As we approach the end of the tax year, April 2019 will bring some interesting key changes to the tax sector. Some of the main changes include, the introduction of Making Tax Digital for VAT and the April 2019 loan charge. In this newsletter we shall be covering these two key changes and what tax reliefs can be claimed before April 2019 kicks in.
Making Tax Digital (MTD)
In line with HMRC's vision to digitalise the UK tax system, from April 2019, the transformation will be well underway by the introduction of Making Tax Digital (MTD) for VAT with the view of extending this to various other sectors in tax. Tax payers and agents will be required to keep digital records and submit the relevant information to HMRC using the software. MTD will start with VAT but who knows maybe in the near future the entire tax system will be have moved into the digitalised era !
It is worth having a look into Furnished Holiday Lettings (FHLs) ?
FHLs have many tax advantages in comparison to other longer term rental properties. one of the major advantages of FHLs is that they benefit from Entrepreneurs' Relief (ER) which has a massive tax benefit as this means any capital gains on the sale of the property is taxed at a flat rate of 10%, whereas on the sale of residential property the capital gains tax to be paid is at 18% or 28% depending on the taxpayer's bracket.
With mortgage interest also now becoming a bigger tax problem this again benefits having a look into purchasing an FHL. In the 18/19 tax year only 50% of mortgage interest is an allowable expense and the remaining 50% is available for basic rate relief, however for FHLs any mortgage interest is fully deductible from the rent on the property.
For landlords it may be worth reviewing their rental properties and see if maybe they can be restructured in to a short-term lettings in order for it to meet the qualifying conditions for an FHL. Rather than selling the rental properties in the current uncertain property market it may be more beneficial to set up the rental properties in this way.
However the landlord may prefer the security of having a long-term tenant over the constant changeovers an FHL brings with it. The location of a property is also a key factor as this needs to be a realistic location for an FHL for example a house in Blackburn is less likely to be regarded as an FHL than a flat in central London.
Planning for the year end
There are many reliefs and exemptions that can be considered before the year end, here are a few reliefs you may be eligible to claim and we're sure you don't want to miss out on them !
Tax relief is available on cash gifts to UK registered charities and certain other charitable organisations throughout the EU. When a taxpayer makes a cash donation to charity under the 'Gift Aid' scheme the charity may reclaim 25% of your donation from HMRC (surely you'd rather your tax money do some good), which benefits the taxpayer as the donor will receive a tax relief of the amount donated grossed up by 20%.
Each individual is entitled to tax-deductible pensions savings of up to £40,000 a year. For those taxpayers where the pension contributions has been less than the annual allowance, for the past 3 years, there may be scope for catching up on these savings in the current year. For the pension contribution to be deductible individual must be a member of a UK registered scheme for the relevant tax years.
CGT annual exemption
Individuals are entitled to annual exemptions for CGT (£11,700 for 18/19). However this annual exemption cannot be carried forward and is essentially lost for that tax year. Everyone is entitled to this tax-free allowance so why not use it, it's £11,700 of tax-free money all in your pocket at the end of the day.
Changes to SDLT from 1st March 2019
As of the beginning of this month the period for submitting the Stamp Duty Land Tax Return and paying the duty has changed, following the completion of a property purchase, from 30 days to 14 days including non-working days. Failure to meet this 14 day deadline may result in interest and penalties for the taxpayer. However this deadline change does not apply to Scotland or Wales, which remains at 30 days.
This change was initially announced in in the Autumn 2015 Statement, the aim being to increase efficiency and reduce the compliance burden for both HMRC and the taxpayers. where the advantage to HMRC is clear the advantage to the taxpayer is somewhat blurred as it provides less time to organise the returns and make payment.
The plans were officially confirmed in the 2018/19 Finance bill with the changes coming into effect from the beginning of this month. the new timescales apply to those land transactions with an effective date of 1st March 2019 or later, or those land transactions with the effective date of before 1st March 2019 but only became notifiable to HMRC from 1st March 2019.
The 30 day window will still apply to those that are required to fill in a further SDLT return following the filing of a previous SDLT return.