Stamp Duty Land Tax – Individuals

04 July 2016 • HMRC News, Tax Videos

 

As of 1 April 2016, those acquiring an additional property will need to be aware of higher rates of Stamp Duty Land Tax. Buyers are required to pay 3% on top of the normal bands which can be as high as 15%.

Conditions - There are four conditions for the higher rate to apply for individuals. These include the value of the interest, the number of interests owned including non-UK dwellings and whether the property is going to be a main residence, as the higher rate does not usually apply to replacing your home.

Pitfalls – There are certain pitfalls to try and avoid including:

  • Where a property is bought jointly, if one purchaser is subject to the higher rate tax, the entire transaction will be too. 
  • If the property is purchased by an individual, their spouse or civil partner are treated as a joint purchaser, and each of their interests in dwellings are combined, increasing the potential of the transaction being higher rate.

Multiple transactions - If two or more dwellings are purchased in a single or linked transaction, the buyer could be entitled to Multiple Dwellings Relief. This works out the mean consideration of each dwelling in the transaction and is subject to a minimum rate of tax of 1%. Where six or more dwellings are purchased in a single transaction, the purchaser can choose whether to apply the non-residential rates of SDLT.

Stamp Duty Land Tax - Companies

For Companies, Stamp Duty Land Tax is charged at 15% on residential properties costing more than £500,000.

Where a transaction would not trigger the 15% rate, it will still be subject to the additional 3% even if it is the only residential property that the company owns. There are no special exemptions from the higher rate for companies. This said, the higher rate does not apply to non-residential or mixed use properties, transactions with a consideration of less than £40,000 and caravans, houseboats and mobile homes.

Reliefs - There are SDLT reliefs available from the 15% rate for certain types of properties including rental properties or properties acquired for development, redevelopment or trading. There is no similar relief from the higher rate tax. Tax relief, however, can be clawed back if, for example, within 3 years the use of the property changes from the relief initially claimed or a connected person occupies the property.

Annual Tax on Enveloped Dwellings

This is a daily tax, paid annually, by Companies, at the beginning of the financial year for companies owning residential properties valued at over £500,000. The current valuation date is 1 April 2012 however this will move to 1 April 2017 for the next chargeable year. The charge is dependent on the value of the property, and a return needs to be filed and the tax paid annually by 30 April.

Reliefs - Like with Stamp Duty Land Tax, similar reliefs are available from the ATED charge, however the ATED reliefs are fully changeable. Some properties including hotels, care homes and prisons are not considered dwellings and are exempt.

The most frequently asked questions about US tax filing

20 May 2016 • Tax Videos, US Tax returns

 

Whilst many Americans living in the UK may be focused on the race for the White House, a more important date for them is looming – 15 June. This is the deadline for any US citizens living abroad when they must file their individual tax returns.

Head of tax at Warrener Stewart, Damian Talbot, who is both an EA (Enrolled Agent) and an Authorised Acceptance Agent has noted that recently they have been advising several new clients about their American tax liabilities.

“The number of enquiries about filing US tax returns has increased quite considerably in the past two months, ahead of the final deadline,” notes Damian. “We are qualified to advise on both US and UK tax affairs and find that many of our enquiries are based around these most frequently asked questions.”

A review of the most common questions we are asked about American tax liabilities

1. Do I need to file a 1040 if my income is below the Foreign Earned Income Exemption (FEIE)?

Yes. A US citizen is required to file a US tax return every year that their total income exceeds the standard deduction and exemption (for 2015 this is $10,300/£7,015). If the total income is from foreign earnings below the FEIE limit then it is likely there will be no tax to pay, however a tax return needs to be filed so that the income is reported and the exemption can be claimed as this is not an automatic relief.

2. Do I need to file an FBAR if all accounts individually are below the $10,000 threshold?

Potentially, Yes. The FBAR (Foreign Bank Account Reporting) is required if the maximum balance during the year of all your non US bank accounts COMBINED are over the $10,000 threshold. So if you hold 3 accounts, with maximum balances during the year of $4,000 year, you will need to file. It doesn’t matter if this figure relates to the same funds which have been moved around you accounts. The FBAR report must include all foreign bank accounts, not just those exceeding the $10,000 threshold.

3. Does my non US citizen spouse need to file?

Not necessarily. Like any other person a ‘non-resident alien’ spouse would need to file a US tax return if they received US source income. However being married to a US citizen does not impose any US filing compliance. The US spouse will simply need to file a ‘married filing separate’ tax return indicating that their spouse is a non-resident alien who is not required to file.

4. Is it too late to complete a US return for years I’ve missed?

No. You can still file for years that you’ve missed, it’s never too late. If you owe US tax then interest and penalties will continue to apply until submission/payment so the sooner your affairs are in order the better.

