In June 2008 I bought a 2 bed flat near the sea front in Weston as an investment. It had off street parking and a garden, so at 104.000 pounds I thought it was a good deal. Unfortunately, as I did not really know what I was doing at the time, the monthly profit was marginal and overall ( after refurb, insurance, loss of rent, damage ) I made a considerable loss in the last 2 years.

I decided to be more professional and educate myself, so I did a few property courses with Tigrent.

In September 2010 a group of us went to the Landlord’s Show in London. As we were moving around, a strange looking man in a bowler hat caught my attention. [amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']HEDGE TAX MITTIGATION was the company. He started to talk to me and asked if I was interested in a tax refund. Well, silly question! Who wouldn’t? He asked a few questions about the flat, the tenants and if I had paid tax in the year of purchase. He then claimed I was eligible for something he called “Capital allowance for plant and machinery” – yeah, right. I own a flat, not a factory! Still, I left my details and met up with a Hedge consultant the following week. He checked all the details and confirmed I was entitled to a refund of about 4600 pounds.

What is the catch? No catch!

Too good to be true! Ah yes, the fee! 1500 pounds

What is it is a hoax? Does it exist? I looked on the official government website and there it was!

After discussions with my business partner I decided to go ahead. Hedge sent a chartered surveyor who inspected the flat, took photos, and wrote a report which was submitted by my accountant and 8 weeks later a letter from the tax office: 4644 pounds are mine! Thank you very much!

So

Do you own a property with at least 2 bedrooms

Have 2 ore more unrelated people lived in it?

Did you pay tax of any kind in the year you bought the property?

or : do you own a holiday flat in the UK or in Europe?

or : do you own a commercial property?

or : do you own a hotel / B&B?

Then you might be entitled to a refund just as I was. No catch! Win-win all around!

Contact me! There are some tax deadlines coming up in January. Don’t loose out!

Marita

If you want to contact Marita, please contact us and we will pass on the details.

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Capital gains tax

Effective from 23 June 2010, capital gains tax will rise from 18 to 28 per cent for those with total income and taxable gains above the higher rate threshold. Basic rate payers will see no change to CGT.

According to the official budget report:

This strikes the right balance between fairness and international competitiveness. A substantial part of the revenue from this measure comes from higher income tax receipts as the incentive to convert income into capital gains is reduced. Basic rate taxpayers will continue to pay an 18 per cent rate on their gains.

Basic rate of income tax

The basic rate for income tax will be frozen in 2013 – 14

Personal allowance

The personal allowance for under 65s will be increased by £1,000 to £7,475 in 2011-12.

50p rate of income tax

The 50p rate of income tax took effect from April 2010 and will remain in place for the time being.

VAT and IPT

The standard rate of Value Added Tax (VAT) will increase from 17.5% to 20% from 4 January 2011.

The standard rate of Insurance Premium Tax (IPT) which will affect most if not all landlords will increase from 5% to 6% on 4 January 2011. The higher rate will increase from 17.5% to 20%.

Housing Benefit

The official budget statement states:

The Government will introduce a package of reforms to Housing Benefit from April 2011 onwards. This includes changing the percentile of market rents used to calculate Local Housing Allowance rates, and uprating these rates by CPI from 2013-14, capping the maximum Local Housing Allowance payable for each property size, time-limiting the receipt of full Housing Benefit for claimants who can be expected to look for work …

The changes will be:

• From April 2011, Local Housing Allowance Rates will be capped at £250 per week for a one bedroom property, £290 per week for a two bedroom property, £340 per week for a three bedroom property and £400 per week for four bedrooms or more. Channel 4 news reports that the Department for Work and Pensions have confirmed these capping rates are to take effect nationally. According to the Times, “13,000 families, mostly in London, will have to move out of their current properties and into somewhere more modest.” as a result of the proposed capping.
• Currently, the local housing allowance is based on the mean average of rents for a given area. From October 2011, Local Housing Allowance rates will be set at 30% of local rents.
• From 2013-14, Local Housing Allowance rates will be uprated in line with CPI.
• Housing benefit will be reduced by 10% for people who have been on jobseeker’s allowance for 12 months or more. This will be introduced in April 2013.
• From April 2011, Housing Benefit claimants with a disability and a non resident carer will be entitled to funding for an extra bedroom.
• Deductions for non-dependents will be uprated in April 2011 on the basis of prices. This will reverse the freeze in these rates since 2001-02.
• The Government contribution to Discretionary Housing Payments will be increased by £10 million in 2011-12 and £40 million in each year from 2012- 13.

Further Information

The full budget report can be obtained here

Spending Review – Welfare Benefit changes

The Chancellor announced further welfare savings to those identified in the June Budget:

• a time limit to contributory Employment and Support Allowance for those in the Work Related Activity Group of one year
• an increase in the age threshold for the shared room rate in housing benefit from 25 to 35, so that Housing Benefit rules reflect the housing expectations of people of a similar age not on benefits
• greater flexibility to local authorities to manage council tax together with direct control over Council Tax Benefit, within an overall budget that will be reduced by 10 per cent from April 2013
• alignment of the rules for the mobility and care elements of Disability Living Allowance paid to people in residential care

Letting residential property is treated as a single business, even if you let out more than one property. If you let out several properties, you can offset losses from one against profits from another. You pay tax on any profit as part of your overall income.

