fee of £33; it is currently £8.
  • Overseas entities: the largest increases apply to overseas entities who need to register with Companies House. The registration fee goes up from £100 to £234, with the removal fee increasing to £706 from £400.

Many people set up a new company through a company formation agent. Their most basic offerings only add a small margin to the Companies House charge. This means the fees charged by agents are going to see similar increases come 1 May.

Confirmation statements

Every company, including dormant companies, must file a confirmation statement at least once a year. The cost is currently £13 and rising to £34. This fee, at least, covers a 12-month period. It’s paid with the first filing during the period with no further charge for any subsequent filings during the same period.

For a full list of Companies House’s current fees visit the government website and for an update on price increases.

Photo by Mika Baumeister on Unsplash