Tax Tips
eBay beware
The taxman is most definitely chasing people who sell things on eBay and similar sites, to demand tax. So should you expect a knock on the door from him?
The first question to ask yourself is whether you are "trading" or not. There are certain "badges of trade" which will help you decide:
- Are you buying and selling with a view to a profit?
- Are you buying and selling regularly?
- Are your activities connected with another trade you run? eg. you buy and sell rugs on eBay, and also run a carpet shop
- Do you modify things you buy in order to make them more valuable? such as buying wool and knitting jumpers?
- Do you sell in a businesslike fashion? eg. bulk-buy and sell smaller lots
- Do you borrow money for goods and sell them to repay the loan?
- Do you turn the items over rapidly?
No one answer will be conclusive, but be honest and you will get a "feel" for whether you are trading or not. It's like the elephant - difficult to describe, but unmistakable when it’s in the front room!
A happy tax life
Marriage matters big time for the capital taxes, that is CGT and IHT, with big savings to be made. However it takes communication, honesty and trust to get it right. OK I’ve lost a few of you already! No ladies, you don’t have to tell him how much you spend on clothes but you will have to divulge the property and shares you own. So unless you’re a member of the silent minority read on.
Each spouse has an annual allowance for capital gains tax purposes up to which all gains you make on selling or transferring assets are tax free. It makes sound financial sense to “divvie” up the assets which are sitting on potential gains, so that you utilise both annual exemptions and so double up the tax saving.
The lodger dodger
HMRC still allow a tax efficient scheme useful for those living in university cities with a high student population, who have spare rooms and want to make them pay. Visions of “Rigsby-like” situations come to mind (for those of you who remember Rising Damp!) If you let furnished rooms in your own home and the income is less than £4250 the income is not taxable. Landlords do not need to own the property, only live in it, so it can apply to tenants sub-letting a room. The scheme does not apply however to homes converted into separate flats or bed sits.
The scheme’s a simple way of receiving up to £4250 rent a year without the need for paperwork, accounts or tax! One downside of the Rent-a-Room Scheme is that landlords cannot claim any expenses relating to the letting, such as insurance, or repairs .Some may be better off declaring all their letting income and claiming the expenses. The choice is yours, but be aware that: -
- It must be furnished – no relief for unfurnished accommodation.
- Landlords must live on the premises.
- Your lease or mortgage must allow it.
- Your home insurance polices must be changed.
- Proof of the rents received – preferably a rent book should be kept.
- If a room is let jointly (say by husband and wife) the limit is £2125 each.
Tactical Tip
The scheme allows two ways to work out your tax if your receipts exceed the exemption limits. Compare the income you are left with after your expenses with the amount of your receipts above £4,250 (or £2,125 if letting jointly) and elect for the resultant lesser tax treatment to apply.
Showing interest in your interest
Work on the assumption that HMRC are aware of all bank and building society interest you receive - including that from children’s and offshore accounts. Take care not to omit any bank account from your tax return - and include only your share of accounts held jointly.
An omitted bank account is a sure-fire way of triggering an enquiry as is any unexplained increase or decrease in the level of interest. Why?
Their sinister suspicion - you have sold an asset or property and failed to declare it or alternatively acquired one.
Your innocent explanation - you have received a legacy or paid for your daughter’s very expensive wedding!
You may wonder why he is so keen on checking your bank interest when it has already suffered tax of 20%, well in truth it's the source of the underlying capital that he’s interested in and the interest received just gives him the clue and the foot in the door.