Private residence relief removes the charge to capital gains tax on the taxpayer’s only or main residence.
For the purposes of the relief, a taxpayer can generally only have one residence qualifying for the relief at any one time, subject to the final period exemption for properties which have been the only or main residence at some time, set at nine months from 6 April 2020 (unless the taxpayer goes into care, in which case the final 36 months count).
Married couples and civil partners can only have one main residence between them.
More than one residence
Where a taxpayer has more than one residence, they can nominate which of them counts as the main residence for the capital gains tax purposes. However, to be nominated, the property must be lived in as a ‘residence’ – a property which is let out cannot be nominated.
The nomination must be made within two years of the date on which the particular combination of residences changes. If a nomination is not made, which property qualifies as the main residence for capital gains tax purposes will be determined in accordance with the facts.
Bertie has lived in a cottage in Shropshire since December 2012. In October 2019 he starts a new job in London, buying a flat in January 2020 to live in during the week. He has until January 2022 to nominate which of his residences is his main residence for capital gains tax purposes.
Where a couple marry or enter into a civil partnership and each partner owned a residence which the couple continue to use after the date of their marriage of civil partnership, they must nominate which residence is their joint main residence as married couples and civil partners can only have one main residence between them. The nomination must be made within two years of the date of their marriage or civil partnership.
However, unmarried couples can each have their own main residence.
Private residence relief removes the charge to capital gains tax on the taxpayer’s only or main residence.
Those looking to buy an investment property may wish to consider a holiday let. Not only do the second and subsequent homes benefit from SDLT savings as a result of the temporary increase in the SDLT threshold, they can also benefit from the favourable tax regime for furnished holiday lettings.
There are special tax rules for properties that qualify as furnished holiday lettings:
- plant and machinery capital allowances can be claimed for furniture, equipment and fixtures;
- capital gains tax reliefs for traders – business asset disposal relief, business asset rollover relief, relief for gifts of business assets — are available;
- profits count as earnings for pension purposes.
However, to qualify, the let must meet the conditions to qualify as an FHL.
The property must be in the UK or in the EEA, it must be let commercially and it must be let furnished. In addition, it must meet three occupancy conditions:
- pattern of occupancy condition — the total of all lettings that exceed 31 days is not more than 155 days in the year;
- the availability condition — the property must be available for letting as furnished holiday accommodation for at least 210 days in the tax year (excluding any days in which the landlord stays in the property); and
- the letting condition –the property must be let commercially as furnished holiday accommodation to the public for at least 105 days in the year (ignoring lets of more than 31 days unless the let exceeds 31 days as a result of unforeseen circumstances and lets to family or friends).
If the let does not meet the letting condition (which may be the case, for example, if there are further lockdowns) all is not lost. Where the landlord has more than one property let as a FHL, the letting condition is treated as met if the average rate of occupancy for all properties is at least 105 days in the year. To take advantage of this, the landlord must make an averaging election no later than one year from 31 January following the end of the tax year (i.e. by 31 January 2023 in respect of an election for 2020/21).
The second way of qualifying as a FHL in a year where the letting condition has not been met is to make a period of grace election. This route can be taken where there was a genuine intention to meet the condition but this did not happen due to unforeseen circumstances (such as letting cancelled due to lockdowns). To be eligible to make an election, the pattern of occupation and the availability conditions must have been met and, for the first year for which a period of grace election is made, the lettings condition was met in the previous tax year. Where a period of grace election is made, the lettings condition is treated as met. A further period of grace election can be made for the following year if the lettings condition is not met that year. However, if after two successive period of grace elections the letting condition is not met, the property will cease to qualify as a FHL.
Separate FHL business
Lettings that are FHLs are taxed as a separate FHL property business.
The residential SDLT threshold is increased to £500,000 where completion takes place between 8 July 2020 and 31 March 2020. This also benefits those purchasing second and subsequent residential properties as the 3% supplement is added to the residential rates, as reduced. However, the clock is running and completion must take place by 31 March 2021 to benefit from the savings.
In June 2020, the Government announced that it was making funding available to customs intermediaries and businesses to help increase their capacity to make customs declarations. Broadly, businesses need to prepare ahead of new procedures coming into play in 2021 following the end of the UK’s EU withdrawal transition period.
As well as injecting a substantial amount of cash to support businesses with recruitment, training and supplying IT equipment to handle customs declarations, the Government is also changing rules which will remove the financial liability from intermediaries operating on behalf of their clients, and will also allow parcel operators to continue declaring multiple consignments in a single customs declaration.
In August, to help accelerate further growth of the customs intermediary sector and help meet the increased demand it will see from traders at the end of the transition period, the Government confirmed that the next phase of the customs grant scheme is now open for application.
Who can apply?
To qualify for a grant a business must:
- have been established in the UK for at least 12 months before the submission of the application and when the grant is paid; and
- not have previously failed to meet its tax obligations.
In addition, the businesses must meet one of the following descriptions:
- complete or intend to complete customs declarations on behalf of clients;
- be an importer or exporter and complete or intend to complete declarations internally for their own good
- be an organisation which recruits, trains and places apprentices in businesses to undertake customs declarations.
The grant can cover salary costs for new or redeployed staff, up to a limit of £12,000 per person and £3,000 for recruitment costs for new employees. This will help them to recruit new staff and train them up ahead of July 2021, when all traders moving goods will have to make declarations.
