Q. Due to unforeseen circumstances I have recently had to sell my house and down-size to a smaller property. I sold the house for £20,000 less than I paid for it. Can I offset this loss against income from my business and reduce my income tax liability for this year?
A. Unfortunately the tax law does not permit you to do this. I am assuming that you are not trading in properties and the house was either your main residence or an investment asset. Losses on the sale of a principal private residence are generally not allowable losses for tax purposes. If the property was an investment asset, the loss on the sale may be treated as a ‘capital loss’, which could be offset against other capital gains you make, but it cannot be offset against other income. For further information on this, see the HMRC Capital Gains Manual at paragraph CG65080.
Q. I have some spare cash earning virtually no interest in the bank and I have decided that I would like to buy a flat for my daughter, who is currently just 16. Am I correct in thinking that she cannot own the property until she is 18? Is there an alternative for ownership? What are the tax implications surrounding this proposal?
A. You could consider using a bare trust for buying the flat. In very broad terms, a bare trust is a basic trust in which the beneficiary (in this case, your daughter) has the absolute right to the capital and assets within the trust, as well as the income generated from the assets. This type of trust is popular with parents and grandparents who wish to transfer assets to children or grandchildren. The assets are held in the name of a trustee (in this case, you), who will be responsible for managing the trust in a prudent manner so as to generate maximum benefit for the beneficiaries. However, you would not have control over the assets and no say or discretion in directing the trust’s income or capital. However, since you will have provided the funds to buy the flat, under what is known as the ‘settlements legislation’ you will be taxed on the income from it until your daughter becomes 18.
When your daughter turns 18, you can change the name of ownership on the Land Registry documents, which is relatively straight-forward.
Q. I have been trading for several years. I am not currently registered for VAT but think my income is getting close to the VAT registration threshold. What items can I exclude from my ‘taxable turnover’ calculation?
A. When the ‘taxable turnover’ of a business reaches the VAT registration threshold, currently £83,000 per annum, it must register for VAT. As you state, any income you receive that is not counted as ‘taxable turnover’ is excluded from the £83,000 turnover figure.
There are several items that can be ignored when calculating ‘taxable turnover’ for VAT registration purposes. Any income that is ‘exempt’ from VAT is ignored. This commonly includes insurance, postage stamps or services; and health services provided by doctors or dentists.
Some goods and services are outside the VAT tax system so VAT is neither charged nor reclaimed on them. Such items include:
- goods or services you buy and use outside of the EU;
- statutory fees – like the London congestion charge;
- goods you sell as part of a hobby – like stamps from a collection;
- donations to a charity – if given without receiving anything in return.
Supplies of services to business customers in another EU member state or any customer outside the EU are treated as outside the scope of UK VAT and do not count towards turnover for VAT registration purposes (for example: supplying consultancy services to a business customer in Spain).
Other non-business income that may be excluded includes disbursements incurred on behalf of a client, grants, or any income from employment.
Finally, it is worth noting that you can ignore any ‘one-off’ sales of capital assets. This means that if, for example, you sell a van and the income received puts the business turnover over the registration limit, the sales proceeds can be ignored.