December questions and answers
Newsletter issue - December 2017.
Q. My wife and I jointly owned a property that we originally lived in for many years, although it has been rented out for the last 10 years. My wife has recently died and I am now the sole owner of that property. I intend to sell it and give the proceeds to my two children (both aged in their 40's). Will there be capital gains tax on the sale proceeds?
A. If a residence is transferred between a husband and wife who are living together (or between civil partners), of each other who are living together, whether by sale or by gift, the period of ownership of the transferee is treated as beginning at the beginning of the period of ownership of the transferor (TCGA 1992, s 222(7)(a)). This also applies where the residence is transferred from one to the other on death. When you inherited your wife's half share in the property, you also took over her principal private residence 'history' for that property. This means that if you sell the property now, you will be entitled to PPR relief for all the period you occupied the property plus relief for the final eighteen months of ownership.
Additionally, you should be able to claim the letting exemption to reduce the gain attributable to the ten years that you rented it out.
Q. I am a sole trader and registered for VAT. The business pays for the fuel in my car, which I use for both business and private mileage. How do I account for VAT on the fuel using HMRC's fuel scale charges?
A. Using HMRC's scale charges is a way of accounting for output tax on road fuel bought by a business for cars that are then used privately. Broadly, if you use the scale charge, you can recover all the VAT charged on road fuel without having to split your mileage between business and private use. The charge is calculated on a flat rate basis according to the carbon dioxide emissions of the car.
You need to use the fuel scale charge table that has effect for the relevant accounting period.
Q. I have not yet paid my self-assessment payment on account, which was due on 31 July 2017. Will I be charged a penalty for paying late?
A. Interest will be charged on the overdue amount. The charges will accrue from the due date of payment (31 July 2017) to the date the payment is made. The applicable interest rate is currently 2.75%.
Penalties, on the other hand, will only be imposed if the balancing payment (due 31 January 2018) is late. The penalties for late payment under self-assessment are as follows:
- 30 days late: 5% of the unpaid tax
- 6 months late: additional 5% of the unpaid tax
- 12 months late: additional 5% of the unpaid tax.
HMRC may reduce a late payment penalty in 'special circumstances', which does not include inability to pay. In addition, a defence of 'reasonable excuse' may be available.
In relation to payments on account, the maximum penalty for fraudulent or negligent claims by taxpayers to reduce payments on account is the difference between the correct amount payable on account and the amount of any payment on account made.