Ask the Tax Experts

As we embark on a brand-new tax year, we caught up with our local tax experts at Calculated Ltd – Accountant and Tax Consultants specialising in Property – and asked them what Landlords need to be thinking about at this time of year.

State Pension Top-Up

The deadline for topping up missing National Insurance years with Class 3 voluntary contributions has been extended to 31st July 2023, so there’s still some extra time to make sure you’re not missing out.

It may be worth checking your NI record to see if you have any missing years as topping these up now, may boost your State Pension when you reach retirement age.

The gov.uk website is a fantastic resource, where eligible taxpayers can find out how to:

• Check their National Insurance record
• Obtain a State Pension forecast
• Use the Online Calculator to decide if making a voluntary NI Contribution is worthwhile for them – and their pension
• Make additional payments

Visit gov.uk/topic/personal-tax/national-insurance to find out more.

Boosting your Children’s Pension

If you have spare funds, you may wish to consider the option of putting money into a child’s pension. Under current rules there is also nothing to stop a parent making a contribution into the pension of a child of working age, or younger children – and there are tax benefits to doing so.

Adult Child

Many younger workers are now enrolled into a workplace pension for the first time, but in most cases they are only making small contributions so additional contributions could prove beneficial. An additional contribution from parents early in their working life, that benefits from compound interest as it grows, could help your loved ones to build a more meaningful retirement pot. Plus, as a pension, it is money that cannot be touched until later in life.

Benefits include:

1. The recipient will get a boost to their retirement pot, including tax relief at the basic rate.
2. Recipients who are higher rate taxpayers can claim higher rate tax relief on their parent’s contributions, thereby increasing their disposable income.

Younger Child

Parents who are in a comfortable financial position could consider paying into a pension for their little ones. You can put up to £3,600 a year into a pension for any child. The benefit is that even through they are not yet earning, children still get the basic rate tax relief. So, you only put in £2,880 to give them £3,600.

Furnished Holiday Lets & VAT

Unlike residential buy to lets, income from Furnished Holiday Lets is subject to VAT, at the standard rate of 20%, if you exceed the VAT threshold of £85,000 pa.

If you only have one Furnished Holiday Let, you will probably not exceed this threshold. However, if you have another business that is subject to VAT in the same entity, then you will have to pay the standard rate of VAT on the first pound of income. The £85K vat threshold is based on the total turnover from all businesses…

Eg: Mr Aston is a self-employed electrician, with a turnover of £50,000 pa, he also has a qualifying holiday let turning over £50,000 pa, as the total turnover is above the VAT threshold, Mr Aston will need to register for VAT as an individual.

If you are planning to purchase two or more Furnished Holiday Lets, then it may be advantageous to have them in different entities, for example one in individual name, and one in a limited company. Each of these entitles will then have its own VAT threshold of £85K.

If you do register for VAT, you can reclaim VAT on all expenditure incurred in relation to the Furnished Holiday Let. If your expenses have not been subject to VAT or they are relatively low, you may wish to consider the Flat Rate VAT Scheme, as well as paying a reduced flat rate of VAT, the flat rate scheme includes less paperwork and is simpler to use. There are different rates under the Flat Rate Scheme, depending upon turnover and the amount of expenditure incurred in the business.

Spring 2023 Budget

In the absence of big changes from this budget, here is a reminder of the highlights from last year’s Autumn Statement, all of which have come into effect from April 2023:

• Reduction of additional rate tax threshold: The additional rate threshold reduces from £150,000 to £125,140 exposing more individuals to the 45% tax rate.
• Increase in Corporation Tax: The main rate of Corporation Tax increases from 19% to 25% for businesses with profits exceeding £250,000. Businesses with profits under £50,000 will continue to pay at 19% and those in between will be subject to a marginal rate of 26.5% on profits falling between those upper and lower limits.
• Reduction of the Dividend Allowance: The tax-free allowance for dividend income (the Dividend Allowance) reduces from £2,000 to £1,000 for individuals in receipt of dividend income.
• Reduction of the CGT Annual Exempt Amount: The Capital Gains Tax (CGT) Annual Exempt Amount (AEA) reduces from £12,300 for individuals down to £6,000, and from £6,150 for most trustees down to £3,000.
• CGT extension to the nil gain/nil loss period to three years for couples that separate or divorce: Increase to the period in which spouses and civil partners who are in the process of separating can make no gain and no loss transfers of assets between themselves to three years; and unlimited time if the assets are the subject of a formal divorce agreement. Previously, separating couples had until the end of the tax year of their separation.

 

When it comes to financial matters, you should always take specialist advice. Calculated Ltd is a property tax specialists based in Yorkshire. They offer a stress free approach to handling your affairs as well as fixed fee packages to help you budget effectively.

If you have any questions about any of the above issues, then give Calculated a call on 01904 948 860 quoting ‘HOP’ to chat through your options.

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