In relation to training, the grant can provide businesses with up to 100% of the actual costs of externally-provided training for employees, up to a limit of £1,500 for each employee on the course. It will also cover the cost of internal training, up to a limit of £250 for each employee on the course.
The grant for IT covers expenses for increasing capacity or productivity for customs declarations, customs software, set-up costs, and related hardware.
There is a state aid restriction, which applies a cap on total grants received in the last three years at 200,000 euros (which is the maximum amount of state aid available).
The business will receive the funding for the cost of recruitment then 50% of the eligible salary costs once the grant offer is issued. The remaining 50% of salary costs will be paid when details of the new employee’s contract have been submitted along with a copy of their first pay slip.
Evidence of expenditure on IT improvements or training will need to be submitted within two months of receiving a grant offer letter. The grant will then be paid directly to the business within 30 days.
For tax purposes, the treatment of the grant will need to be matched to the expense and offset accordingly.
If the business has spent more on capital expenditure (like IT equipment) than is covered by the grant, capital allowances can be claimed on the amount not covered by the grant.
Eligible businesses should consider applying for a grant as soon as possible. Funding will be allocated on a first-come-first-serviced. Applications must be made by 3 June 2021, although the scheme, which is being administered by PricewaterhouseCoopers (PwC) on behalf of HMRC, will close earlier if all funding is allocated before that date.
Employees, can you claim tax relief for expenses of working from home?
The Covid-19 pandemic has meant that more employees worked from home than ever before. This trend looks set to continue following the Government’s latest advice to continue to work from home where you can do so. Further, many business plan to embrace flexible working beyond the end of the pandemic, allowing employees to work from home some or all of the time where their job allows this.
However, while working from home may save the cost of the commute, there are expenses associated with working from home. Is the employee able to claim tax relief where these are not met by the employer?
Additional household expenses
As a result of working from home, an employee will incur the cost of additional household expenses, such as additional electricity and gas costs, additional cleaning costs, and such like. During the Covid-19 pandemic, HMRC confirmed that employees are able to claim a deduction for additional household expenses attributable to working from home of £6 per week without supporting evidence. Where the actual additional costs are more than £6 per week, tax relief can be claimed for the full amount, as long as the employee can substantiate the claim. For example, this could be done by comparing bills prior to working from home with those during the working at home period.
Employees may have needed to buy office equipment, such as a computer and a printer, to enable them to work from home. Where these costs are not reimbursed by the employer, HMRC have confirmed that employee can claim a tax deduction for the actual expenditure incurred, as long as it was incurred ‘wholly, exclusively and necessarily’ in the performance of the duties of the employment.
To claim relief for other expenses employees will need to pass the general test that the expense was incurred ‘wholly, necessarily and exclusively’ in the performance of the duties of the employment. Care must be taken to distinguish between expenditure which puts the employee in the position to do their job as opposed to being incurred in the performance of it. Childcare, for example, would fall into the former category.
Relief is also denied for dual purpose expenditure, such as an office chair which enables the employee to be comfortable while working, as this fails the ‘exclusively’ part of the test.
Where the conditions for tax relief are met, a deduction can be claimed on form P87 (available on the Gov.uk website) or, where the employee completes a tax return, on the employment pages of the return.
The National Insurance employment allowance enables eligible employers to reduce the amount of employer’s National Insurance that they pay over to HMRC. The allowance, which is set at £4,000 for 2020/21, is available to most employers whose Class 1 National Insurance liability was less than £100,000 in 2019/20, with some notable exceptions, including companies where the sole employee is also a director.
The employment allowance must be claimed, but this can be done at any point in the tax year. There is no obligation to claim the allowance from the start of the tax year.
The allowance is set against employer’s Class 1 National Insurance until it is used up. It cannot be used against Class 1A or Class 1B liabilities, or to reduce the amount of National Insurance payable by employees.
Employment allowance and the CJRS
The Coronavirus Job Retention Scheme (CJRS) enabled employers to place employees on furlough and claim a grant from the Government to pay them furlough pay of 80% of their wages (capped at £2,500 per month) while on furlough.
Payments made to furloughed employees are liable for tax and Class 1 National Insurance as for usual payments of wages and salary. For pay periods up to an including 31 July 2020, employers were able to claim the associated employer’s National Insurance on grant payments, to the extent that it was not covered by the employment allowance.
This meant that if an employer had claimed the employment allowance from the start of the tax year, they would not be able to reclaim the associated National Insurance on grant payments until the employment allowance had been used up. By contrast, employers who delayed claiming the employment allowance could reclaim the employer’s National Insurance on grant payments from the Government under the CJRS and use the employment allowance against their secondary liability once the reclaim option came to an end. This was a beneficial strategy and one that HMRC have not raised objections to.
Remember to claim
If the employment allowance was not claimed at the start of the tax year to make the most of the CJRS, and has still not been claimed, eligible employers should now look to claim the allowance so that they can benefit from it.
The allowance must be claimed each year – claims do not roll forward automatically. HMRC guidance confirms that claims can be made ‘at any time in the tax year’.
Claims can be made via the payroll software.
If the claim is made late in the tax year and the full amount of the available employment allowance (set at the lower of £4,000 and your employer Class 1 National Insurance liability for the year) is not used, any unclaimed allowance at the end of the year to pay any tax (including VAT and corporation tax) or National Insurance that you owe. Where no tax is paid, the employer can ask HMRC for a refund. Employers can check their HMRC online account to see how much of their employment allowance for the year they have used.
Where the employment allowance has not been claimed for previous years, claims can be made retrospectively for the previous four tax years.