August questions and answers
Newsletter issue - August 2018.
A: Restrictions on the amount of income tax relief certain landlords can obtain on residential property finance costs (such as mortgage interest) are currently being phased in (over four years starting from 6 April 2017).
Deductions for finance costs related to residential property will be restricted as follows:
- in 2017/18, the deduction from property income is restricted to 75% of the finance costs;
- in 2018/19, the restriction is 50%;
- in 2019/20, the restriction is 25%; and
- from 2020/21 onwards, no such finance costs incurred by a landlord will be allowed as a deduction. They will be eligible to receive a basic rate tax deduction on up to 100% of the finance costs incurred.
In order to mitigate the impact of these restrictions, you may wish to consider the following actions:
- legally transferring some of your rental income to someone else (for example, a spouse or civil partner);
- reducing your borrowings, which in turn will reduce future interest payments;
- incorporating your property business; or
- turning your rental property into qualifying furnished holiday lettings (the restrictions do not apply to this type of property business).
Professional and legal advice is of course, strongly recommended before making any changes.
A: Where an employer provides facilities for charging their employees' all-electric or plug-in hybrid vehicles at the workplace, this is currently treated as a taxable benefit-in -kind subject to income tax for employees and employer Class 1A National Insurance contributions.
However, the government announced in Autumn Budget 2017 that it would introduce an exemption to remove any income tax or NIC liability for charging electric vehicles at work with effect from 6 April 2018. The draft legislation is contained in Finance Bill 2018-19 and is under consultation until 31 August 2018.
There is already an exemption for the provision of charging facilities which applies to taxable cars and vans.
A: A company will have a trading loan relationship, as a borrower, if it entered into the loan relationship because of its trade. So, for example, a loan taken out to purchase machinery for a manufacturing trade, or to finance an expansion of its trade, will be a trading loan relationship.
Debits and credits arising from a trading loan relationship for an accounting period, are
- treated as receipts and expenses of the trade, and
- taken into account in computing profits or losses of the trade for that period.
The legislation provides that any debit may be deducted in the computation of trading profits, regardless of whether it relates to capital or income or would otherwise be disallowed by CTA 2009, s 54 (the 'wholly and exclusively' rule).
In most cases, if the companies are connected, there will be no tax implications for your company. However, if the companies are not connected, your company will be subject to tax for the amount of the write-off.
For further guidance on the loan relationship rules for connected parties, see the HMRC Corporate Finance Manual at CFM35320.