Tax Partner Pro – Answer to your question on June 24
We support our Tax Partner Pro members through our email and reminder service. Here’s a look at some of the most recent questions we answered in June 2024.
Q
The client has the following income –
UK State Pension / UK Self-Employment / UK Rental Income
All this will continue – but he plans to live 7 months a year at home in Portugal (he has a permanent residence permit) and live 5 months at home in the UK.
It will not have any income generated in Portugal.
Basically, once this happens, does he continue to file his UK tax return as usual and pay UK tax?
You then have the obligation to declare all this income in Portugal and not pay any additional tax due to the double taxation agreement.
A
It’s difficult to determine whether he would have become a non-UK resident from the evidence below, as it largely depends on how many days he was in the UK/connections to the UK, etc.
If a person spends 5 months a year in the UK, they will most often remain a resident of the UK.
Accordingly, the answer is yes, he would continue to declare his income in the UK and pay tax here.
The double tax treaty between the UK and Portugal will determine which country has the main taxing rights and which will therefore have to provide relief. I imagine that if the income sources are based in the UK, the UK will retain these tax rights and Portugal will deduct the UK tax incurred from their calculations.
Q
A tax resident of Australia has had UK tax deducted from a lump sum pension withdrawal from a SIPP. HMRC gave him a partial refund based on a standard tax calculation, including the benefit of a personal allowance, although he now has an Australian passport. But should he pay UK tax on this SIPP withdrawal?
A
If the customer in question resides entirely in Australia and is therefore not resident in the UK?
IThus, article 17 of the double taxation agreement is very clear and precise:
Article 17 – Pensions and annuities
1. Pensions (including government pensions) and annuities paid to a resident of a Contracting State (in this case Australia) shall be taxable only in that State (Australia).
2. The term “annuity” means a specified sum payable periodically to an individual at specified times during his or her life or during a specified or verifiable period of time by virtue of the obligation to make payments in exchange for a adequate and complete consideration in money or monetary value.
HMRC may require an Australian residency certificate in order to make a full UK tax refund, so this needs to be explored.
Q
New client, husband and wife in their 70s. They have an unincorporated partnership that rents commercial properties. They report business income (business partnership) in their self-assessment rather than income from land and property. The partnership has its own UTR. the market value of the portfolio is approximately £1.5 million
I don’t think the business qualifies for IHT BPR as this income is considered an ‘investment’. They do not provide any “service” as such. Can you confirm this is the case? The client believes the business “may” qualify, but I do not believe it will.
A
Simply holding real estate as an investment asset (whether personally, in a partnership or even in a limited liability company) would not qualify for BPR.
To qualify for BPR, the partnership’s activity must not consist entirely or primarily of making or holding investments.
The bar they would have to clear to claim the partnership is commercial would be very high.
Q
You have clients who live in a company owned property, they are just directors/shareholders. The company just owns the property (consider building a portfolio) of a non-commercial nature.
The company pays service fees, etc. Directors pay no ownership fees. The property is an apartment in Cheshire which costs £524,000.
- What about, if applicable, a benefit in kind for the year ending 07/5/2024? How is it calculated?
- No managed payroll – Do we need to open a PAYE system or can we just transfer to the directors loan account?
A
Regarding inhabited property, there are two problems here:
Natural Advantage
If a director lives in a property owned and paid for by the company, this is a benefit in kind on which Class 1A NIC is payable by the company and income tax is payable by the employee.
If the property is rented, you simply use a market value rent as your profit figure.
If the property is owned, there is a formula for calculating the benefit in kind which can be found here:
The value of the benefit must be entered into form P11D and submitted to HMRC by the business by 6th In July following the end of the fiscal year, the benefit occurred. The value of the benefit must be reported on the director’s tax return.
To avoid the above, you can post a rent amount to the DLA, which removes the BIK problem. However, the business will have to report the rent as income.
Annual tax on enclosed housing – ATED
In addition to the BIK issue detailed above, where a Ltd company owns a residential property and does not let that property on commercial terms, the company is required to submit an ATED return each year and pay the ATED fee.
Fees are based on the value of the home.
For a property worth £524,000, the annual ATED fee is currently £4,400.
The ATED statement should have been submitted to HMRC by 30 April each year.
The only way to avoid ATED charges is for the person living in the property to pay actual market rent (although an ATED declaration is still required).
Next steps
Don’t forget to contact us as part of your Tax Partner Pro membership. [email protected]
