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Last Updated: Friday, 20 October 2006, 15:04 GMT 16:04 UK
Tax questions webchat
Cartoon tax coins
John Whiting, tax partner at PricewaterhouseCoopers took part in busy webchat.

The session has now finished, but you can still send us your questions for the next time we cover tax on the programme.

Send them to us by
clicking here.

Here are the questions John answered in today's webchat.

Chris Titman asks: When my son went to university, we bought a house for him to live in whilst he was studying. He has now left and we wish to sell the house. Are there any tax breaks available, or will we have to pay CGT on the gain?

John says: Assuming the house is in your name, rather than his, then there are no tax breaks - though there may be a bit of taper relief and your (and your wife's ?) CGT annual exemptions to draw some of the CGT sting. It wouldn't usually count as a holiday let where there are some tax advantages.

David Liddle asks: My wife contributes to a local registered charity. The tax office sya she cannot claim for the contributions even though she is a higher rate taxpayer. Are they correct and if so what type of charities can you claim the relief for?

John says: That sounds odd. Contributions to a UK registered charity are tax deductible: in practice that means the charity gets the basic rate tax back and the payer claims the extra higher rate relief if they are eligible. Ask again!

Adrian Lowes: I recently have starting investing in Zopa, the loan exchange company. I understand that I have to declare the interest I earn from Zopa for tax on my return but can I put the use of my PC, electricity and the small fees Zopa charge against tax? What about the time I spend dealing with it, if I was to set it up as a separate business and then pay myself a wage? Would this be of an advantage to me?

John says: I haven't come across this arrangement before so I may not be advising on the exact situation. Normally, this is all down to whether you have established a business or not. The Revenue normally regard investment activities as capital: it's a question of how much time you put into it, how much you do, objectives etc. If you can establish a business then you have opportunities to deduct the sort of costs you mention. The snag is that it may just rank as interest income with no chance to deduct anything.

Keith Vient asks: If you exceed the capital gains tax allowance in a year what are the rules for claiming for past losses. Would you have had to have informed the Revenue of the loss in the year it occurred to be able to offset it against the current years gain?

John says: Losses brought forward can be used to offset the net gains for the year. They are only used to extent that they need to be to bring your net gain for the year down to the annual exempt amount. You don't have to had registered losses with the Revenue in the past but you'll need some evidence to claim them now.

S.Baxendale asks: When I was gifted a house by my mother in January 1995 it was worth 25,000. It's now being sold for 80,000. How much capital gains tax will I be liable for? My mother died in Jan 2001.

John says: Your gain, subject to costs, will be about 55,000. There will be a bit of indexation allowance up to April 1998 which will take off about 2,500 of that. You'll then be able to taper the gain such that only 65% is chargeable, as you've owned it for so long. Then you'll be able to deduct the 8,800 annual exemption. What you're left with is taxed at your marginal rate of income tax, i.e your top rate. That may be 22% or 40%, or you may find that it's some of each.

Andy Cook asks: My wife is being made redundant soon. She hopes to get about 40,000. I understand that the first 30,000 will be tax free. How much tax will she have to pay on the balance?

John says: Assuming this does count as a redundancy payment and ranks for the 30,000 tax-free amount, the rest of the payment will be taxed as her income for the year. If it's paid to her after she leaves, normally there will be basic rate tax deducted; if she is liable to pay tax on some or all of it at higher rate, that means there'll be some tax (40% - 22%) to pay.

J. Woodtean asks: If you sell a property by auction on 20th March with settlement one month later, is CGT payable on 20th March or on the 20th April, in the next tax year.

John says: The date of disposal for CGT purposes is the date of the contract, and not when the property in question is actually transferred or conveyed. So you need to be clear when the contract is actually made.

Mr Cliffe asks: If I as a parent I buy some Premium Bonds (say the maximum 30,000) for my baby child, would there be any tax implications for me or the child either now or later?

Premium bond prizes are outside the tax net, so no tax should arise, even though this is a 'settlement on a minor child' which normally raises tax issues if it produces income of over 100 a year as in such cases the income is taxed as that of the parent.

Mr Rosseter asks: Could you please advise how, and with whom, do I register to receive bank/savings interest gross?

John says: You register with the bank/building society, filling in form R85. You can get this from the HMRC website ( and search for R85) and hand it into you bank/building society.

