Is HMRC tax return calculation correct?
My client turned 66 on 27 April 2024 and received her first state pension payment on 1 May 2024 – £158, or £31.60 per day for five days. She then received 12 payments of £884.80, which represents the same daily rate. The total received in the tax year 2024-25 was £10,775.60.
HMRC has pre-populated her tax return with £10,839, which presumably includes another two days at £31.60 – 27 April to 5 April is exactly 49 weeks. That would form part of the next payment, not received until 2025-26.
I know that the state pension is taxed on an accruals basis, but I have never noticed this particular quirk before – presumably HMRC’s figure is correct? I wish DWP would provide a P60 equivalent – as more and more pensioners now have to pay tax, this sort of discrepancy will confuse more people.
Query 20,539 – Senior Citizen.
Operation of TCGA 1992, s 165.
TGCA 1992, s 165(2) allows for the holdover of capital gains realised on the disposal of assets which have been used for the purposes of a trade carried on by the transferor.
TCGA 1992, Sch 7 Pt 1 para 1 extends this relief to property which qualifies for agricultural property relief (APR) under IHTA 1984. What this then means is that farmland, for example, does not have to be used for the purposes of the transferor’s trade for it to be eligible for holdover relief: the transferor would be able to claim holdover relief on farmland which they do not farm themselves, but which is let out to someone else to farm.
Following Sch 7 through to para 5(2), the restriction that would normally apply to a heldover capital gain for any non-trade use of the asset, detailed in the preceding sub-para 5(1), does not apply where the asset being transferred qualifies for APR.
Combining the operation of Sch 7 paras 1 and 5(2), it seems to be accepted that, where the gift of ‘an asset’ which comprises let farmland and, say, let former farm cottages sited on that let farmland, then the composite asset would be eligible for full holdover relief without any restriction.
Our question, however, is whether para 5(2) still applies where the farmland comprised within the composite asset is used within the transferor’s farming trade rather than being let out. If it is accepted that the transferred asset comprises the farmland and the let cottages, does the use of the farmland in the transferor’s farming trade make any difference to the para 5(2) disapplication of the ‘nontrade’ use restriction on the composite asset?
Simon’s Taxes, at C3.505, would seem to indicate it makes no difference: the composite asset of the farmland and the let cottages would be eligible for holdover relief in full, despite the let cottages not being used within the transferor’s farming trade.
Our concern, though, is that we have come across anecdotal comment that the para 5(1) restriction would, actually, apply if the farmland was used within the transferor’s farming trade.
Readers’ thoughts on whether the restriction would apply in the context of a gift of farmland farmed by the transferor, together with let cottages sited on the farmland, would be appreciated.
Query 20,540– Puzzled.
Treatment of a premium.
Readers’ advice is requested regarding the capital gains treatment and reporting of a premium obtained on the grant of a lease extension by an individual, who owns the freehold of a building comprising flats sold many years ago to lessees.
Usually, such a lease extension adds another 90 years to the outstanding term and the lessor receives a premium plus their costs.
In the past, I have reported such capital gains on an individual’s self- asessment. However, I am not sure under the present report and pay regime whether such gains have to be reported as a part disposal and included later on in the self-assessment less any capital gains tax paid.
Secondly, in researching the point above, I have read under a recently published blog that TCGA 1992, s 248, small part disposals of land, might be available if the premium is £20,000 or less such that no gain accrues. Does this mean there is no disposal/gain to report?
Query 20,541– Adviser.
Does change in activity affect scheme calculations?
One of my clients uses both the flat rate scheme and annual accounting scheme, his accounting year ends on 31 March.
On 1 October 2024, my client changed his main business activity from a hairdresser to a florist and we are confused about the flat rate percentages we must now apply for the return ending 31 March 2025. A colleague says that as long as he does some hairdressing work, the relevant date to make the change will be 1 April 2025, ie the beginning of the next annual return. Is this correct?
HMRC’s guidance seem to be not clear on this issue. He joined the scheme on 1 January 2013 and there is a mention about the anniversary date being the time to change flat rates.
Query 20,542 – Rose.
Queries and replies
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