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Q. Is the threshold for filing a self-assessment tax return changing?
A. For 2023/24 you must complete a tax return if any of the following apply:
- You received self-employment income exceeding £1,000
- You are a partner in a partnership
- Your total taxable income exceeds £150,000
- You have to pay the high income child benefit charge
Previously, and for your 2022/23 tax return, you would have needed to complete a tax return if your total taxable income exceeded £100,000.
Those affected will not need to do anything, you should receive a self-assessment exit letter if you file a 2022-23 tax return showing income between £100,000 and £150,000 taxed through PAYE, and don’t meet any of the other criteria for submitting a self-assessment return.
Furthermore, for the 2024/25 tax year, employees with only PAYE income will not need to complete a tax return, regardless of the amount of income.
Q. Tax when you sell your home – We are selling a property that used to be our family home but has been let out for the past few years. What tax could we face?
A. When you sell an asset such as a property, any profit you make (referred to as a ‘gain’) will usually be subject to the capital gains tax (CGT) regime. However, if you are selling or giving away a property that you have lived in, you should be able to claim some Private Residence Relief (PPR).
The amount of relief you get is calculated as:
Gain x (period you live in the property/ total period of ownership) = PPR
In addition, the final nine months of ownership are treated as “deemed occupation”, i.e. as if you lived there, and therefore the last nine months are also exempt. There are other exemptions for deemed occupation such as if you were absent from the house because you were employed or working elsewhere. The final period exemption can remain at 36 months for disable people and long-term care home residents.
In addition to PPR, you may also be eligible for lettings relief because the property has been let out. Lettings relief is available for periods when the property was let for residential purposes, and you were in occupation of the property at the same time as the tenant.
The maximum lettings relief you can claim is the lower of:
- the amount of private residence relief you qualify for.
- the amount of profit you’ve made during the time your property was let out
- or £40,000. Letting relief is available to each owner, rather than being available per property, so it is possible for a couple to claim a maximum of £40,000 each.
Lettings relief cannot create a loss, but it can reduce a gain to zero.
Most people are entitled to CGT annual exemption each tax year. The annual exemption works in a similar fashion to personal allowances for income tax purposes. Gains within the annual exemption are tax-free. The annual exemption for 2024/25 is £3,000.
Any taxable gain on this property would be subject to capital gains tax rates of 18% and 24% because it is residential property.
Q. Can I save tax by running by business through a limited company?
A. Where you expect to make a taxable profit of, for example, around £60,000, using a tax efficient strategy of mixing salary and dividends could mean you may be better off trading through a limited company.
The use of a limited company structure may offer a tax advantage in some cases. However, where you live in the UK impacts the level of savings you can make. If you live in Scotland, income tax rates are higher than for the rest of the UK. Therefore, the tax savings of using a limited company in Scotland could be more than in the rest of the UK.
Profits of around £60,000 are, however, something of an optimal level of profits when comparing a sole trade tax liability with a company. If your profits fluctuate, or tax rules change, the tax outcome may be different.
Because everyone’s circumstances are unique, we would recommend you obtain tailored advice specific to your circumstances before making any decision on how you trade moving forwards.
In addition to tax considerations, you will need to take account practical and commercial differences. For example, the need for limited liability, and the simplicity of operating as a sole trader compared to the slightly more complicated requirements a company must observe.
Incorporating your sole trade business comes with some additional obligations and costs and you will need to weigh these against the potential tax saving you may make.
At TaxAssist Accountants, we are experts at helping you choose the right vehicle to operate your trade through, and helping you maximise your tax efficiency.
Disclaimer
These Q&A’s are intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