Pierre Schmidt asks: I have a tiny limited company of which I'm the sole shareholder. If I extract capital by letting the company buy back (and cancel) its own shares from me, is this treated as capital gain on my tax return? If so, can I use other gains and losses to offset against this gain and is taper relief available?

John says: If a company buys back shares from a shareholder, then it's a dividends to the extent that the payment is above the amount originally put in. That may seem odd, but the argument is I guess that the company could pay you a dividend instead. To get CGT treatment, you have to sell the shares to a third party - easy with a quoted company, less so with your company. There is also an arrangement for unquoted trading companies to get CGT treatment on share buybacks but that probably won't help your situation.

Phil Griffiths asks: My son who is 17 worked as a seasonal lifeguard during his school holidays (he is currently studying for A levels). His gross pay was 1,303. He did not pay tax but they have deducted national insurance of 30.80. Can this be reclaimed?

John says: Sadly he can't reclaim NICs. This is something that catches a lot of seasonal workers - it's because NICs are due on weekly earnings over 97, on a week by week basis, whereas income tax only hits when the income for the year is over the 5,035 personal allowance.

Mr May asks: I have been told by HBOS that I can roll over my mini cash ISA interest and still put in 3,000. My understanding was that it counted towards the 3,000. They insist I am wrong. If you leave the interest to roll over in a mini ISA does it count towards the maximum you can invest?

John says: Once you've put your 3,000 into an ISA, you can leave it just to accumulate tax free - so including any interest.

Sue Agar asks: I own several thousand AWH (Anglian Water) shares acquired over several years of employee share save schemes. These shares are all lumped together on one share certificate. The company is being sold. How do I calculate the original cost of these shares so that I can work out my Capital Gains Tax liability.

John says: I'm afraid this gets complex. The base cost of the shares is in principle what you paid for them and that gets accumulated block by block. Any blocks that you got prior to April 1998 also get indexation (inflation) allowance and that should in principle be added on in stages to have a 'running pool'. If you've sold some already then issues arise over calculating which you've sold and how much they cost.

Mike Woodall asks: My mother-in-law signed over the deeds of her house to her three children (one being my wife) about three years ago. When it comes the time to sell the house will we be liable to pay capital gains tax (CGT) and if so how is it calculated? Is it the difference between the value it was when the house was handed over and the date it was sold? And does the tax bill get equally divided by the 3 children?

John says: There will be CGT on the difference between the value when your mother-in-law signed over the house and the proceeds that it fetches. The gain will be split between the three owners - normally one third each - and then taxed on each of them at their marginal rate of income tax, after allowing for taper relief (there will be a little) and their CGT annual exemptions if they haven't used them. I assume there are no additional issues about your mother-in-law still living there and thus IHT/pre-owned assets questions.

Tony Forbes asks: Which is the best option for a self-employed person: sole trader or limited company? Assume earnings under 55,000 and expenses about 10,000.

John says: It's a very good question and the honest answer is 'it depends'. You can save tax as a limited company, mainly because if you pay yourself to some extent at least in dividends from the profits that the company makes, there's no NICs on dividends. But it may or may not suit what you want to do - there's the admin of running the company, it may or may not suit your plans for bringing in other people into the business (partner or give them some shares?) or handing it on, a company gives you limited liaibility and may help get business (many prefer dealing with another company. It's something that you may want to discuss with an adviser just to make sure once you've had a think about which side you think may be best.

Denny Abbott asks: My husband inherited his parents' house when they died in 2004. The probate value was under the inheritance tax limit and we are now selling. We know that we have to pay capital gains tax (CGT) on the difference between the probate value and the selling price but do we also pay income tax on the money that is then left from the sale?

John says: You're right to say CGT will be due on the difference between probate value and what you get for the house (subject to the usual deductions for costs etc). There will be no question of income tax on what's left over - but of course if you invest that and it generates interest, that's another matter!

'NS' asks: Please can you reiterate and expand on what you said about the kind of severance payments that do and don't attract tax and how to describe them to the tax man.

John says: The basic rule is: If the payment comes from your employment contract (including a payment in lieu of notice that is provided for in the contract) then the payment is taxable in the same way as pay. That also extends to payments for finishing your work, such as garden leave; if the payment is really for losing your job, for redundancy, then it should qualify for the 30,000 tax free amount (and no NICs at all). Unfortunately there can be additional issues in practice!

