April Questions and Answers
Newsletter issue – April 2024
Q: I’m a property owner, and I’m considering renting one of my houses out for people to use for vacations. What are the tax rules I need to understand?
A: It‘s a timely question, and unfortunately for you, there was a change announced in the Budget that will mean you can no longer benefit from a certain type of tax relief in the future.
At the moment, there are tax breaks for second homeowners letting to holiday makers in the shape of the Furnished Holiday Lettings (FHL) regime.
Among the advantages of the scheme is the fact that property owners can deduct the full amount of finance costs, such as mortgage interest, from FHL income. And when selling the property, business asset disposal relief may be available. That results in a 10% capital gains tax rate applying.
But the FHL scheme is to be disbanded, Jeremy Hunt has revealed. Currently, the tax breaks make it more profitable for second homeowners to let out their properties to holiday makers rather than to residential tenants to rent, raising concerns over the availability of long-term rental housing for local people.
According to HMRC, if you rent properties that qualify as FHLs, you can get the following benefits:
- you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs‘ Relief, relief for gifts of business assets, and relief for loans to traders)
- you‘re entitled to plant and machinery capital allowances for items such as furniture, equipment, and fixtures
Furthermore, the profits count as earnings for pension purposes,meaning tax-advantaged pension contributions can be made.
If the change takes effect and is passed into law, the existing rules will be scrapped from April 2025. But you would have one year during which you could benefit from the current scheme. If you‘d like to understand more about the tax implications of property ownership, please get in touch.
Q: I’m a self-employed electrician. I want to undertake some training to help me run my business, but it’s quite an expense. Is there any way I can claim back the costs of training?
A: There are absolutely times when, as a sole trader or self-employed individual, you will be able to count the costs of training as an allowable business expense. It does depend on the circumstances and details. In March, HMRC published updated guidance on retraining tax deductibility to help people understand this area better.
HMRC says its latest guidance "ensures that updating existing skills, maintaining pace with technological advancements, or changes in industry practices are allowable costs when calculating taxable profits."
It‘s helpful to look at a few examples to try to understand better what is or is not allowable. In your case, let‘s say it‘s a bookkeeping course you want to do at the local college. An electrician‘s day to day work doesn‘t entail bookkeeping, of course. But as a sole trader, you need to understand accounts and how to run your business efficiently. So, a course on bookkeeping would be relevant and an allowable expense.
But if you wanted to learn a new skill to start a totally new business, that‘s where it wouldn‘t qualify. The skills training has to be relevant to your existing business.
And, when someone is learning skills in a different field, they‘re likely to not qualify. So, one example: a painter and decorator decides they want to change their business completely by going into taxi driving instead. They want to claim the costs of a taxi driving course, but as the costs will not relate to the purpose of the existing business,i.e. painting,it can‘t count as an expense.
Q: I’m about to become a father in the next few months, with our baby arriving in late June. Am I entitled to any kind of Government help as a dad taking paternity leave?
A:There are changes just about to take effect that could be beneficial to you. Already, fathers receive a statutory weekly rate of Paternity Pay worth £172.48, or 90% of their average weekly earnings (whichever is lower). However, from this month (April 6 2024), fathers and partners can take Paternity Leave in separate blocks, rather than having to take the full two weeks in one go. At the moment you‘re only entitled to one block of two weeks, but you‘ll be able to split this out in the future. You will be able to choose to take your leave and pay at any point during the first year after the birth. It also applies if you are adopting a child too. And the amount of notice you have to give your employer is also changing – just four weeks. Paternity pay will be paid out on your usual salary slip, with both income tax and National Insurance taken off.