Our June issue of Personal Tax Update can be found below.
The following personal tax content is accurate as of 28.04.2022:
Reimburse private fuel for your company car?
Unless there is full reimbursement of fuel provided for the private use of a company car there is a benefit in kind charge based on a fixed figure of £24,600 which is multiplied by the CO2 emissions percentage that is used to calculate the company car benefit for that vehicle. For a high emission car that percentage can be as high as 37%, resulting in a benefit in kind charge of £9,102 and an income tax bill of £3,640.80 for a higher rate taxpayer. Even with current fuel prices, that would be an awful lot of private mileage, so the employee should consider reimbursing the employer using the HMRC approved mileage rates by 5 July 2022 for 2021/22.
Possible changes to SDLT multiple dwellings relief
HMRC have been consulting on changes to the relief from stamp duty land tax (SDLT) when two or more properties are acquired at the same time. This indicates that a change in the rules is imminent, and purchasers should take advantage while the relief continues to apply.
Currently, where at least two dwellings are purchased in a single transaction, or as part of a series of linked transactions between the same vendor and purchaser, the purchaser can choose to have the rate of SDLT determined by the average value of the dwellings purchased, rather than their combined value. Purchasers can therefore benefit from multiple nil-rate and lower percentage bandings, significantly reducing the amount of SDLT payable. Multiple dwellings relief doesn’t apply automatically; it must be claimed in a land transaction return and your solicitor may not be aware of this important relief.
The following content is accurate as of 29.5.2022:
Buying an electric car? Does it need to be new?
The shortage of semiconductors has meant long delays in the delivery of new cars. This has caused many company car drivers to choose a second hand car instead, but what are the tax consequences?
Unless the car has zero emissions, the capital allowance rules are the same for new and used cars bought by the business. Plant and machinery capital allowances may be claimed on the purchase price of the car at either 18% or 6%, depending on whether the CO2 emissions for the vehicle are below or above 50g CO2 per km.
Where a zero-emission car is acquired by the business, a special 100% first year allowance only applies to new cars. There is however an exception for certain ex-demonstrator cars. HMRC accept a car is unused and not second hand provided it has been driven for a limited number of miles for the purposes of testing, delivery, and test driven by potential purchasers.
When calculating the P11D benefit of company cars the original list price inclusive of extras should be used, not the purchase price. Hence the P11D value for a second hand company car may be significantly higher than the price paid for the vehicle.
Salary sacrifices – get the timing right
Many employers and employees have been putting in place salary sacrifice arrangements to give up some of their contractual salary in exchange for additional pension contributions or an electric company car. In these specific cases and if correctly structured, the employee is taxed on the lower of the taxable benefit and the salary foregone.
In the case of the electric car the benefit is currently 2% of the original list price. There is no taxable benefit on employer pension contributions.
When the director or employee enters into the salary sacrifice arrangement, they must agree with their employer to vary the employment contract well in advance of the date when the first payment under the new arrangement is due to be made. If the contractual changes have not been completed by that date, the terms of the previous contract continue to be in force.
This means that the employee is still entitled to receive, and is therefore still taxable on, the previous higher salary, even though the smaller, post- sacrifice amount is paid.
Capital gains tax on separation and divorce
When a married couple or civil partners separate, tax planning is understandably not at the top of the list of their thoughts. However, a ‘no gain/no loss’ rule allows capital assets to be transferred between them free of capital gains tax (CGT) up to the end of the tax year in which they permanently separate. Beyond that date, asset transfers between the couple will often give rise to a CGT liability. With many divorce settlements taking several months this is worth careful consideration.
The Office of Tax Simplification has recommended to the Treasury that the no gain/no loss rule should be extended to two years from the date of permanent separation. The government have accepted this recommendation, but the change in rules is yet to be legislated.
The actual date that assets are treated as transferred between the separating couple depends upon how the marriage or civil partnership is dissolved.
It is also important to consider private residence relief (PRR) on the family home. It should be noted that where one spouse or civil partner leaves the matrimonial home, they may continue to be eligible for PRR even if they no longer live in the property. There are specific conditions that need to be satisfied for this to apply.
All in all, CGT on separation is a complex area and please do talk to us if any issues may be in point. We understand the sensitivity of the situation and are here to help.
If you have any questions relating to the above personal tax update, don’t hesitate to get in touch. You can contact us here.