Common Q & A's - Property Accounts & Tax

Buying your children property

Q: My wife and I are retired and we would like to give our son and daughter some of their inheritance now. We’ve thought about buying them a house in joint names, which they could rent out (because they’ve already moved out and live with their families). What would the tax implications be?

A: Firstly, they wouldn’t qualify for Stamp Duty Land Tax Relief for First-Time Buyers, because firstly, they aren’t intending to live in the property and secondly, it sounds like they already own other property.

If you gift the cash to your son and daughter, there shouldn’t be any Capital Gains Tax to pay on the purchase because cash gifts are exempt from Capital Gains Tax. However, there would be Capital Gains Tax implications should they decide to sell it.

Your son and daughter would need to declare their share of the rental income and expenses on a self assessment tax return each year and pay any tax due.

And finally, if you both survive for another seven years then the gift will be ignored for Inheritance Tax purposes. If you don’t, then the cash gift will effectively be included as part of your estate at the time of death, and could be subject to Inheritance Tax depending on the size of your estate.


Selling your home at a loss

Q: My house has been on the market for four months now, so I have decided to drop the asking price. However, this now means that I’m selling it as a loss. Is there any way I can utilise this loss?

A: If you were to sell your house at a profit, it is unlikely there would have been any tax to pay because of Private Residence Relief (PRR). To qualify for the relief, the property must have been your only home and you should’ve used it as a home and nothing else.

The amount of PRR may have been restricted if you have a very large garden, you’ve let part of your entire home or you’ve used part of the property for business purposes.

If you would’ve qualified for PRR (had you made a gain), then I’m afraid you cannot obtain any relief if a loss was generated instead. If your PRR would’ve been restricted, then you may be able to claim loss relief for the part of the gain that didn’t qualify for PRR. But please note, these losses can only be used against other capital gains; not income.

Common Q & A's regarding Accountancy and Tax - Part 4

Q: I’ve just bought a restaurant and I know that the taxing of tips is a tricky area to get right. But can you tell me in a nutshell what the rules are?

A: The three basic options you have for the payment of tips are as follows:

1. You allow the employees to keep their own tips. In this way, any tax or national insurance due is their own responsibility
2. All of the tips get put into one ‘pot’ (tronc) and you divvy them out amongst the employees. Their tips would then get added to their normal pay and appear as a separate item of pay on their payslip. In this instance, it would be your responsibility to calculate any tax due.
3. You set up a tronc system but someone else manages it (the troncmaster), such as a manager and they will independently manage the tronc scheme. Again, the tips are put into a ‘pot’ and divided amongst the employees but this time it would be the troncmaster who would calculate the tax due. Unlike the above though, a separate payroll scheme would be required, so they would not appear on their normal payslip.

In order to avoid national insurance arising on the last two options, you would need to ensure that the tips are not:

• paid, directly or indirectly, to the employee by you and are not monies previously paid to you by customers, or
• allocated, directly orindirectly, to the employee by you

With regards to the above rules, tips received on cards can cause a bit of a headache, but just remember that last rule. Although you will have received the tip initially and so fail the first test, provided you avoid any dealings with the allocation of them, no national insurance will arise.


Q: I have just paid my July tax bill. But am I right in thinking this payment is roughly based on last year’s (2010) accounts? My business’ profits for 2011 are definitely down on last year, so is there any way I can reduce my payments?

A: Yes you are right; the July payment is based on your previous year’s tax liability. There are in fact two ways that you can reduce your tax payments to take account of a reduction in profits.
Firstly, you can submit form SA303 to HM Revenue & Customs (HMRC). On this form, you must estimate what you think your tax liability for 2011 will actually be and why it has fallen from last year. The form must be submitted by 31 January following the tax year, i.e. a SA303 for a 2010/11 tax return must be submitted by 31 January 2012. Be aware that if you reduce your payments too low, HMRC will levy interest- but you can amend a SA303 if you discover this in time.
Alternatively, you could just prepare and submit your tax return. This will then trigger the comparison of these estimated payments (called Payments on Account), with your actual tax liability. So any over or underpayment will be calculated.