Marriage allowance
The marriage allowance was introduced in 2015, to reward marriage via the tax system. It is actually 10% of the taxpayer’s personal allowance which is transferred from the spouse who isn’t using it to their partner who is taxed at no more than the basic rate. It is only available to couples who are married or in a civil partnership.
The allowance is worth a maximum of £230 for 2017/18 (£1,150 x 20%), but it has to be specially claimed, and many people have been put off by the online application process. In fact taxpayers can claim the allowance by calling HMRC on 0300 200 3300, or make the claim in writing. Once the claim has been accepted it remains in place for future tax years while the marriage continues, unless the claim is revoked.
Once the marriage has ended through divorce or death, the allowance can’t be claimed, even for the earlier years when the couple were together. To solve this problem the law will be changed on 29 November 2017 to allow claims for the marriage allowance to be made on behalf of a deceased person, but not where the couple have divorced.
As any claim for the marriage allowance can be back-dated up to four years, this change will allow widows or widowers to resubmit a claim where it has been refused in the past for years back to 2015/16. It will be possible to transfer the allowance to benefit the surviving spouse, and equally to transfer the marriage allowance to the deceased person to use against their income in their last years.
Written by the Tax Advice Network
Indexation allowance
The capital gains indexation allowance adjusts the base value of an asset by general inflation, as measured by the retail price index (RPI), over the period of ownership, or since 31 March 1982 if the asset was acquired earlier. The effect is to reduce the taxable amount of the capital gain on disposal of the asset.
Indexation allowance was frozen for individuals and trustees from 6 April 1998, and was removed completely from the CGT computations of those taxpayers from 6 April 2008. The Budget announced that indexation allowance will be frozen for companies from 1 January 2018, so the last month for which indexation will be calculated on the disposal of an asset is December 2017.
It is telling that the policy paper on this issue talks about “removal” of the indexation allowance, not the freezing of the allowance, so this Budget change could be the first step to removing indexation allowance from capital gains calculations completely.
Indexation allowance can mean a company pays much less tax on a gain than an individual would pay on the same disposal.
For example, when disposing of a residential property a company would pay tax at 19% on the gain after indexation, and an individual would pay tax at 28% on the unindexed gain. If the individual is a basic rate taxpayer he would pay CGT at 18% on the portion of the gain which sits within his available basic rate band, but a significant property gain is likely to quickly use up the basic rate band. The individual can set their annual exempt amount (£11,700 for 2018/19) against the unindexed gain, which is not available to the company.
Where our clients are planning to sell properties, or any other assets, out of their company it may be better to sell sooner rather than later, to take advantage of the indexation allowance while it is still available. However, transferring the ownership of a property purely to crystallise the indexation allowance may not be worthwhile, as the legal costs and SDLT (LBTT in Scotland) will eat into any tax saving.
Written by the Tax Advice Network
Business rates
The Chancellor promised to solve the problem of the “staircase tax” in his Budget speech. This is not a tax, it’s an increase in business rates suffered by small businesses which occupy more than one part of a shared building.
In July 2015 the Supreme Court ruled that where a tenant occupies two or more parts of a building, and it is not possible to move between those parts without entering a common area such as a staircase or corridor, those areas must be treated as separate rateable units for calculating business rates.
Small businesses have been receiving increased business rates bills back-dated to 2015, based on that Supreme Court ruling. Some businesses have found that they lose all of the small business rates relief, as they are now deemed to occupy two units instead of one. That relief can only be claimed if the business uses just one property.
Hammond has promised to change the law to eliminate the staircase anomaly, and that businesses will be able to have their original rates bill reinstated, and backdated to 2015. This process of changing the law could take some time, and it will take local authorities even longer to issue amended rates bills, so this is not a quick fix.
Business rates are automatically increased every year by inflation, as measured by the RPI. This tends to give a higher rate of inflation than the consumer price index (CPI), as the RPI includes housing costs, which makes no sense for business rates. From 2018 the increase in business rates based on the CPI measure of inflation.
Also, revaluations of the rateable value of business properties will be undertaken every three years instead of every five years. In fact, the last revaluation was delayed, so there was a gap of seven years between valuations, leading steep increases in rates for certain businesses.
Written by the Tax Advice Network