February Questions and Answers
Newsletter issue - February 2016.
Q. Did my extended leave constitute a cessation of trade?
I have been the sole director of a trading limited company for many years. Last year, I decided to take a long holiday and travelled around the world with my wife - indeed, we got on so well that we stayed away for around 12 months! Whilst I was away the company continued to collect outstanding payments, but it received no other income. I have now taken on another director/shareholder (50%) and company trading has resumed. Should I have informed HMRC that I was going away and how should the losses in the period of temporary non-trading be treated?
A According to the HMRC Business Income Manual (para BIM80500 onwards), your 'intention' to continue to trade at a later date will be an important factor in deciding whether there was a cessation. The Manual states:
'...if activity is recommenced, and the question is whether the new business is a continuation of the old, evidence of the proprietor's intention will be relevant (BIM80580).
A mere decision to wind down or dispose of the business does not of itself amount to a permanent discontinuance if trading activity in fact continues after the decision (J & R O'Kane & Co v CIR (1922) 12TC303).'
If HMRC rule that the old trade did not cease, and therefore a new trade has not commenced, then any losses can simply be carried forward and set off against future profits from the same trade. Also, if it is decided that there was no cessation of trade, there is no requirement to notify HMRC.
Q. Should I transfer my rental property to my wife?
I own a flat which has a buy-to-let type mortgage on it. I am a higher rate taxpayer, but my wife doesn't work and doesn't pay tax. Can we arrange things so that she receives the rental income and responsible for any tax due?
A If you want your wife to receive the income from the flat, you will need to transfer the property to her, so that she owns it. You could do this by a formal conveyancing, or less formally, by using a deed of trust, which should work for income tax purposes. Information on trusts of this nature for tax purposes can be found in the HMRC Trusts, Settlements and Estates Manual at para. TSEM9520.
You should also be aware of the stamp duty land tax (SDLT) implications here. If you transfer the responsibility of the mortgage to your wife, but the mortgage is less than £125,000, there will be no SDLT to pay. Above this amount, you will have to factor in the additional expense.
Q. Is my season ticket loan taxable?
My employer says he will give me an interest-free loan to purchase my annual rail fare ticket. This is very kind of him, but as the annual cost of the ticket is £6,000 I am worried that I will have to pay tax on the loan.
A Strictly, the taxable benefit on cheap or interest-free loans is the difference between any interest paid and the interest payable at the 'official rate' (currently 3.00%). However, there is no charge where the total of all beneficial loans made to an employee does not exceed £10,000 at any time in the tax year.
You should note that tax is charged on the amount written off of any loans, whether or not the recipient of the loan is still employed.