Tax: what individuals should be thinking about now

We are currently living in exceptional times. Tax may not be at the forefront of everyone’s minds, but as we adjust to this new world there are a number of tax-related considerations.

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Peter Castle
Published: 24 Mar 2020 Updated: 13 Jun 2022

We are currently living in exceptional times. Tax may not be at the forefront of everyone’s minds, but as we adjust to this new world there are a number of tax-related considerations.

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UK Residence

Some of our clients may find themselves trapped in the UK due to flight restrictions or other jurisdictions not allowing entry. There is a risk they could find themselves UK resident when that was never their intention.

For example, if you need to keep your presence in the UK below 90 days and merely came to visit for a couple of days, finding you are tax resident in the UK could bring a whole host of issues.

HMRC fortunately does have some scope in the legislation to consider “exceptional circumstances” and has released updated guidance, directly aimed at those trapped in the UK as a result of COVID-19.

HMRC states that:

“Whether days spent in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case.

However, if you:

  • are quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
  • find yourself advised by official Government advice not to travel from the UK as a result of the virus
  • are unable to leave the UK as a result of the closure of international borders, or
  • are asked by your employer to return to the UK temporarily as a result of the virus

the circumstances are considered as exceptional.”

We can provide further guidance on this. It would be unfair if HMRC did not acknowledge that anyone genuinely trapped due to the current global pandemic was not within the net of “exceptional circumstances”. We have no reason to believe HMRC would not have this view, but it would be sensible to have considered your particular circumstances prior to approaching HMRC.

Generally, HMRC will only count up to 60 UK days per tax year as falling within exceptional circumstances. It remains to be seen whether or not this will be relaxed in the current emergency.

Rental Income

There has been significant coverage about mortgage breaks and, in the last few days, the Government has introduced measures to prevent evictions. There may be more to come in this area.

If your tenant does stop paying rent then your taxable income will drop, possibly significantly. Consideration should be given to your tax position as a landlord.

Income tax payments due July 2020 will be deferred until January 2021. This applies automatically, no application is required and no penalties or interest will accrue as a result of the deferred payments. The guidance however states that the deferment is optional, and if you are still able to pay your second payment on account on 31 July you should do so.

Other areas to consider include whether or not the landlord could be entitled to a mortgage break in these circumstances, plus the contractual position for holiday rentals, such as if rent will still be payable. Finally, if you rely on the rental income to live, is there any other way to support yourself in the meantime?

There may be more from the Government on these topics in due course, but these property issues are all areas that need consideration and specialist advice from a property adviser.

Inheritance Tax & Capital Gains Tax

While the Government and NHS are aiming to slow the pace of the virus, some premature death seems inevitable. This is prompting many people to consider whether they have appropriate planning in place; most importantly, that their will is up to date.

Our private client tax teams can also provide inheritance tax (IHT) planning and assist with ensuring your wishes will be met.

The stock markets have taken a significant fall, and some people may be considering gifting assets at this time. A gift of chargeable assets would usually bring rise to a capital gains tax liability but, with the state of the current market, this could be significantly less than it would have been.

Gifts would also normally be chargeable to IHT if the donor does not survive seven years from the date of the gift. These lower values provide an opportunity to gift assets either to family or into a trust with, possibly, lower associated tax charges.

Tax Relief for those working from home

If you work from home, you may be eligible for tax relief on the additional costs. You can claim £4 per week against your taxable income (£6 per week from 6 April, the rate for the new tax year), or claim for the actual amount of additional costs reasonably incurred for working at home, typically electricity and gas. While this approach may result in a larger tax deduction, it involves keeping records of all expenditure and the extent to which work has been carried out at home. If you would like to receive the tax relief at source you can call the HMRC helpline and ask for your PAYE code to be amended as appropriate.

Alternatively, your employer can reimburse you £4 per week or £18 per month free of tax.

These rules generally only apply to those who work from home as part of their contract, not on a voluntary basis.

Preyear end Tax Planning

We are now near the end of the tax year and you may have realised gains earlier in the tax year that could crystallise a liability. There may be holdings that you are now disposing of at a loss that could mitigate this liability, given the falls in markets. If some rebalancing needs to be done and losses can be taken, now is the time. Care should be taken, however, to avoid creating CGT losses specifically for a tax advantage, so always take specialist tax advice before undertaking this kind of planning.

A New Tax year

On a lighter note, the 5 April will be the end of the tax year. Traditionally, a large proportion of our clients spend a few hours over the Christmas period compiling their tax return documentation for us. COVID-19 is going to mean a significant amount of time is spent at home earlier in the year. It may be worth using this time to compile your documentation earlier than normal to beat the rush (while also providing a much-needed break from working at home!).

The tax payment deadline remains the same irrespective of when the return is submitted, but if you find you are due a refund it will generally be paid within two weeks of filing the return.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.