Continue reading on Directgov – public services all in one place

Expenses and Allowances on Income from Property

If you let out property you can deduct certain expenses and tax allowances from your rental income to work out your taxable profit (or loss). If you have several UK residential lettings you pool the income and expenses together. But you work out holiday letting and overseas letting profits separately.

Continue reading on Directgov – public services all in one place

A couple who run a small business won a legal victory yesterday that could cost the taxman £1billion a year.

Information technology consultant Geoff Jones and his wife Diana have fought a six-year court battle to claw back a levy on “dividend”payments.

Their success struck a blow for around 300,000 small firms and could have major repercussions.

The couple won such widespread support for their case that donations flooded in to help them fight the Revenue’s “married couple’s business tax”.

The dispute between HM Revenue and Customs and Arctic Systems, an IT consultancy in Pulborough, West Sussex, set up by Mr and Mrs Jones, broke out in 1992.

The couple each owned a 50 per cent share and the dispute centred on a £25,767 dividend payment made to 53-year-old Mrs Jones during 1999-2000.

Victory: Diana and Geoff Jones

As company secretary, she was responsible for the managerial and administrative side of the business while Mr Jones was the sole director and fee-earner.

Because she was a lower-rate taxpayer, the payment to her was a tax-efficient way of taking money from the company.

But the Revenue insisted that dividend income received by a non fee-earning spouse should be taxed at the same level as the main feeearner, who typically pays 40 per cent.

Its lawyers argued that 50-year-old Mr Jones was taking an inadequate salary from the business, leaving “excessive reserves” which were then paid as dividends to Mrs Jones.

The couple were horrified to learn after an investigation that they were being billed for £42,000 in backdated tax over a six-year period. They lodged an appeal, but their case was rejected by the Special Commissioners in 2004 and again at the High Court the following year.

But the fight went on and in December 2005 the Court of Appeal ruled unanimously that they were not in the wrong.

Importantly, the judges said a wife’s role in her husband’s business should be recognised. The Revenue then took the case to the House of Lords – where it was rebuffed yesterday in a unanimous decision by five Law Lords.

Last night, the couple said they are “absolutely delighted” by the result.

“In my view this was just another stealth tax,” said Mr Jones.

“But if we had not had financial support to fight this case, which has dragged on for a preposterous six years, we would have had to cave in and the taxman would have won.

“Today’s ruling shows the system works. We have been vindicated.”

After the judgment, Bill Knox of the Federation of Small Businesses, described the Revenue’s conduct as “utterly shameful”.

“Hounding hard-working small business owners in this way sullies the good name of the Revenue,” he said.

“The family tax arrangement that the Joneses had in place has been around for years and for the Revenue to suddenly decide to clamp down without warning was totally unjustified.”

Paula Tallon, of leading tax adviser Chiltern, said family businesses already out of pocket after this year’s Budget would breathe “a big sigh of relief”.

The Revenue is “considering details” of the ruling, but an appeal to European courts is not an option as this is not a Europe-wide issue.

Not if the property is to be rented out or sold in the course of a business.

There is a scheme available where any VAT paid to suppliers for materials and labour costs can be reclaimed from HM Customs (the claim must be made within 3 months of completion), however, a claim cannot be made if the works are by a person in the course or furtherance of any business [s35 Value Added Tax Act 1994].

If a landlord were to be genuinely living in the property as his main residence, then a claim could be made.

HMRC Reference Notice 719 contains guidance on making the claim and for what materials etc. a claim can be made.

Property Developers

Because a property when first sold is zero rated for [amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']VAT purposes (notice zero rated and not exempt), then if a property developer is VAT registered, then in the usual way, he can reclaim all VAT paid for materials etc in his normal VAT return. A property developer claiming back the VAT in this way can only do this because there must be an “intention to sell”. There is no time limit on selling and if there were a downturn in the market, the developer could rent the dwelling temporarily. However the property must continue to be marketed throughout and genuine efforts must be made to sell. If the developer changed his mind and decided to rent the property permanently, then the VAT previously claimed back would have to be repaid.

5% reduced rate VAT where landlord not VAT registered

If a landlord wishes to convert a building into a dwelling for example a barn, or if a dwelling has been empty for 2 years or more (until very recently this used to be 3 years), then a landlord can employ a contractor who should only charge a reduced rate of 5% VAT on labour and materials. However, just like above, the landlord would have to show an intention to sell.

HMRC Reference Note BN CE40/02 provides more information on the 5% reduced rate.

Summary

If a landlord wishes to pay less VAT on goods when converting a building, as long as the property is going to be rented out, it will not be possible. The only time it is possible to get the 5% reduced rate on materials and labour is to show an intention to sell. Or alternatively a landlord could register as a property developer, but again any development would have to show an intention to sell and not rent out.[/amember_protect]