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Archive for the ‘Income tax’ Category
Wednesday, June 29th, 2011
Q We are thinking of buying a property to let to students, one of which would be our daughter. Can we let her live rent free, because if we had to give her money so she could pay the rent our own money would effectively be classed as income. What is the most tax efficient way to deal with this while not incurring the interest of the tax man? AG
A Yes, you can let your daughter live rent free, but there are tax implications. Allowing her to not pay rent but, presumably, charging the other inhabitants would mean you would be receiving below-market rent for the property. In the eyes of HM Revenue & Customs (HMRC) this would come under the heading of property let uncommercially, which affects the expenses you can deduct from the rental income.
Strictly speaking, the tax rules say you cannot deduct any expenses on property let uncommercially – whether it is rent free or at below-market rent. However, where you get some rent HMRC is prepared to bend the rules slightly and will allow you to deduct expenses up to the amount of rent received. So if you receive £6,000 a year in rent but pay out £8,000 in expenses, you’ll be able to deduct only £6,000 of your expenses.
This may not matter if you are buying the property outright, but if you are intending to use a buy-to-let mortgage you may not be able to claim all the interest as a tax-deductible expense. This will certainly be the case if the rent comes to less than the mortgage interest for the year.
So strangely, you may be better off giving your daughter the money to pay a market rent – and paying tax on it – as then you would be able to claim the full amount of tax allowable expenses. This could be worth more than the tax bill on the rent.
Posted in Buying to let, Features, guardian.co.uk, House News, Income tax, Letters, Money, Property, Tax | Comments Closed
Wednesday, June 15th, 2011
Q My wife and I are purchasing a buy-to-let property. I am a higher rate taxpayer while my wife does not work, and thus has unused income tax allowances.
This property will be my wife’s project, so we thought of buying it in her name only with all income tax payable at her tax rate. However, we are conscious that that would mean we could only use one capital gains tax (CGT) allowance when we come to selling it. With that in mind it seems to make more sense to own the flat in both our names.
Is there a tax-efficient way we could achieve both goals, paying at a lower tax rate and using both CGT allowances when the time comes to sell? I wonder if my wife could gift me half of it at a later date, thus allowing us to use both CGT allowances when we sell it? SJ
A Yes it is possible – and within the tax rules – for your wife to own the buy-to-let property in her name solely, but give you half at a later date so you can benefit from two lots of capital gains tax allowances, which would be £10,600 a person in the 2011-12 tax year. And unlike gifts to non-spouses, gifts to a husband, wife or civil partner don’t attract CGT even though a gift counts as a disposal for the purpose of this tax.
What is slightly different, however, is that when you come to work out your gain on the sale of the property, it is assumed you acquired your gifted share on the date your wife acquired the property rather than the date the gift was actually made.
One other thing you need to bear in mind is that, if there is a mortgage on the property there may be a stamp duty land tax (SDLT) bill. If the amount outstanding on the mortgage at the time of a gift of property is more than the SDLT threshold of £125,000 there will be an SDLT bill. However, if you take over half the mortgage, SDLT is charged only on the amount of mortgage you take over. If there is no mortgage, however, you don’t have to worry about SDLT.
Posted in Capital gains tax, Family finances, Features, guardian.co.uk, House News, Income tax, Letters, Money, Property, Stamp duty, Tax | Comments Closed
Wednesday, March 30th, 2011
I wonder if Vince Cable can explain how the “mansion tax” he proposes is a “fair” alternative to a tax on those with high incomes (Mansion tax could replace 50p tax rate, says Cable, 28 March). It will effectively represent a levy on pensioners who own, outright, homes with inflated notional values, but who may have small incomes.
The inheritors of such properties would, in any case, be heavily taxed after the owner’s death. How would such a pensioner pay the proposed levy out of a small income? Would they be expected to sell their home in the present depressed market in order to pay the mansion tax? The proposed tax appears to be part of the false idea that the baby boomer generation have somehow “stolen” from today’s young by benefiting from a functioning welfare state. True, many did well out of the property boom, but not nearly as well as the bankers whose bonuses enabled them to purchase buy-to-let properties that further distorted the market.
Professor Elizabeth Wilson
London
•?I am one Liberal Democrat who does not agree with cutting out the 50% tax rate. The idea that 50% is a penal rate is laughable. Vince Cable, like me, is old enough to remember when the UK (under both Tory and Labour governments) did have penal rates of income tax up to 98%, but that’s long gone.
People whose income is over £150,000 can well afford to pay 50% income tax on their marginal income. High-income families benefit from our public services and should not begrudge paying a little more for them and helping those less fortunate than themselves. Those on obscenely high salaries, like bankers and City slickers, should pay higher rates still.
It’s not as if our tax rates are out of line. Austria, Belgium, Denmark, Norway and Sweden all have top income tax rates of 50% or higher, and Germany, Italy and Spain have rates of 45% or more. Even that bastion of capitalism, Switzerland, has a top income tax rate of 45.5%.
I agree with that great economist JK Galbraith that tax is the price of a civilised society. Let’s have the mansion tax by all means, but keep the 50% rate of income tax.
Dr Mick Taylor
Lib Dem candidate, Leeds Central 2010
•?You report Vince Cable as wishing to move away from the “extremely high” marginal tax rate of 50% (actually, 52% when you throw in national insurance). Do the sums for a prospective university teacher under the future arrangements that Cable’s department has constructed. Three years for a BSc, one year for a MSc and three years for a PhD are likely to lead to a total debt that is north of £50,000. Until earnings exceed £40,000, the annual repayments (9% of the excess over £21,000) will not even match the interest charged. Cable says that a marginal rate of 52% on earnings of £150,000 is too high. Why then does he support a system that will charge a marginal rate of 51% (40% income tax, 2% national insurance contributions, 9% student loan) on earnings of £45,000?
