Newsletter - October 07
posted Monday, 1 October 2007
Working in the UK We are all familiar with press reports on the number of immigrants coming to the UK looking for work. What you may not know is that under Section 8 of the Asylum and Immigration Act 1996 all UK employers need to make basic document checks on every person they want to employ. The employer needs to make sure that the prospective employee is legally entitled to work in the UK. The penalties for getting it wrong are severe. An online compliance tool is available at the Home Office micro site www.employingmigrantworkers.org.uk Checking prospective workers using this tool gives you a statutory defence against prosecution if you have unknowingly employed someone illegally.
The tax treatment of immigrants and especially the operation of PAYE, can be complicated particularly where the individual is coming to work in the UK for a short time. In some cases the employer may be able to ignore PAYE, for example where the individual qualifies as a Short Term Business Visitor (of up to 183 days). The rules are complicated, however, and you should seek our advice about PAYE matters early on.
TWO OR MORE RESIDENCES? If you own more than one residence then there may be a Capital Gains Tax advantage in making an election for one of the houses to be your main residence. In some instances, the election can be made in respect of the house lived in less often. The election can only be made within a period of two years from an additional house becoming a residence of yours. So, for example, if a third house is acquired as a holiday house, a main residence election can be made in respect of any of the properties within a two year period from the date of acquisition of the holiday house. Note that an election is not appropriate where you own more than one house but you only use one as a residence. It is not, therefore, possible to make an election in respect of a buy to let property which is never occupied by you as a residence. Once made, an election can be varied. If an election is not made then the question of which house is to be treated as the main residence, and the gain therefore exempted from Capital Gains Tax, will be determined based on the facts. In many cases, this will be the house occupied most frequently. Where a house has been your main residence for only part of your period of ownership then the gain attributable to the period during which it was your main residence and certain other periods, including the final 36 months of ownership, is exempt from Capital Gains Tax. This can be a complicated area as certain other relief may be available, for example taper relief, as well as your annual exemption. Let us know if you are acquiring a second or an additional residence so that an election can be considered.
HMRC approach to Landlords A common misunderstanding among the growing number of individuals investing in buy-to-lets is the belief that their mortgage interest is at such a level that it covers their rental income and that they do not have any additional tax to pay on rental income. It is believed that nearly 80,000 landlords fail to report their property income each year and HMRC has created a database which compares properties which are known to be rented with the owner landlord’s tax return. Letting residential property is treated as a single business, with tax paid on any net profit as part of a taxpayer’s overall income. Net profit is arrived at by adding up all your rental income from UK properties and deducting all allowable expenses. Typical allowable expenses are:-
- Letting agents fees;
- Legal fees (in certain circumstances);
- Accountant’s fees (but not for your Income Tax Return);
- Building and contents insurance;
- Interest on property loans;
- Maintenance and repairs (but not improvements);
- Utility bills;
- Rent, ground rent and service charges;
- Council tax;
- Services such as cleaning and gardening; and
- Other direct costs e.g. phone calls, stationery and advertising.