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Policy objective
The government have begun the restriction on the amount of Income Tax relief landlords can get on residential property finance costs, such as mortgage interest, to the basic rate of tax. This is due to their belief that this method will make for a fairer tax system.
This will ensure that landlords with higher incomes no longer receive the most generous tax treatment. To give landlords time to adjust the government has introduced this change gradually from 6th April 2017 over 4 years.
Who is likely to be affected?
Individuals that receive rental income on residential property in the UK or elsewhere and incur finance costs (such as mortgage interest), excluding where the property meets all the criteria to be a furnished holiday letting.
General description of the measure
This measure will restrict relief for finance costs on residential properties to the basic rate of Income Tax. This will be introduced gradually from 6th April 2017.
Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
Landlords will be able to obtain relief as follows:
If you are a landlord and are unsure how these restrictions will affect you please do not hesitate to contact us at tax@cooperfaure.co.uk
Here is a useful an overview which should help you to better understand what the Enterprise Investment Scheme is and whether or not your eligible to apply for one.
Enterprise Investment Scheme provides the investors with a tax relief on their investment and has been made available by the government to aid growth. The investors receive a tax relief for the amount invested and in turn acts as an incentive, easing the process to attract investors. It is one of four schemes available under the venture capital schemes.
The following applies under EIS:
There are certain rules that you must follow to ensure your investors receive their tax relief. These rules must also be followed for at least 3 years after the investment has been received.
The money received from the investor is limited to be spent on qualifying business activities:
If more than 20% of you trade includes any of the following it does not qualify:
The money raised through EIS must be used within 2 years of the investment or if trade has not commenced it is on the start date of trading. The key is to use the money to grow your business, it cannot simply be used to purchase another business. Therefore, growth can be for example an increase in revenue, client base or the number of staff. This is part of the risk to capital condition that was introduced this summer. This condition also includes that the investment should be a risk to the investor’s capital and therefore within the agreement between the company and the investor there cannot be arrangements in place to reduce the risk. If the investment is in any way protected, for example by assured future income streams or capital repayment, the investment is unlikely to meet the risk condition. For more information regarding the risk to capital condition please click here – https://cooperfaure.co.uk/risk-to-capital-condition/).
Additionally, in order to qualify for the scheme your business must be permanently established in the UK without being on the stock market. Additionally, the company cannot be controlled or control another company.
To apply for EIS a compliance statement (EIS1) along with the following documents must be submitted, per share issue once a minimum of 4 months qualifying business activities has occurred:
If successful you will receive the authority to issue certificate (EIS2) and compliance certificate (EIS3) from HMRC. The EIS3 certificate must be passed on to the investor as without it they will not receive their tax relief.
In the past we would have strongly recommended to apply for Advanced Assurance as it provides you with a confirmation if you will be eligible for EIS before submitting EIS1. However, the HMRC has recently amended the requirements and you are no longer allowed to provide speculative plans within the Advanced Assurance application (EIS(AA)). Therefore, you must have particular investors in mind before submitting the EIS(AA). This has removed the ability to use the Advanced Assurances as a mechanism to attract investors by showing that you will be eligible. Nevertheless, if the investor is reluctant to commit we would still recommend to use EIS(AA) but you should bear in mind that this will prolong the process.
For further information please visit the HMRC’s website: https://www.gov.uk/guidance/venture-capital-schemes-apply-for-the-enterprise-investment-scheme
You can also listen to an interview of Jon Cooper on this topic, in our blog, here – https://cooperfaure.designmindshost.com/eis-tax-relief-on-investments/(opens in a new tab)
At CooperFaure, we have vast experience of helping businesses to secure investments and, in particular, benefit from government schemes. If you have any questions regarding Venture Capital Schemes, please email us at welcome@cooperfaure.co.uk.
The deadline to declare under the Requirement to Correct (RTC) legislation is fast approaching. RTC is the statutory obligation for UK taxpayers with overseas assets to correct any issues with their historic UK tax position. Those who fail to comply by 30th September 2018 face potentially severe financial penalties.
RTC applies to any taxpayer with undeclared UK Income Tax, Capital Gains Tax or Inheritance Tax on overseas assets.
Many taxpayers may not be aware that they have an obligation under this legislation. Renting out a property abroad, transferring an asset between countries or renting out a UK property whilst living overseas are examples that could result in a tax liability in the UK.
The key driver to this legislation is that from 1st October 2018, the UK is one of over one hundred participating countries that will be sharing data under the Common Reporting Standard to augment tax transparency.
The Common Reporting Standard will significantly boost the ability of HMRC to detect offshore non-compliance and, aligned with this, the HMRC will apply the Failure To Correct measures which allows them to apply penalties including:
As a result, we urge anyone with offshore assets to review their affairs to ensure they have been and will continue to be wholly tax compliant.
Offshore assets that typically could generate a tax liability include:
If you discover that you have any undeclared tax due on offshore assets or on UK property income whilst living abroad, it is absolutely essential that you notify HMRC by 30th September of your intention to make a declaration. Once this notification is made, you have ninety days to make the full disclosure and pay any tax owed.
If you are unsure whether a taxable event has occurred, we strongly recommend that you contact your tax advisor for guidance.
At CooperFaure, we are working with clients on these matters and, if you would like to arrange an initial consultation discuss your circumstances, please email us at tax@cooperfaure.co.uk.