If you live in one home from the time you buy it to the time it is sold this will be your principal private residence.  However circumstances do change and if the do so what are the rules?

If you do have to move away, or cannot move in straightaway

• Providing you only own one home you will still get full relief if:
  • You worked overseas
  • You worked in the UK but too far to live at home – for a period up to 4 years
• You get pro-rata relief for all of the time the house is your PPR
• Providing you have lived in the house “at some time” you always get the last 36 months of ownership (there is no restriction on this)
• There is also letting relief which is the lower of:
  • £40,000
  • the amount of Private Residence Relief due
  • the amount of gain you’ve made on the let part of the property
• To avoid no relief being given where you cannot sell a previous home, you still get relief if you move in within 12 months.

There are some exceptions to full relief however:

• The area of your home and garden are large
• You have used part of your home for business purposes only
• Any letting not covered by letting relief
• You bought it as an investment to make a quick profit

As the sale of a property may well mean that your total income is within the higher rate tax band you may also wish to refer to a June 2010 blog on the capital gains tax rules: http://awaccs.co.uk/tax-advice/capital-gains-tax-new-rules-2010.  The link on HMRC website is as follows: http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

The advice above is generic and may not apply to your circumstances, so seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

• Any pre budget gains are still taxed @ 18%
• Post budget gains are taxed under new regime
• You can choose whether to offset the £10100 allowance against pre/post budget gains to minimise your tax bill (normally the post budget gains as avoids 28%)
• For post budget gains, once the allowance has been offset (if applicable), the gain is added to the persons taxable income (ie a “top slicing” arrangement):
  • Gains up to the top of the basic rate band are taxed at 18%
  • Gains into HR tax band are taxed at 28%

Example 1 from Budget Note 20 produced by HMRC (see link above)

Example 1
In 2010-11 X’s taxable income, after all allowable deductions and the personal allowance, is £27,400. The upper limit of the income tax basic rate band is £37,400. X sells an asset in May 2010 and realises a chargeable gain of £17,000. In November 2010 X sells another asset, realising a chargeable gain £25,100. X has no allowable losses to set against these gains, and the AEA (Annual Exempt Allowance) for 2010-11 is £10,100. Neither of the gains qualifies for entrepreneurs’ relief.
X’s taxable income is £10,000 less than the upper limit of the basic rate band (£37,400 – £27,400). X sets the AEA against the later gain (because part of that gain is liable to tax at the higher CGT rate), leaving £15,000 taxable (£25,100 – £10,100). The first £10,000 of the £15,000 is taxed at 18 per cent and the remaining £5,000 is taxed at 28 per cent. The £17,000 chargeable gain X realised in May 2010 before the change of rates on 23 June 2010 is taxable at the old 18 per cent rate.

This article aims to be informative and your should take professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”

The Chancellor George Osborne started by painting the picture of the poor state of the economy and among various political comments stated that due a cautious approach fiscal goals would be met one year earlier than expected in 2014.  The inflation target will remain at 2% which has already been exceeded, this will peak at 2.7% later in the year and then reduce.  In terms of the approach to the deficit a lower spending rather than higher tax route is being taken, supporting the stand taken by the IMF and OECD, which will be done in the ratio 80/20, clearly showing the public sector will suffer.  The relationship with Europe will continue with a commitment not to join the Euro, and the government group looking at this area will be disbanded and used for more “useful tasks.”

Turning to the actual decisions, cuts are to be made to existing budgets but there was a commitment to capital spending, particularly if there is economic benefit.  This will be greeted with some optimism by the schools and infrastructure in North Kent which was rumoured to be cut to reduce the deficit.  The Royal Family have accepted that the Civil List will be frozen , and will be subject to annual National Audit Office reviews.  There will be an overall reduction of 20% in departmental budgets but due to commitments to maintain or increase NHS funding and overseas support the actual effect on departments hit by the cuts will be that of a 25% cut.  We will not know the full impact of the cuts until the Spending Review for which the date has been released for the first time as Wednesday 20^th October.

The public sector will face the biggest cuts and the most noticeable to the man in the street is the 2 year pay freeze for staff paid over £21k.  The government wants to encourage the back to work culture and the tax credits system is being used to facilitate this.  Tax credits will be more targeted particularly at the lower paid and will reduce for families with a combined income over £40k.  Child benefit is also to be frozen, the government acknowledging a number of approaches including means testing and taxing the benefit but finally settling on a freeze.  In other areas medical tests are to be introduced for those claiming disability benefit.

For business the main corporation tax rate will reduce by 1% per annum for the next 4 years reducing from 28% to 24% over that time, which will be the lowest rate in the G20.  For small businesses the rate will reduce by 1% only to 20% from next year.  There is also to be a small reduction in the rates of capital allowances, of main interest to small businesses the Annual Investment Allowance will reduce from £50k to £25k, which will still meet the needs of many SME businesses.

Among the miscellaneous changes, the Chancellor is introducing a levy on banks as recommended by the IMF, and this will take the form of a tax based of the size of the bank, small banks will be excluded from this arrangement.  The landline duty to fund broadband expansion is being withdrawn before even being introduced, this will be funded by links with the private sector and local initiatives.  In order to encourage business growth outside London and the South East there will be an NI exemption for new businesses being set up.

