Property

Unreported Property Income

2 min read

Landlords in receipt of rental income in excess of £1,000 in a tax year are required to disclose this to HM Revenue and Customs (HMRC).

For various reasons rental income may not be declared sometimes landlords may simply not get round to it or perhaps are unaware that they have tax obligations.

If you become aware of undisclosed income it is always better to come forward to HMRC rather than wait until they catch up with you.

This article looks at the sources available to HMRC to identify undisclosed rental income and the Let Property Campaign which allows arrears of rental income to be disclosed in a simple cost effective manner.

HMRC have various sources to identify undisclosed rental income.

Stamp Duty Land Tax (SDLT), Land Registry and Electoral Register

SDLT is a department of HMRC and they also have access to HM Land Registry records. In both cases, HMRC are able identify, those that own multiple properties which will create a red flag if there has not been any rental income declared.

The electoral registry can also be used to identify who is living in a property.

Letting Agents

Many Landlords rent through a letting agent or use one to find tenants.
High street letting agents are required to make an annual report to HMRC identifying landlords, rental properties and income earned. Online agents such as Air BnB and other online holiday agents will provide details of their electronic payments to HMRC in an annual report.

Security Deposit

The Landlord is normally required to place any security deposit with a government approved deposit scheme. HMRC have access to these records and use them to confirm a rental agreement is in place.

Informants

Ex-spouses/partners, neighbours, colleague and disgruntled tenants have long been a rich source of information for HMRC.

The Let Property Campaign

Help is at hand for Landlords wishing to bring their affairs up to date. The facility allows all undeclared years to be disclosed on one form, penalties will be lower. It will normally be possible to arrange payment of the liabilities in instalments.

How we can help

We offer a wide range of business advisory services to help you make the right decisions for your business to grow and improve.

If you would like to know how Loucas can assist you, please do not hesitate to contact us.

Transfer a Property to Children via a Trust

2 min read

There are a number of reasons that you may wish to gift an investment property to a trust rather than directly to your children. The two most common are Asset Protection and Capital Gains Tax.

From a tax perspective, it is important that neither you, your spouse nor any minor children are able to benefit from the trust. Typically a trust will be a discretionary trust with adult children and/or grandchildren being beneficiaries.

Asset Protection

As the trust owns the asset, it means that the asset can be protected and remain in the family as it does not form part of the beneficiary’s estate in the event of a bankruptcy, divorce or death. Additionally, the settlors can also be trustees, which means they will have a say on how and when funds or assets are distributed to beneficiaries.

Capital Gains Tax (CGT)

A gift of an asset to a child or to a trust is treated as a disposal at market value which, in the case of an investment property, would create a CGT liability based on the increase in value during its ownership. However, it is possible to hold over the gain on a disposal to a discretionary trust as it is chargeable to Inheritance tax (IHT) so that no tax is payable at this time.

Inheritance Tax (IHT)

The disposal to the trust is a chargeable lifetime transfer (CLT), assuming you have made no other CLTs in the last seven years each individual has a nil rate band of £325,000. A couple could therefore transfer a property valued up to £650,000 without incurring an immediate IHT charge (any excess would be charged to IHT at 20%).

As with an outright gift, if you survive the transfer by seven years it will fall out of your estate for IHT purposes. Every ten years the trust will be assessed to IHT based on the value of the assets in the trust at that time. If it exceeds the nil rate band/bands at that time the excess is charged to IHT at a rate of 6%.

It is possible at a future date to pass the property directly to a beneficiary and again hold over the gain for CGT purpose. There may be an IHT exit charge if there was IHT payable when setting up the trust if the transfer is within ten years of this event or, if not, IHT was payable at the most recent ten year anniversary.

Next Step

If you have any questions on gifting an investment property to a trust, our team of expert Accountants would be happy to assist.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

Your Guide to Furnished Holiday Lettings

2 min read

Much of the country is holidaying in the UK due to the current uncertainty around foreign travel, which has led to increased rents for UK furnished holiday lets (FHL). This article looks at the tax benefits of investing in such properties.

What is a Furnished Holiday Let?

In order to qualify a property should be fully furnished, commercially let and satisfy all of the following:-

Availability – It must be available for letting as furnished holiday accommodation for at least 210 days in the year.

Letting – It must be let as furnished holiday accommodation to the public for 105 days a year. You cannot include long term lets of more than 31 days.

Pattern of occupation – The total days where lettings exceed a continuous 31 days cannot exceed 155 days.

It is possible to average the days across properties where you have more than one FHL and you can make a period of grace election in certain circumstances when you have not quite satisfied the tests.

Income Tax

Capital allowances can be claimed on furniture and furnishings. You cannot claim relief on the original purchase of these items for ordinary residential lettings. There is greater flexibility for splitting profits with a spouse compared with ordinary residential lettings.

A significant advantage of FHLs compared with normal residential lettings is that there is no restriction on tax relief for interest payments for higher rate taxpayers.

Capital Gains Tax

Disposals of FHLs can qualify for Entrepreneur’s Relief which are taxed at 10% as opposed to the normal 18%/28% for residential properties. Gifts of FHL are deemed to take place at market value for capital gains purposes. An individual gifting a FHL can claim hold over relief so that no capital gains crystallize at that time.

This can be particularly beneficial for passing a FHL to the next generation as it is unlikely that a FHL will qualify for Inheritance Tax business property relief.

Capital Gains Rollover Relief is available where proceeds from the sale of a business asset are reinvested into another business asset. A FHL is a qualifying business asset. At Loucas, we help clients with a wide range of business interests including furnished holiday lets (FHL).

If you are considering buying a FHL or would like to discuss an existing property or portfolio, Loucas would be happy to advise on the matter.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.