The newsletter this month includes articles covering: business property relief for Furnished Holiday Lets, National Insurance changes for sleeping partners, transferring the unused IHT nil rate band and a reminder for tax credits claimants.
Furnished Holiday Let set-back
Last year a case was heard before the First-tier Tribunal that found a Furnished Holiday Let (FHL) property should not be considered an investment for Business Property Relief (BPR) purposes. This was an important decision for owners of FHL businesses as it confirmed the availability of BPR for Inheritance Tax purposes. If the property in this case had been considered an investment property, BPR would have been denied.
HMRC appealed the First-tier ruling to the Upper Tribunal who have reversed the previous decision.
It would appear that FHL property owners again need to demonstrate that the nature of any additional services provided to persons letting their property are substantial and not merely incidental to the letting of the property. If the additional services are considered to be substantial then a BPR claim may succeed. Otherwise the letting activity will be treated as an investment and BPR will be denied.
In the light of the further ruling FHL property owners should re-examine their Inheritance Tax position. It is possible that an appeal will be made but until then this case remains the current authority.
For Income Tax purposes there is a clear definition of a FHL property. As long as your letting of a property falls within the following criteria it will be considered a FHL and treated as a trade or business.
The definition for Inheritance Tax BPR is again at odds with the Income Tax definition which merely considers periods of letting thus:
Sleeping partners wake-up call
Due to a re-interpretation of the law, HMRC announced that from 6 April 2013 sleeping partners will be liable to pay National Insurance. Affected persons should consider the following:
Transferring the unused Inheritance Tax nil rate band
Married couples and registered civil partners are allowed to transfer assets to each other during their lifetime or when they die without incurring an Inheritance Tax charge. There is no limit to this relief as long as the receiving spouse or civil partner is UK domiciled.
This relief is known as the spouse or civil partner exemption.
Everyone’s estate is currently exempt from Inheritance Tax if valued, including gifts in the last seven years, at £325,000 or less ? the so-called nil rate band. If the entire estate is passed to a surviving spouse or civil partner no Inheritance Tax would be payable due to the spouse or civil partner exemption, so for these couples the nil rate band used to be potentially wasted on the first death. To counter this, legislation was introduced that allowed the unused nil rate band on a first death to be passed, by claim, to the surviving spouse. This applies to second deaths on or after 9 October 2007.
Accordingly a surviving spouse or civil partner could have a nil rate band of up to £650,000 on their death.
Don’t miss tax credits renewal deadline
Individuals who were claiming tax credits for 2012-13 should be receiving a “Renewing your tax credits ? Getting it right” pack.
It is vital that you complete the Annual Review form for the year ended 5 April 2013 and send it to the Tax Credits Office (TCO) Preston before 31 July 2013. Failure to do this will result in your tax credit payments being stopped and you may have to pay money back.
Claimants should note:
It is possible to call TCO and advise them of changes. The help line is 0345 300 3900. You can also use this number to chase up your renewal pack if not received by 28 June.
Tax Diary June/July 2013