Newsletter May 2019
Our newsletter this month includes: details of expenses landlords can claim against rental income, the process that needs to be undertaken to change a will after death, regional differences in Income Tax rates and don’t forget the payslips.
Expenses you can set-off against rental income
The expenses you claim against your property income will need to follow the usual HMRC ruling that the costs must be incurred wholly and exclusively for the purpose of renting out the property.
An example set out on the Gov.uk website illustrates the point:
If you buy a new vacuum cleaner for your own home, and also use it to clean your rental property between tenants, you can’t claim the cost of the vacuum cleaner as an expense against your rental income.
However, you could claim the cost of any cleaning products you bought specifically for cleaning the rental property.
Where costs are incurred partly for your rental business and partly for some other purpose you may be able to claim a proportion of that cost if that part can be separately identified as being incurred wholly and exclusively for the purposes of the property rental business.
Expenses you can and can’t claim are summarised below.
Expenses you can claim include:
- Mortgage interest - a proportion of this cost is now limited to basic rate Income Tax relief,
- General maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
- Water rates, council tax, gas and electricity
- Insurance, such as landlords’ policies for buildings, contents and public liability
- Costs of services, including the wages of gardeners and cleaners
- Letting agent fees and management fees
- Legal fees for lets of a year or less, or for renewing a lease for less than 50 years
- Accountant’s fees
- Rents (if you’re sub-letting), ground rents and service charges
- Direct costs such as phone calls, stationery and advertising for new tenants
- Vehicle running costs (only the proportion used for your rental business) including mileage rate deductions for business motoring costs
Expenses you can’t claim a deduction for include:
- The full amount of your mortgage payment - only the interest element of your mortgage payment can be offset against your income,
- Private telephone calls - you can only claim for the cost of calls relating to your property rental business,
- Clothing - for example if you bought a suit to wear to a meeting relating to your property rental business, you can’t claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm - no identifiable part is for your property rental business,
- Personal expenses - you can’t claim for any expense that was not incurred solely for your property rental business.
Can you change a will after death?
On the face of it, this sounds implausible. How can you change your will if you have died?
In reality, as long as any beneficiaries left worse off after any change, agree, you can change a person’s will after their death.
Any change must be completed within two years of the death.
The circumstances that such a change can be agreed are to:
- Reduce the amount of Capital Gains Tax or Inheritance Tax payable,
- Provide for someone who was left out of the will,
- Move the deceased’s assets into a trust,
- Clear up any uncertainty over the will.
Executors will need to make a variation to the will to accomplish the above, this will involve:
- Preparing a variation document that satisfies certain legal requirements, and
- If there is more Inheritance Tax to pay, a copy of the variation must be sent to HMRC within six months of making it. This condition does not apply if the variation does not change the amount of Inheritance Tax payable.
This ability to change a will after death can often resolve family disputes if the affected beneficiaries agree. However, the process is best managed by a professional advisor to ensure that all the formalities are dealt with correctly.
Income Tax - regional differences
You will pay Scottish Income Tax if you live in Scotland, Income Tax if you live in England or Northern Ireland and the Welsh Income Tax if you live in Wales.
At present, the only regional variations under the control of the Scottish or Welsh governments are the rates of Income Tax charged.
For 2019-20, the rates set by the Welsh Government are the same as those in England and Northern Ireland. Scottish Income Tax rates have more bands and the higher and top rate are 1% higher than the rest of the UK.
These differences do open up planning opportunities if you live and work in the border areas between England and Scotland.
As you pay tax at Scottish or other UK rates based on where you live, you could choose to live in England and work in Scotland if you pay tax at the higher rates. Obviously, there are many other factors that you will want to consider when choosing where you set up home, but if the regional Income Tax rate differentials start to widen, the ability to reduce your Income Tax burden may become more of a deciding issue.
Don't forget the payslips
If you are an employer, you have a statutory duty to provide your employees with a copy of their P60 (pay and tax details for 2018-19) on or before the end of May 2019.
If you distribute P60s and then discover that changes need to be made you will need to give employees a replacement P60 - a paper or electronic version - or a letter confirming the change.
This requirement is additional to your other filing deadlines related to your payroll and later in the year you will need to deal with the reporting of expenses and benefits to HMRC.
If we take care of your payroll for you, these matters can be dealt with in a timely manner. If we don’t take care of your payroll, and you would like to be relieved of this tiresome chore, please call so we can discuss your needs.
Tax Diary May/June 2019
1 May 2019 - Due date for Corporation Tax due for the year ended 30 July 2018.
19 May 2019 - PAYE and NIC deductions due for month ended 5 May 2019. (If you pay your tax electronically the due date is 22 May 2019)
19 May 2019 - Filing deadline for the CIS300 monthly return for the month ended 5 May 2019.
19 May 2019 - CIS tax deducted for the month ended 5 May 2019 is payable by today.
31 May 2019 - Ensure all employees have been given their P60s for the 2018-19 tax year.
1 June 2019 - Due date for Corporation Tax due for the year ended 31 August 2018.
19 June 2019 - PAYE and NIC deductions due for month ended 5 June 2019. (If you pay your tax electronically the due date is 22 June 2019)
19 June 2019 - Filing deadline for the CIS300 monthly return for the month ended 5 June 2019.
19 June 2019 - CIS tax deducted for the month ended 5 June 2019 is payable by today.