The biggest news of the budget and not entirely unexpected was the increase in VAT from 17.5% to 20% from 4 January 2011, but exempt and zero rated items such as childrens clothing and food will be unaffected.

There will be no increases in the previously announced duties for alcohol/fuel etc, but the additional cider increase has been withdrawn from the end of the month (apparently in time for the final 8 in the World Cup!)

In personal tax capital gains tax will remain at 18% for basic rate taxpayers but increase to 28% for higher rate taxpayers, the £10,100 limit will remain.  This may appear good at first sight but gains on property for example may well push basic rate taxpayers over the threshold so will pay 28% anyway.  To continue to encourage entrepreneurship the limit for lifetime gains will be increased to £5m at which an effective 10% rate applies.

Personal tax allowances will increase by £1000 to £7475 from next year, one step towards the £10k limit proposed by the Lib Dems.  The NI thresholds are to be increased and the cost to employers of employing staff paid less than £20k will not increase.  For pensioners the basic state pension will be relinked with earnings after a gap of several years, and in a further attempt to support low income families the Child element of Child tax credits will increase by £150pa.

This is by its nature a summary of the main points we consider of interest to readers, there was alot more content in the whole speech but we hope this will be more easily understood.  The main announcements are on HMRC website http://www.hmrc.gov.uk/budget2010/index.htm .  We hope this will be informative but if you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”

• The Annual Investment Allowance (AIA) will be increased to £100k pa for expenditure incurred on or after 1 April 2010 (companies) and 6 April 2010 (unincorporated businesses).
• No changes have been made to the main and small companies’ rates of corporation tax which for 2010 remain at 28% and 21% respectively.
• A 100% first year allowance will be available for new zero-emission goods vehicles for a five year period from 1 April 2010 (companies) and 6 April 2010 (unincorporated businesses)..
• Business rates cut for one year from October meaning a tax reduction for more than 1/2 million small businesses in England and 345,000 will pay no business rates at all.

For individuals

• The lifetime allowance for entrepreneurs’ relief has been increased to £2m and may be claimed for disposals made on or after 6 April 2010.  Capital gains tax rate remains at 18%.
• No further changes were made to income tax or NI rates beyond those announced in the Pre-Budget Report.  A summary of tax rates and allowances can be found at www.hmrc.gov.uk/budget2010/pn02.pdf
• Relief from stamp duty land tax is available for first time buyers on residential properties up to £250k. This applies for purchases completed between 25 March 2010 and 25 March 2012.
• Stamp duty land tax will be payable at 5% on residential properties over £1m for completions on or after 6 April 2011.
• The IHT nil rate band will now be frozen at £325k for four years (until 2014/15).
• The car scale benefit rates for very low CO2 emission vehicles will be reduced to 5% for cars or vans with emissions of less than 75g per km and nil for vehicles which produce no CO2.

Other measures

• Above inflation increases in alcohol and tobacco
• A phased increase in fuel duty of 1p in April, October and January
• A £35 million university enterprise capital fund, to provide direct support for university innovation and spin-out companies.
• Additional £84 million for repair of local and regional roads damaged by recent adverse weather and £250m investment to improve the motorway network.
• From this April, a new 50 per cent rate of tax will apply to incomes above £150k and from April 2011 tax relief on pension contributions will be restricted for those incomes of £150k and over.
• Employee, employer and self-employed rates of National Insurance contributions will increase by one per cent from April 2011. However, the 15 million people on incomes below £20k will not pay any extra National Insurance contributions.
• Personalised Services for Start-ups and SMEs through Businesslink.gov.uk – By autumn 2011, a new personalised area for start ups will provide easy access to enhanced guidance and tools to help businesses find the support they need when setting up including an HMRC tax registration ‘wizard’ that enables registration for multiple taxes, online services and payment plans using a single interactive online form.
• A tax incentive for the UK video games industry, following consultation and approval from the European Commission

This budget is a short term measure in view of the forthcoming election and there are likely to be more significant measures made in the post election budget, both in tax avoidance, reduced public expenditure and increased taxes.

We hope you find the contents of this blog useful, you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting  – Accountants who “speak your language”

So if you need to complete a tax return what information do you need?  A list of the common items follows:

1. End of year P60 from your employer (you should have this by May each year) and any pensions or benefits received
2. Benefit in kind form P11D from your employer (by July)
3. Details of interest received on all current and savings accounts
4. Details of all dividends received (including those from your business)
5. Profits from your trade if self employed
6. Details of rental income net of relevant expenses
7. Details of any capital gains on sale of assets

You can also get tax relief for some items:

1. Personal pension contributions
2. Payments made under gift aid
3. If employed certain expenses incurred wholly, exclusively and necessarily for your employers business may be allowable (this includes 40p/mile, for business mileage upto 10k miles, even if you are paid less than that)

The easiest way to collect these is to put them into an envelope as they arrive then you can complete your tax return as soon as you have collected everything.  This list includes all of the more usual items however you should ask your accountant if you have any specific questions.

We hope you find the contents of this blog useful, you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting  – Accountants who “speak your language”