April Questions and Answers

Newsletter Issue - April 2016

Q. Can I transfer my personal allowance?

I work part time and don't earn enough to pay tax, but my wife earns £25,000 a year from her full time job. I have been told that I can transfer some of my personal allowances to her so she can save some income tax. Is this true?

A Claiming the marriage allowance can save married couples or civil partners up to £220 in 2016/17, but many couples have not claimed it yet.

The allowance was introduced from 6 April 2015, and enables married couples or civil partners to transfer £1,100 of personal allowance (2016/17 rate; £1060 for 2015/16) from one spouse or partner to the other, provided that the recipient does not pay tax at a rate higher than basic rate.

To process a claim, HMRC will need the national insurance numbers for each spouse/civil partner. In addition, if the claim is made online or by phone, HMRC will have to check the identity of the person making the claim and will ask for information from the claimant such as the last four digits from bank accounts that any state benefits (such as pension or child benefit) are paid into or from bank accounts that pay interest. Alternatively HMRC may ask for information from employment such as information contained on a P60 (the form given to all employees at the end of a tax year).

The claim should not be made if one spouse was born before 6 April 1935. Instead, the couple may be entitled to claim married couple's allowance which is more favourable.

Q. Do I have to repay claimed VAT?

In July 2014 I purchased a commercial unit for £50,000, and as the building was registered for VAT, I notified HMRC, applied for a transfer as a going concern, and did not pay any VAT. At the time of purchase, the premises were let to a tenant but they moved out and the building was empty when the transaction was completed. In September 2014, I applied to de-register for VAT as I was receiving no income. I have since converted the unit into residential flats and I have applied to HMRC for a change of use. Do I need to pay back the VAT previously claimed?

A This is a complex and questionable scenario. Since the business of renting out the property did not continue after you bought it, it will be difficult to argue that there was a transfer of a going concern (TOGC). However, you intended to continue to rent out the property and it was only because of circumstances beyond your control (i.e. the tenant moved out) that you didn't continue to rent it out. There is also a further point worth noting - VAT Public Notice 742: opting to tax land and buildings (at section 3.2) states there is an exemption from VAT where a previously commercial building is adapted to use as a dwelling (see VAT Notice 708 for an explanation of 'designed as a dwelling'). This exemption may be relevant to your scenario but I would recommend that you request a written ruling from HMRC.

Q. Do I have to pay CGT on the sale of a rented property?

I own a buy-to-let property, and over the last five years, its value has risen from £150,000 to £250,000. I understand that if I sell it now, I would have to pay capital gains tax (CGT) on a gain of £100,000. Can I sell this property and use all the money to buy another property rather than pay the tax now?

A Unfortunately your plan to buy another house and thereby reduce the CGT payable on the first house is not allowed. 'Rollover' or 'holdover' relief from CGT is not available for investment properties, except for furnished holiday lettings, or compulsory purchase.