UK Tax

The Chancellor of the Exchequer, Jeremy Hunt delivered his UK Spring Budget 2024 today.

As you are aware, the Furnished Holiday Letting (FHL) regime provides tax relief for property owners letting out furnished properties as short term holiday accommodations.  From 6^th April 2025, however, the Chancellor is removing this tax incentive in an attempt to increase the availability of long term rental properties.

What is a Furnished Holiday Letting (FHL)?

According to HMRC’s guidance material, a furnished holiday let is deemed to be a furnished commercial property which is situated in the United Kingdom.

It must be available to let for a minimum of 210 days in the year.

It must be commercially let as holiday accommodation for a minimum of 105 days in the year.

Guests must not occupy the property for 31 days or more, unless, something unforeseen happens such as the holidaymaker has a fall or accident or the flight is delayed.

Currently, FHLs benefit from the following tax advantages:

• There is a full deduction of interest on borrowings from FHL income.

• Currently, profits from furnished holiday lettings are treated as relevant earnings. Therefore, profits generated from FHLs can be treated as earnings for the purposes of making tax advantaged pension contributions.

• Capital Allowances on items such as furniture, fixtures and equipment can be claimed on your Furnished Holiday Let. You can also claim tax relief on certain refurbishment costs.

• On the disposal of the FHL, Business Asset Disposal Relief (10% CGT rate), Business Asset Rollover Relief and Gift Hold-over Relief may apply.

• Provided there is sufficient business activity to demonstrate a trading activity, FHL properties can qualify for Business Property Relief thereby reducing the value of the business for Inheritance Tax purposes by up to 100%.

So, what happens from 6^th April 2025?

• Mortgage Interest Relief will be given as a 20% tax credit. This will result in a reduction in tax relief from 40% for higher rate taxpayers and 45% for additional rate taxpayers.

• The normal residential property CGT tax rate of 24% will apply.

• Relief may be available for the replacement of domestic items in line with the regulations for long term lets.

• FHL profits will no longer be treated as relevant earnings for the purposes of making pension contributions.

• Properties will no longer qualify for Business Property Relief, thereby increasing Inheritance Tax liabilities.

What actions can you take?

You may wish to consider your options before the rules are abolished in April 2025.

Options include:

• Continue renting your property as before but without the current tax advantages.

• Sell the property with the aim of benefitting from the 10% CGT rate.

• Gift the property with the aim of benefitting from Business Asset Disposal Relief and Gift Hold-over Relief.

• Change your rental strategy by renting your property on a long term basis.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Today, HMRC announced an increase in its interest rates, due to another increase in the Bank of England base rate, from 4.25% to 4.5%.

The new rates will take effect from Monday, 22nd May 2023, for quarterly instalment payments.

The new rates will take effect from Wednesday, 31st May 2023, for non-quarterly instalments payments.

The two new increased rates of interest are:

• Late Payment Interest which is set at base rate plus 2.5%.  This will increase from 6.75% to 7% on 31st May 2023.

• Repayment Interest which is set at base rate minus 1% with a lower limit of 0.5% (known as the ‘minimum floor’).  This will increase to from 3.25% to 3.5% from 31st May 2023.

For further information, please click: HMRC late payment interest rates to be revised after Bank of England increases base rate – GOV.UK (www.gov.uk)

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

In 2016 the ‘New State Pension’ was introduced.  As part of transitional arrangements to the new State Pension, taxpayers have been able to make voluntary contributions in relation to any incomplete years in their National Insurance record between April 2006 and April 2016.

Anyone who is retiring on or after 6^th April 2016, under the ‘new State Pension’ rules, requires approximately thirty five qualifying years to claim the full state pension.

The U.K. government has extended the voluntary National Insurance contribution deadline from 5^th April 2023 to 31^st July 2023. This will allow taxpayers more time to fill gaps in their NI records to maximise the amount they will receive in State Pension.

Therefore, if you’re a man born after 5th April 1951 or a woman born after 5^th April 1953 you have until 31^st July 2023 to pay voluntary contributions to make up for gaps between tax years April 2006 and April 2016, providing you’re eligible.

Where there are gaps in an individual’s National Insurance record, voluntary NICs can be paid to be eligible for a higher State Pension or entitlement to other state benefits.  Therefore, anyone with gaps in their National Insurance record from April 2006 onwards still has time to fill the gaps and increase their State Pension.

After 31^st July 2023 you’ll only be able to pay for voluntary contributions for the past six years which may not be sufficient to qualify for a new State Pension if you have less than four qualifying years on your National Insurance record. Normally, you would require at least ten qualifying years in total.

Please be aware that any payments made will be at the lower 2022 to 2023 tax year rates.  In other words, where the rates of voluntary National Insurance contributions were due to go to up from 6th April 2023, payments made by 31st July 2023 will be paid at the lower rate.

Actions for taxpayers to take before 31st July 2023: 

1. Check your NI record. Taxpayers can check their National Insurance record, via the HMRC app or their Personal Tax Account.

2. Identify any discrepancies between NI contributions paid and those showing on HMRC’s system.

3. Identify any NI credits that are missing from periods in which they should have been received.

4. Identify any shortfalls in contributions.

5. Confirm that you are eligible to pay voluntary contributions in respect of any gaps.

6. Contact HMRC if you think there are any errors.

7. Decide whether to make voluntary NI contributions. Establish how much making the voluntary contributions will cost and consider making up any shortfall by 31st July 2023, particularly for the period April 2006 to April 2017 before this opportunity is lost.

