RSM’s Weekly Tax Brief – 3 February 2016…
In this edition of RSM’s weekly round-up of the most important tax news, we cover the latest developments…
- What to do if you have missed the Self-Assessment deadline
Now that the 31 January deadline for self-assessment tax returns has been and gone, so what should you do if you haven’t filed your tax return yet?
- Scottish Budget proposals – let the games begin…
Parliamentary debates don’t usually get us all hot under the collar, but Holyrood’s debate this week on the Scottish Government’s 2016 Budget proposals could prove to be the exception to the rule. And with the Scottish Parliamentary elections on the horizon, one thing is certain – nothing is for certain…
- The looming Stamp Duty surcharge for landlords
Consultation on the Government’s proposal to introduce higher rates of Stamp Duty Land Tax has just closed, and we wait to see what, if any, changes there may be. If the proposals stay the same, the higher rates will be three percentage points above the current SDLT rates – giving a maximum 15% charge on the highest slice of the purchase price above £1.5 million. Conveyancing solicitors be warned – you could be in for a very busy time…
- Low take-up of the marriage allowance highlights policy flaws
According to reports in the weekend press, fewer than one in ten eligible couples have applied for a new marriage tax break which came into effect on 6 April 2015. So why is this?
- What to do if you have missed the Self Assessment deadline
For many taxpayers completion and submission of the annual Self Assessment return is a necessary evil which just has to be done, and most strive to complete the return on time.
HMRC has revealed that 10.39 million Self Assessment returns were completed ahead of the 31 January deadline this year which is an improvement over last year, but still leaving an estimated 870,000 returns outstanding – a potential windfall of £87 million or more in penalties for the taxman.
So what if you have missed the deadline?
If you have, then an initial £100 fixed penalty will apply even if there was no tax to pay or if you have paid your tax on time. But you still need to submit your return, and the advice is to do so as soon as possible before further penalties apply. Delaying three months will incur a daily penalty of £10 per day up to a maximum £900, and after six and then 12 months a further five per cent of the tax due or £300 whichever is the greater. On top of that if the tax has also been paid late, interest applies along with 5 per cent surcharges based on the tax outstanding at 30 days, six months and 12 months. So delaying can be a very expensive option…
What if you believe you have a ‘reasonable excuse’ for being late with your return? Taxpayers hoping to claim this may find it more difficult than they anticipated. Unfortunately there is no definition of what constitutes a reasonable excuse, and HMRC’s opinion often differs from the taxpayer’s perception. HMRC will generally accept a bereavement of a close relative, a serious illness of the taxpayer or close relative or unforeseen events as a reasonable excuse. However complexity of the return, pressure of work and lack of planning will not be accepted.
In January HMRC announced that following severe weather in many parts of the country, taxpayers affected by flooding at their premises, or their agents’ premises, will not be asked to pay a penalty if their return is submitted without unreasonable delay. These people need to make sure HMRC is aware of the reason for any continued delay and submit their returns as soon as possible. It is also hoped that those affected by the storms may also receive a favorable response to any reasonable excuse appeal where they have been affected, for example, by prolonged power and internet outages. In the absence of any specific announcement from HMRC, these appeals will be decided by individual Inspectors who may or may not be sympathetic.
- Scottish Budget proposals – let the games begin…
Parliamentary debates on budget proposals are not generally the most exciting topic of conversation, but the exception could be Holyrood’s debate on the Scottish Government’s 2016 Budget proposals this week – just over 90 days before the Scottish Parliamentary elections on 5 May. The last of the opposition parties’ submissions has been made by Labour, who echoed the Lib Dems’ call for an increase in the Scottish Rate of Income Tax of 1p from April 2016. This is contrary to the SNP’s position that any move away from the existing UK rates of tax should not take place until the Scottish Government has the full range of tax raising powers proposed by the Smith Commission at its disposal. This is generally expected to be from April next year.
Whatever the detail of the debate at Holyrood, the immediate concern for all must be the lack of agreement on the fiscal framework which will underpin the Scotland Act when (although some are now saying “if”) it becomes law.
Discussions have been taking place between Holyrood and the Treasury over how the Scottish block grant should be adjusted to take account of the tax raising powers that Scotland will be granted. Although the discussion is taking place behind closed doors, it is clear that there is a gap between the two sides, and time is running out to resolve their differences. A deadline of 12 February has been set and speculation is mounting as to the implications of missing this date.