5. What is FATCA?

Many US citizens living in the UK are finding that their UK (and other non US) banks are sending them rather intimidating FACTA compliance packs asking them to disclose any connection to the US. This has come about due to the new FATCA regulations.

FATCA (the Foreign Accounts Tax Compliance Act) has been introduced in the US and requires all banks and other foreign financial institutes to report information about the foreign bank accounts of their clients who are US citizens and/or residents. This is aimed to prevent tax evasion through the use of offshore accounts.

For a US citizen who has fallen behind on their US tax filing and foreign bank account reporting this can be very concerning. Not only is the compliance packs sent by the bank a long and confusing form, but it is also getting reported to the IRS who will be informed about accounts that have potentially not been disclosed.

This legislation has been brought in to catch the ‘big fish’ tax evaders not your average delinquent filer but it is another reason to get caught up with your US tax compliance sooner rather than later.

6. How much will it cost to get up to date with my US taxes?

It may not be as much as you think. Warrener Stewart provide a free initial consultation to discuss your position with you to help get your affairs in order (whether you decide to use our services or not). From this we will be able to provide you with a quote for the completion of you US tax return, FBAR reports and any streamlined procedures as applicable.

Warrener Stewart US Tax News

21 December 2015 • Tax Videos, US Tax returns

 

Now we are drawing to an end of the 2015 US tax year, here are a few updates worth noting going forward to 2016….

  • Change to the FBAR filing deadline
    Starting with the 2016 tax year, the FBAR filing deadline will change and is now be due on April 15th instead of June 30th. As with your Income Tax Returns, you can apply for a 6 month extension of time to file until October 15th. This should make things a bit simpler going forward as it means we actually have a bit more time and can file at the same time as the return.
  • Offshore Streamlined Filing Procedure is still open
    It remains the best time to get back into compliance with the IRS for individuals who have non-wilfully failed to file US tax returns and FBARs for some time whilst living overseas with the use of the Offshore Streamlined Filing Procedure. Using this procedure and subject to meeting the eligibility requirements  taxpayers can catch up on their affairs without incurring penalties for failure to fail and pay US taxes, however we don’t know how long this option will remain available or if any changes are likely to be made to make the terms less favourable.
  • WS are now Acceptance Agents!
    Damian Talbot has now qualified as a Certified Acceptance Agent which means that Warrener Stewart can now assist Non US citizens apply for US taxpayer ID numbers (ITIN’s) which is required for filing US returns who do not hold social security numbers. This saves individuals having to apply at the US Embassy or risk the IRS losing your original documentation.
  • New rates for Foreign Earned Income Exemption
    We can see a slight increase in the amount of Foreign Earned Income Exemptions available going forward to 2016 with $101,300 of foreign earnings being exemption from US tax, compared to $100,800 in 2015 and $99,200 in 2014.

 

Update on the changes to the taxation of dividends

20 October 2015 • Tax Videos

Radical reforms to the dividend taxation system were introduced in the July 2015 budget which will take effect from the 6th April 2016. The most important effect is that the effective tax rate will increase by 7.5% across all bands. To illustrate, effective tax rates before, and on or after this date will be as follows;

  Old Regime - Nominal Old Regime – Effective New Regime
Basic Rate 10.00% 0.00% 7.50%
Higher Rate 32.50% 25.00% 32.50%
Additional Rate 37.50% 30.60% 38.10%

There are however two favourable changes.

  • Firstly the tax credit system is being abolished which means the end of ‘grossing up’. This system is why under the old regime, £9,000 of dividends actually counted as £10,000 for tax purposes. The practical effect of this change is that thresholds and bands will now be approached and crossed more slowly for a given level of physical distribution.
  • Secondly there is going to be a new tax free £5,000 dividend allowance which means that the first £5,000 of dividend income is effectively zero rated within whichever band it happens to sit.

Illustration 1

How someone with gross income of £100,000 will be affected

Say that a person with an owner managed business kept their gross income at £100,000 (so as not to lose their personal allowance). The old typical setup would have been to draw a salary of £8,000 with a net (i.e. ‘actual’) dividend of £82,800 (which translates to £92,000 grossed up – i.e. for tax).

We can see that in this case that the person would be £4780.37 worse off.

Illustration 2

Under the new regime however, the person might want to increase their dividends by £9,200 as with the abolition of ‘grossing up’, drawing £92,000 dividends would simply count as £92,000 for tax purposes. Therefore the person could physically receive £100,000 overall without starting to lose their personal allowance.

We can see that in this scenario the person would be £3,818.15 worse off. This is however a lower differential than the previous example.