John Haigh
Brighton
•?Vince Cable really has gone native if he believes that 50% is an unacceptably high rate of marginal taxation. The rate was 60% even under Thatcher.
Peter Johnston
Bolton, Lancashire
•?You report that the government is considering cutting the 50% tax rate, claiming that many companies and high earners are finding ways of avoiding payment. Surely the solution is to clamp down on such tax evasion, not reward the super-rich for their refusal to pay?
Ministers are quick enough to tackle social security fraud, so why the failure to act when those on telephone-number salaries are fiddling the system?
Dr Pete Dorey
Reader in British politics, Cardiff University
•?Good news re Vince Cable’s announcement on tax. The government “will” abolish the 50p-in-the-pound rate and will “consider” introducing a mansion tax.
Dudley Turner
Westerham, Kent
Posted in Economic policy, George Osborne, House News, Income tax, Letters, Politics, Property, Tax, Tax and spending, The Guardian, UK news, Vince Cable | Comments Closed
Monday, March 28th, 2011
Business secretary in agreement with the chancellor over tax rate, but says the wealthy have to ‘pay their share’
The business secretary, Vince Cable, has confirmed the 50p rate on tax will be abolished – and revealed the government would consider bringing in a ‘mansions tax’ to ensure the wealthiest pay their way.
The chancellor, George Osborne, ordered a review of tax on top earners in the budget last week, restating that the 50p rate on those who earn above £150,000 was only temporary, and triggering speculation that the rate could be wound down as soon as 2013. Cable in two interviews raised the issue of the rate and alternatives to it.
The move would leave the government exposed to accusations that it is softening taxes for the rich, amid intense public anxiety about the fairness of the cuts. The business secretary’s intervention comes just a day after up to 500,000 people took to the streets to demonstrate against the government’s economic plans.
Labour pointed out that the coalition would be reducing the tax for the richest while forcing the poorest to lose the largest proportion of their pay packets through the VAT hike.
Cable, who argued in opposition for a 0.5% levy on properties worth more than £1m, told the BBC’s Politics Show: “I and George Osborne agree that we have to move away from extremely high marginal rates of tax on income, including that [the 50p rate of tax].”
He told BBC Radio 5 Live: “It moved up to 50p in an emergency because we had to have a sense of solidarity that everybody was bearing some of the pain, and the chancellor said in the budget that we’re going to have to move away from that. I agree with him. The Liberal Democrats agree with him.
“But it needs to be a change which is fair overall and does take account of the fact that the wealthy have got to pay their share. The emphasis may well have to shift from high marginal rates of tax on income which are undesirable, to taxation of wealth, including property, and the chancellor said that, as much as that, in his budget.”
Asked if he was advocating a mansion tax, he said: “Well, there is a very strong argument … that you need to have a proper base for taxing property and I’m sure that’s one of the things we’re going to have to look at as we change away from these very high marginal rates.”
Labour originally introduced the tax rate last year, and the Tories promised to keep it temporarily. Osborne said at the budget: “I am clear that the 50p tax rate would do lasting damage to our economy if it were to become permanent. That is why I regard it as a temporary measure.”
The Treasury expressed concern about how much revenue the higher rate was bringing in. The Office for Budget Responsibility later revealed that it expected £2bn of the revenue to go uncollected amid evidence that companies had paid large bonuses prior to its introduction to avoid paying part of the costs.
A Treasury spokesman said last week’s budget set out all existing tax plans. Treasury sources also distanced it from Cable’s proposals, saying there was “no detailed planning” on taxes for top earners currently being developed by officials.
Cable has raised the possibility of a new mansion tax amid increasing nervousness in the coalition over the AV referendum in May. The issue will prove the biggest test for the coalition, as a totemic policy for the Lib Dems and a test of David Cameron’s leadership to his backbenchers, all of whom oppose AV. If the Lib Dems lose, the leadership will need to prove to the rank and file that it is making serious gains elsewhere. A mansions tax would appeal to the disillusioned left of the party.
Asked about the effect the referendum could have on the coalition, Cable said he was “pretty sure” the government would survive it, even if the Lib Dems fail to secure AV: “I am pretty sure it would [survive]. But there is a lot at stake and that is why we are fighting hard for it.”
He added: “We are a grown-up party, we have not thrown our toys out of the pram because things happen we disagree with. I think you will find the approach to this whole thing is a very mature one.”
The competing campaigns for the referendum step up a gear on Monday when the No to AV group launch a national advertising campaign appealing to people to keep the one person one vote system.
Matthew Elliott, director of the No campaign, said: “One person, one vote is the cornerstone of our democracy. It represents our most profound political belief. It is a statement that when it comes to electing those who lead us, we each have an equal say and an equal voice. That is why we are clear in our aim: Keep One Person, One Vote and stop supporters of extremist, fringe parties getting more than one vote.”
The Yes to Fairer Votes campaign Monday publishes the names of all its funders, demanding that the No campaign does the same. It has received £951,000 from the Joseph Rowntree Reform Trust, £909,517 from the Electoral Reform Society and £114,000 from the Electoral Commission.
Posted in Economic policy, Electoral reform, George Osborne, House News, Income tax, Liberal Democrats, Money, News, Politics, Property, Tax, Tax and spending, The Guardian, UK news, Vince Cable | Comments Closed
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