Here is my latest tranche of UK Tax Questions Answered. Each question is from a Tax blog reader which I hope will be helpful to you or at least you’ll find the answers interesting. The Topics today:
- Can losses on my horse be offset against Income Tax
- One-off freelance fee
- Inheritance Tax from abroad
- Claimable car expenses
- Expenses for working from home
1. Can losses on my horse be offset against Income Tax
In June 2016 I purchased a 25% share in a 4 year old race horse that had been running in prize winning races at venues such as Haydock etc. The horse was registered as part of an official VAT registered partnership, but unfortunately the horse was put down after a career ending injury in March 2017.
The costs of my share have resulted in a net loss of around £9k (£5k cost and £4k running costs). If the horse had gone on to win the Grand National and £500k of prize money I presume I would be required to pay tax on the profit, so as I made a loss is it tax deductible and if so against what taxable income?
Answer
Unfortunately your loss is not tax deductible. If the horse had remained healthy and won the Grand National your share of the winnings would not have been liable to Income tax; because ownership of a racehorse is exempt on the basis that it is a hobby and for pleasure. Racehorses tend to cost more in training and in keep than they ever earn in winnings so people are more likely to be paying for the cost from their main earnings that have already been taxed.
This means that prize winnings are tax free and because of this, there is no income tax relief available for buying the horse or any of its training costs.
2. One-off freelance fee
I am an employee on PAYE, but because of my specialism I have been approached by a marketing firm to write a proposal for a one-off project and am likely to earn around £5,000. My employers are happy for me to do this in my spare time but what do I do about reporting to HMRC as I don’t normally complete an S.A. Tax Return. Any advice would be appreciated.
Answer
You will have to notify your additional income, less any related costs, to HMRC and they will decide whether or not they need to issue a Tax Return to you. That being said, if you make it clear to them that this income is a one-off occurrence they are likely to deal with it informally and collect any additional tax by way of a change to your PAYE Coding notice.
3. Inheritance Tax from abroad
My wife’s relatives live in Canada and have contacted her following the death of her uncle in Toronto. They’ve told her that she is a substantial beneficiary under the will and asked if there are any tax implications for her receiving cash/assets through the will in Canada.
My wife has a part-time PAYE job earing approx. £10k a year, what tax will she pay as she is likely to receive cash/assets valued at about C$ 150,000 (£90k) under the terms of the will?
Answer
Assuming the deceased was not UK domiciled at death and the assets are not situated in the UK, then there are no UK tax implications of the assets passing to the UK beneficiaries under the will. They will pass at market value at the date of death for CGT purposes, and any income from the assets post transfer will be taxable on the UK beneficiaries. It’s as simple as that.
4. Claimable car expenses
I have a part-time PAYE employed job as well as a part-time self-employed business (About 60:40). My business requires me to travel to different venues and I have been using the 45p per mile flat rate for car mileage and running costs.
I’m looking at purchasing a new car on finance and its use will be a mixture of personal and business. Am I able to proportion my business use of the car to the monthly payments I’ll be making and put that as a business expense? For example if it costs me £200pm and I use the car for business 50% of the time am I able to put £100pm as an expense: and if so how does this affect usage of the 45ppm method?
Answer
The only element of any finance payments that you make in relation to a car purchase that can be claimed as an expense is the interest element. This will be in addition to the flat rate 45ppm, which covers any ‘qualifying expenditure’ relating to the vehicle, such as petrol, insurance road tax, servicing etcetera.
5. Expenses for working from home
Read more on the pros and cons of working from home
I am a self-employed designer (bespoke greetings cards) and operate from a house that I own, having converted a double bedroom into a design studio and my garage into a storage facility for materials. Neither the bedroom nor the garage can be used for anything else because of the amount of ’stuff’ in them, but I’m unsure as to what can I claim for against my tax; can you help?
Answer
There are two alternatives; firstly you can apply the percentage of your home permanently used as business premises against the total floor space of the property. The resultant percentage should then be applied to the total of mortgage interest, council tax, gas, electricity, water rates and home insurance to give you the amount you can claim. However, it does make the business element of your house potentially liable to Capital Gains Tax when you sell it.
The second alternative is to add a flat rate figure (up to a maximum of £20 per week), to your business overhead expense. Whilst this may result in a somewhat lower claim, it will be a lot less hassle and you won’t have a potential CGT bill hanging over your head.
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.