Comparison of overall tax rates

We have developed a spreadsheet system which can test various scenarios, so if you think that these changes could affect you and your business, please call 020 7731 6163 to talk to one of our tax team. You can also download our updated 2015 / 2016 tax card.

 

Update on the changes affecting Buy to Let tax relief

27 July 2015 • tax videos

The July 2015 Budget introduced several changes that could affect many landlords owning and renting residential property in the UK, below is a summary.

The key changes included

  1. The restriction of relief for mortgage interest from 2017/18.
  2. Abolishing the wear and tear allowance from April 2016.
  3. The increasing the rent-a-room relief to £7,500 from 2016/17.

Perhaps the most significant of these changes is the restriction in the mortgage interest relief to the basic rate of income tax.  This restriction is being phased in over four years as shown in the below table.

Tax Year Interest eligible for full deduction  Interest restricted to basic rate relief
2017/18  75% 25%
2018/19  50% 50%
2019/20  25% 75%
2020/21  0% 100%

Tax effect of the change

To illustrate the mechanism by which the tax relief will be restricted please see the below example of a higher rate tax payer who receives rental income of £10,000 and the only other rental cost being interest of £8,000.

Rent        £10,000
Less: Interest eligible for full relief (£8,000 at 75%)  £(6,000)
Property income      £4,000
Taxed at 40% £1,600
Less: restricted interest relief (£8,000 x 25% x 20%) £(400)
Tax due £1,200

Previously the tax due would be based on the net figure of £2,000 which at 40% is £800.

Advice

From the above calculation it is clear that this will have a sizable effect on the tax due for a number of landlords especially when the restriction is fully implemented.

Given that the change is being phased in it is important to check the exposure and plan to mitigate any potential tax increase.

If you would like to discuss the above or any other tax matter please contact us at Warrener Stewart, you can also download our updated 2015 / 2016 tax card.

Summer Budget Highlights from Warrener Stewart

09 July 2015 • Tax Videos

George Osborne proclaimed his Summer 2015 budget as ‘a Budget for the working people of Britain’.

During the Chancellor’s unusually long speech he introduced wide-ranging changes to both the taxation and welfare system.

To see how the new changes could affect you and your business we have prepared overview of some of the key points and have a short video discussion featuring two of our tax consultants; Ryan Lane and Francis Kershaw.

Personal Allowance & Higher Rate Threshold – From April 2016 the Personal Allowance will be £11,000, rising to £12,500 by the end of the current Parliament in 2020. Similarly, the threshold at which higher earners must pay 40% tax initially increases to £43,000 next year, increasing again to £50,000 by the end of the Parliament.

Overhaul of Dividend Taxation – Currently basic rate tax payers do not pay tax on their dividends. From 2016 basic rate taxpayers who hold shares in a company will have to pay 7.5% tax on their dividends. For higher and additional rate taxpayers, they will be taxed on their dividends at 32.5% and 38.1% respectively. Everyone will however benefit from a tax free allowance for dividends of £5,000, and shares held within pension funds and ISAs will continue to receive dividends tax free.

Non-domiciled Individuals - Radical changes were announced to the tax rules which apply to ‘non-doms’, which will come into effect from 2017 onwards. In particular, individuals who have been resident in the UK for 15 out of the last 20 years will be unable to claim the remittance basis, and consequently will be taxed on their worldwide income and gains. ‘Non-doms’ with UK residential property in overseas structures will no longer avoid a UK IHT charge, and finally individuals born in the UK to UK parents will no longer be able to claim non-domicile status if they leave the UK but then subsequently return to take up residency.

Inheritance Tax - From 2017, an additional £175,000 allowance will be introduced where the family home is passed to children or grandchildren on death. This means that a couple will be able to pass up to £1m to the next generation without an IHT charge. However, the additional allowance is tapered away above £2m, such that the largest estates get no benefit from the new allowance.

Buy to Let Investors - Interest relief on rental property will be restricted to the basic rate of tax. The restriction will be phased in over four years, starting from April 2017. Additionally, from next year owners of furnished property will no longer be able to claim a 10% ‘wear & tear’ allowance: instead, a deduction will only be given for actually expenditure incurred.

Employment Allowance - From April 2016 the employment allowance will not be available where the director is the only employee in the company. For other businesses, the employment allowance will be increased to £3,000.

Corporation Tax - Corporation tax will be reduced to 19% in 2017 and further reduced to 18% in 2020.

National Living Wage - From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020.


If you would like to explore what this Budget Statement could mean for you and your business please call 020 7731 6163 to talk to one of our tax team, you can also download our updated 2015 / 2016 tax card.

Displaying results 1-6 (of 7)
 |<  < 1 - 2  >  >| 

“we were so impressed at their quick response times and ability to resolve even the most complicated financial problem”
Pen Hadow