Letters from the taxman, capital gains and share tax questions answered by Neil Whyte of PKF.
I have received an enquiry letter from HM Revenue & Customs (HMRC) questioning my most recent tax return, but I’m not sure why. I am uncertain what to do and the letter is making me worry that something may be wrong. Can you help?
HMRC sends out a large number of enquiry letters each year, most of which are simply innocent requests for further information. Often it is because an individual has clicked the wrong box in the online tax return form. It is important not to panic but to respond to the letter to get more details about what the taxman is after.
You cannot ignore the letter as HMRC will not simply let the matter drop, no matter how trivial it is. Therefore gather together all of the information necessary from your recent tax return and contact HMRC immediately either by phone or letter and find out what it is they want.
As I said, the matter is unlikely to be serious but if it is more complex then there is always the option of seeking professional advice.
I was made redundant last month so I am now thinking of selling one of my buy-to-let properties to free up some cash. I have had some of the properties for more than 20 years and believe the capital gains tax (CGT) I’d have to pay on the sale could be substantial on some of the properties, none of which have a mortgage. How can I reduce the amount of CGT I have to pay?
You could choose to sell one or more of the properties that have not appreciated greatly in value to release capital without triggering a substantial tax liability. To do this efficiently, you would need to take expert advice on the current values and projected tax liabilities related to each property. Without doubt, however, you should stagger the disposals over a number of tax years to access a number of CGT annual exemptions (£10,600 each year – use it or lose it!).
An alternative might be to release some equity by taking a buy-to-let mortgage on one or more of the properties. Return of the original equity invested in the property is not a taxable receipt. Helpfully, mortgage interest (not capital repayments) is usually allowed as deduction from rents for tax purposes. The fact that you now choose to finance your letting business with borrowing rather than your own capital should not affect this deduction (provided you do not overdraw your “capital account” for any one property).
I am about to receive a bonus paid in shares and am uncertain how this should will be taxed. What do I need to find out?
AThe tax position for the shares you receive will depend on whether they come from an approved share scheme or not. For example, shares issued under a share incentive plan can be tax-free, provided they are held for a specified period. Alternatively, you may be granted share options (a right to buy shares at a future date) and these can also have tax advantages. If your employer simply gives you shares, without you having to pay for them, you will have to pay tax and national insurance contributions on their market value.
Your employer should give you full details of the share scheme that is being used and any restrictions and tax implications. Once you have these details, it may be appropriate to seek professional advice on the tax and investment implications.
• All questions answered by Neil Whyte, tax partner with accountants and business advisers PKF.
If you have a question you need answered, write to Jeff Salway c/o The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or email: firstname.lastname@example.org.