Efforts are being made to amend the Scotland Bill to allow it to be passed before the fiscal framework is agreed. These amendments would set a time limit for agreeing the framework after enactment failing which certain clauses in the Act would not operate. But is this really the answer?
Speculation abounds about whether the two sides are really serious about reaching an agreement. However, both probably have more to lose than to gain if Smith fails. Agreement is therefore essential, but it seems increasingly likely that the deadline will be tested.
The opposition parties’ proposals in response to the Scottish Budget are the first step in setting out their stalls for the forthcoming election. The funding of public services will be a key battleground, particularly education. We await the manifestos with interest…
- The looming Stamp Duty Land Tax surcharge for landlords
Consultation on the Government’s proposal to introduce higher rates of Stamp Duty Land Tax (SDLT) closed on Monday, and we wait to see what, if any, changes there may be to the original proposal set out last year.
If the changes do go ahead as proposed, a higher rate of SDLT will apply to purchases of additional residential properties with effect from 1 April 2016. The higher rates will be three percentage points above the current SDLT rates giving a maximum 15% charge on the highest slice of the purchase price above £1.5 million.
The charge is far reaching but won’t apply to first time buyers, and so long as people replacing their main residence do so either up to 18 months before or after they buy a replacement residence, it won’t apply to them either. If the main residence is sold up to 18 months after buying a replacement, the additional charge will apply but a refund can be claimed once the former main residence has been sold within the time limit.
But individuals will not be able to elect which of their residences is their main residence, and so – confusingly – the treatment of a main residence for the purposes of the higher rates of SDLT may differ from the treatment for capital gains tax.
In addition, married couples/civil partners living together are treated as one unit. This means that they may own only one main residence between them at any one time for these purposes. HMRC will take into account a number of factors when considering whether a property is an individual’s main residence – ie where the individual and their family spends their time, at which residence the individual is registered to vote, etc.
Individuals don’t pay SDLT on properties they inherit, and this won’t change with the introduction of the higher rates of SDLT. However, inherited property will be relevant when determining if a purchaser is purchasing an additional residential property.
In addition to this, there are concerns that those with overseas properties may find that also having just one property in the UK might mean they also end up paying the higher rate of SDLT.
But the main scenario in which the charge will apply is the purchase of a buy-to-let or a holiday home. With restrictions to tax relief on mortgage interest set to bite for 2017/18 onwards, landlords may feel they are being attacked from all angles and are facing considerably higher tax costs in the future.
Anyone considering purchasing a residential property needs to consider carefully how these new rules might affect them. One thing’s for sure – conveyancing solicitors will be very busy in the days leading up to 1 April this year.
- Low take-up of the marriage allowance highlights policy flaws
According to reports in the weekend press, fewer than one in ten eligible couples have applied for a new marriage tax break which came into effect on 6 April 2015.
The new relief is designed to benefit low earning couples where one spouse has insufficient income to use their personal allowance. Where couples meet the conditions the spouse with the unused allowance is able to transfer up to £1,060 of the unused allowance to their spouse by applying online.
The tax break – available to both married couples and civil partners – is worth up to £212 in the current tax year. However, many low income couples won’t be able to take advantage.
For example if one spouse has no income but the other has just above the higher rate threshold no transfer is available. Similarly where both spouses have income just above the personal allowance there is no unused allowance to transfer. In both cases they may have joint income lower than some eligible couples
So what’s stopping people from claiming?
There are suggestions that people simply don’t know that this relief exists. Many eligible couples will not be represented by accountants, so there is a job for the government in terms of raising awareness.
Secondly, despite claims from government ministers that it is quick and easy to register, couples may be put off by the prospect of having to jump through several administrative hoops. Perhaps for some older couples, it may be the case that the switching to digital and having to claim this online is providing yet another stumbling block.
There have also been criticisms that the policy is an unwelcome reverse of the principle of independent taxation. For couples to make a successful claim, they will need details of their partner’s income – adding complexity for what is quite a modest return.
It may be that the level of take-up will increase over time. Next year, the potential savings will rise to £220. Couples will also have the opportunity to claim back the relief for up to four years, so many may decide that it’s worth the effort when between £800-£1000 is on offer.
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