Steve Rosseter asks: I elected to cease full time employment on my 60th birthday in April. I am drawing a pension of 2,000 per annum with further pensions due to kick in when I am 65. I am living on investment income (equity dividends) which I of course receive net of tax. My question is how can I take full advantage of my tax-free allowance?

John says: Your tax-free allowance is available to set against whatever income you have - so your 2,000 pension will be tax free, by the sounds of it. As for the balance of the allowance, you'll escape tax on interest (you may register for it to come gross); dividends will also be tax-free but the snag is there's no right to recover the tax credit that comes on the dividends.

Sheila Finks asks: Can life assurance policies be sheltered from inheritance tax (IHT)?

John says: It's largely a question of who gets the proceeds. If the policy pays out and gives the proceeds to your estate, the monies will fall into the IHT net. But if it's set up so that the proceeds go direct to someone else - children for example - then it won't count for IHT. The premiums that you pay would normally be outside the IHT net as 'normal expenditure out of income'.

Fred May asks: I have just retired but am being paid until 31st December 2006 - when should I tell the tax office?

John says: Your employer will issue you with a P45 when you leave and inform the tax office - so things should flow from that, but you may wish to tell them direct, once you have finally retired, i.e. after 31 December.

Julia Hodgkinson asks: I work part time 14 hours a week with an annual salary of just over 5,000. Each month I pay hardly any tax or National Insurance. However, when I get my bonus in February I pay lots more income tax (naturally), but also lots more NI. This seems very unfair, is there anything I can do?

John says: NICs and income tax look a bit alike but they do operate differently. Income tax is a yearly thing - that you pay tax on your income over (this year) 5,035. NICs, on the other hand, are on a weekly basis. Earn over 97 a week and you pay NICs, even if you aren't earning enough to pay income tax. This catches a lot of students who just get a wage for a few weeks during the summer.

Malcolm Bennett asks: My council tax bill is 1,950 this year but have to earn 2,500 to pay it! To which I hand over 550 in income tax and 1,950 to my council. However I have found a technical loophole which could be exploited. If someone else pays your council tax you don't have to declare it, which I've verbally checked with Revenue & Customs. So if I give a loan my daughter and instead of her paying me interest she paid my council tax bill then I don't have to pay income tax on that money. I intend trying it out next year and see what happens Is it legal?

John says: You can certainly give the money to your daughter and if she chooses, off her own bat, to pay your bill with it, no problem. I'm not so sure that this will make a difference to your income tax bill as you'll still be earning the same amount. For your income tax bill to be reduced, you'd need to be in the position where your daughter earned the income, not you - a question of fact.

Mark Spooner asks: I have not been working for over a year - no other income except interest on 10,000 savings and shares worth 9,000. As I haven't earned my tax allowance for this year can I ensure I don't pay tax on my share dividend?

John says: It doesn't sound as if you'll be in the tax net, assuming that you haven't had more than 5,035 income in the current tax year. You won't have any tax to pay and so will be able to get the tax back on your interest. However, although there is a tax credit on the dividends, you can't claim that back, unfortunately.

Mike Wardle asks: I would like to know how long you have to hold shares before they become exempt from capital gains tax?

John says: There's no time limit for shares to become exempt from CGT. The rate f tax that you pay will reduce (that's taper relief) but what stops you paying tax is the annual exemption (currently 8,800) , not a time limit as such.

Stuart Sayer asks: I am taking early retirement, I am 55 and getting a good pension, do I pay NI contributions or just tax?

John says: There are no NICs on pensions - but of course you'll still be into income tax.

Mr Wears asks: We had an a 10 year investment and cashed in in March. The tax office rang us to say we were due to a significant refund but that my wife's pension would be penalised because she claims my married allowance and the allowance was affected by the above investment. Now the tax office say there is no refund on chargeable gains. Is this correct?

John says: A sale of an investment would normally rank for CGT, rather than income tax. However, there are some investments linked to insurance policies that can create income tax charges. I suspect that there may have been a bit of confusion here when you were initially advised - it may be worth asking the investment provider how they see the result just to be sure.

The opinions expressed are John's, not the programme's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.


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