Brought to you by
ICPA

ICPA is a professional organisation for accountants in practice.

Save content
Have you found this content useful? Use the button above to save it to your profile.

Tales from the ICPA telephone helpines

22nd Feb 2017
Brought to you by
ICPA

ICPA is a professional organisation for accountants in practice.

Save content
Have you found this content useful? Use the button above to save it to your profile.

Q: My client owns a holiday home and a house in London, his main residence. He is in process of selling his main residence and purchasing a new one. He may not be able to sell his current main residence before completion on the new purchase. Will he have to pay the higher rates of SDLT on the new purchase?

A: Yes, the higher rates will apply. Following the purchase of the new property he will own an additional residential property and will not have replaced his main residence. However, if he sells his current main residence within three years of the purchase of the new one he will be able to claim a refund from HMRC. The form to claim the refund is at: www.gov.uk/government/ publications/stamp-duty-land-tax-apply-for-a-repayment-of-the-higher-rates-for-additional-properties. HMRC must receive the request within three months of the sale of the previous main residence or within 12 months of the filing date of the return, whichever comes later.

Q: My client works from home and is asking if he can claim broadband costs back from his employer without incurring a taxable benefit. Can he?

A: Section S316A ITPEA 2003 applies to reasonable additional household expenses. So if an employee who begins to work from home under homeworking arrangements is already paying for a broadband internet connection at home, there is no additional expense. The employer cannot, therefore, reimburse the employee’s broadband internet charges, tax free, under Section 316A. Any such payment that the employer may decide to make should be subject to PAYE and NICs. On the other hand, if the employee does not already pay for a broadband internet connection at home, and needs one in order to work from home under homeworking arrangements, the broadband fee is an additional household expense that the employer can reimburse, tax free, under Section 316A.

Q: My client has been making losses on his buy-to-let income from property. How will restricted higher rate tax relief for mortgage interest effect this situation?

A: From 6 April 2017, the change is being phased in over three years. The adjustment will give a basic rate tax deduction after the rental profits have been taxed. This deduction will be up to 20% of the finance cost as follows:

2017/20118 – 75% of costs deducted from profit and 25% of costs relief at basic rate.

2018/2019 – 50% of costs deducted from profit and 50% of costs relief at basic rate.

2019/2000 – 25% of costs deducted from profit and 75% of cost relief at basic rate.

2000/2001 – Nil costs deducted from profit and 100% of costs relief at basic rate.

Finance costs include mortgage interest, any payments that are comparable to interest, and incidental costs of obtaining finance, such as fees and commissions, legal expenses for negotiating drafting loan agreements or valuation fees required to provide security for a loan.

When property profits are less than finance costs, the deduction is limited to 20% of the property profits. The reduction does not reduce tax payable on other sources of income. When there are property losses brought forward these must be set against property profits first and could reduce the taxable profit to less than the finance costs when this occurs the deduction is limited to 20% of the taxable profits. When total income is low, so that some or all of the rental profits fall within the personal allowance, the deduction is restricted to 20% of the profits that are actually taxed.

When there is a restriction, any finance costs which have not been used to calculate the basic rate deduction in one year can be carried forward and added to the finance costs of the following year.

This article is taken from “Accounting Practice” the ICPA quarterly magazine. Dedicated to supporting and promoting the needs of the general practitioner. You can find us at www.icpa.org.uk or email [email protected] or by phone on 0800-074-2896.

Tags:

You might also be interested in