To look at your personal tax account to view your National Insurance record and obtain a state pension forecast, without charge, please click link: https://www.gov.uk/check-state-pension

The Future Pension Centre can tell you if paying for extra national insurance years will increase your state pension entitlement.  For full details, please click: https://www.gov.uk/future-pension-centre

Based on the information you receive from HMRC, if you have returned to Ireland and you decide to top up your pension contributions before the deadline date, please find link to Application Form: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1102905/CF83.pdf

Please click for full HMRC guidance material which may be relevant to you if you have returned from working in the UK: https://www.gov.uk/government/publications/social-security-abroad-ni38/guidance-on-social-security-abroad-ni38#deciding-whether-to-pay-voluntary-national-insurance-contributions

Why is it so important to act before 31^st July 2023?

The ability to buy back years by looking back to 2006 is scheduled to end on 31^st July 2023. After the cut-off date, it will only be possible to pay for gaps in your National Insurance record by looking at the past six years. This means that you could lose out on the opportunity to maximise your UK State Pension for gap years before 2017.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

HMRC issued it’s updated Digital Service Tax guidance material today in which it confirmed that cryptocurrencies are unlikely to meet the definition of financial instruments, commodities or foreign exchange and will therefore, not be exempt from the Digital Services Tax.  For further information, please click: https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto48000

This means that exchanges dealing in crypto assets will be subject to the 2% digital services tax on their revenue.

HMRC has confirmed that it will issue ‘nudge letters’ to known UK resident crypto-asset investors who it believes may have underpaid tax on their cryptocurrency transactions.

Therefore, if you have used, bought or sold crypto-assets between 6th April 2020 and 5th April 2021, you should check whether or not you have a reporting obligation to HMRC.

Although the letters are not being sent out to non-UK domiciled individuals, this does not mean that HMRC’s view on the situs tests for crypto-assets has changed.    For further information on the location of crypto assets please click: https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22600

If you have recently moved to the UK and intend selling your home in Ireland, please be aware that even if you qualify for Principal Private Residence Relief under Section 604 TCA 1997 in Ireland you may not qualify for UK Private Residence Relief.

This article is aimed at individuals who have become UK resident and who are in the process of selling their Irish principal private residence.

In general, you do not pay Capital Gains Tax when you sell or ‘dispose of’ your home if all the following conditions apply:

• you have only one home and you’ve lived in this property as your main home for the entire time you’ve owned it
• you have not let part of it out (Please be aware that this does not include having a single lodger)
• you have not used part of the property for business purposes only
• the grounds, including all buildings, are less than 5,000 square metres in total
• you did not buy the property with the sole or main intention to make a gain

If all the above conditions apply you will automatically get a tax relief called Private Residence Relief.

Your period of ownership begins on the date you first acquired the dwelling house or on 31st March 1982 if that is the later date. It ends when you dispose of or sell the property.

The final 18 months of your period of ownership will always qualify for Private Residence Relief regardless of how you use the property during that time but providing the property has been your only or main residence at some point.

The following periods of absence are treated as periods of occupation for the purposes of calculating Private Residence Relief:

• Any periods of absence, for whatever reason, not exceeding three years in total
• Any period of absence when carrying out the duties of your employment outside the United Kingdom
• Any periods not exceeding four years in total which are due specifically to employment requirements.

In order for these periods of absence to qualify as “deemed occupation” there must be a time both before and after the absence when the dwelling house is the individual’s sole or main residence. It is important to keep in mind that absences due to the conditions of an employment will qualify for the Relief even if the individual does not return to the dwelling house afterwards provided the reason for not their returning is due to their contract of employment requiring them to live somewhere else.

Any period of absence which requires the individual to live in job/work related accommodation will qualify for Private Residence Relief if there is an intention to occupy the dwelling as a main residence at some point.

HMRC will, by concession, allow a period of up to one year before the individual begins to occupy the property as his/her principal private residence to be treated as a period of occupation provided the property is then occupied as his/her only or main residence. In exceptional cases, HMRC may extend this period to two years.

From April 2015, the PRR rules were amended so that a property may only be treated as an individual’s main or sole residence for a tax year where that person or his/her spouse/legally registered partner has either:

(a) been tax resident in the same country as the property for the tax year in question (For further information on residence rules please follows this link:  https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability/guidance-note-for-residence-domicile-and-the-remittance-basis-rdr1) or

(b)  has stayed overnight in the property at least 90 times in that UK tax year.  Time spent in another property owned in the same jurisdiction/country can also be included in the ninety day count so that the total number of days in all properties in the territory in question are added together.

The new rules apply equally to a UK resident individual disposing of an overseas home as well as to a non-UK resident disposing of a home in the United Kingdom.

Finally, Lettings Relief may be available in circumstances where Principal Residence Relief is restricted because all or part of a property has been rented out.

This Relief is particularly important for individuals who, due to the current economic climate, experience difficulty selling their former home and, as a result, find they need to rent it out while they’re trying to sell it.

A maximum gain of £40,000 per owner is exempt from Capital Gains Tax provided that property has at some time been the main or only residence of the owner.

From 6th April 2020 there will be a change to this Relief whereby Lettings Relief will only be available in situations where the owner shares occupancy with the tenant.