Bridging the gap on tax

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The Chancellor’s autumn statement did not fulfil any of the dire predictions of tax experts. Higher earners still have until 5th April 2016 to get full tax relief from pension contributions. There is no change regarding Deeds of Variation, Agricultural Property Relief or Business Property Relief for inheritance tax.

Instead there is a new 3% charge on stamp duty (SDLT) on purchases of ‘additional residential properties’ such as buy to let or second homes. The new rate of stamp duty will start on 1st April 2016. Stamp duty on the purchase of ‘additional residential properties’ will be 3% higher than the purchase of the same property as someone’s only home. It will be interesting to see how the detail of this legislation is worked out.

One target for HMRC is to improve cash flow. From April 2019 taxpayers who sell a residential property which is not exempt from CGT will have to pay the capital gains tax within 30 days of completing the sale. Currently capital gains tax is not due until 31st January following the tax year in which a gain is realised (a delay of 20-22 months). From 2019 tax payers will have to calculate the tax and pay it within 30 days of the sale. The government will consult on this next year.

Finally a recent case (Silvester) reminded us of the limits to claiming loss relief where a farm business makes losses year after year. If the way in which the farm is run is hobby farming (so there is no realistic prospect of ever making a profit) no loss relief can be claimed. The other provision of Section 67 ITE 2007 is that if a farm makes losses for 5 successive tax years then any further losses are not available to obtain tax relief unless the farming is being carried on with a ‘reasonable expectation of profit’. The Silvester case shows how the ‘reasonable expectation of profit’ test is applied to a commercial farm. The case involved a large sheep farm in Cornwall. Market conditions, farming decisions and two major thefts of lambs caused losses each year from 2001 to 2009. Applying the test, the First Tier Tax Tribunal held that the losses from 2008 onwards were not tax deductible. it all feels like kicking a man when he is down, but this is how the rules were applied.

James Skellorn is Senior Partner and Head of the Private Client team at Barker Gotelee, Suffolk solicitors

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