Quick Tax Tips - Autumn 2007

When you're moving, renting out your old home can save tax!

Many people are climbing the property ladder, acquiring a bigger property to live in, whilst keeping their original home and renting it out. If you do intend to invest in residential property lets, this can be a tax efficient way to do it. When you come to sell the property in years to come your tax bill will reduce because it has been your main home at some point. The calculations can be complicated, but the savings may be significant.

When considering the value of the mortgage that can be used to claim tax relief against the rental income we consider the value of the rental property at the time it changes from a home to a rental property. Hence if the old home was bought for £70,000 and it is now worth £180,000 then with careful planning we can claim tax relief against the rental income on existing and new mortgages to a total of £180,000. This can be a significant saving for many property owners.

Shattering the tax myths - There's no tax on selling your home

Tax myths are creating problems in an already confusing tax system. In each edition we will unravel a well known tax myth and give you the truth. The myth for this edition is that "there is no tax on the sale of your home".

Whilst for many of us this may be true, unfortunately this is not always the case. There are a number of occasions where the matter needs to be reviewed in more detail, although a tax liability may still not arise. The main situations include:

• if the property has not been your main home throughout the period that you have owned it,
• if you have lived in more than one property,
• if you have run a business from the premises,
• if you have rented out part or all of the property,
• if the grounds are greater than half a hectare (1.23 acres).
• if you regularly buy properties to do up and sell while living in them.

If you believe that one of these apply to you we would be delighted to discuss the implications and confirm what action, if any, is needed. Care is also required if you decide to sell your home and hold onto the garden, perhaps for development. On the sale of the house you would lose the tax relief on the garden. With careful planning at the outset we may be able to avoid this pitfall.

QTT - Is your finance tax efficient?

The structure of any finance deal can have significant tax effects and care should always be taken. For example, if Inheritance Tax is of concern then you would probably not secure any finance against business assets or business interests as these may well be covered by Business Property Relief and so possibly not liable to Inheritance Tax. Securing the debt against non-business assets or interests could save Inheritance Tax on your estate.

If, on the other hand, you want to save annual taxes then you may consider structuring the finance to ensure that the interest payments qualify for tax relief. Before any finance is taken out, tax issues should be considered.

We would be delighted to discuss your requirements and the options available to you.

QTT - Starting in business?

If you're about to start a new business venture not only will you need to consider how you are going to make money, but also how to keep it. The exact circumstances will very much govern how to set up a business and save tax. Generally if you are switching from employment to setting up in business for yourself, and you expect to make a loss, then it may well be more beneficial to set up either as a sole trader or perhaps a partnership. The losses in the initial years can be carried back against the previous employment income and perhaps create a much needed tax repayment. There are obviously advantages both tax and otherwise to other business structures and we would be delighted to review your needs with you.

HOP - Changes to VAT road fuel scale charges

From 1^st May 2007 there are important changes to the way in which the Road Fuel Scale Charge is calculated for VAT.

HOP - Revenue continue to pursue offshore accounts!

In the spring issue we mentioned that individuals and companies were being given a one-off opportunity to disclose to the taxman details of offshore accounts. This was widely reported as a "tax amnesty" although it was no such thing as all tax and interest had to be paid, together with a reduced penalty. The window of opportunity closed in the summer.

It is estimated that HM Revenue & Customs (HMRC) hold details of more than 300,000 accounts that were not disclosed during the window. Many people will have previously made disclosure on their tax returns and others will have valid reasons not to. Some will be keeping their fingers crossed! HMRC are now fulfilling their promise to "come down hard" on the finger-crossers, and enquiry letters have been arriving, with more on the way. The only thing that is holding this back is a lack of resources at HMRC.