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Email your tax questions to Mike via email: taxhacks@telegraph.co.uk
Dear Mike,
I have just completed my self-assessment tax form online. I have previously filed this on a paper form for a small foreign pension I get each year and normally pay this in November after getting a letter from HMRC.
However, it appears that the tax code for the 2022-23 tax year was incorrect so I had underpaid the tax due on my state pension by around £1,100. Due to this error by HMRC they have worked out my tax calculation and is asking for payment on account thereby making me pay two payments in advance on top of the tax due. Why is this so?
Please clarify why I have to pay before filing my next self-assessment.
Regards,
Keith
Dear Keith,
Unfortunately it appears that you have been caught by the “payments on account” trap.
This usually applies to self-employed workers and is designed to collect income tax and “Class 4” National Insurance from them a year or so earlier than would otherwise be the case.
However, as you have discovered, the system is not limited to that. If your outstanding tax liability at the end of the tax year is both more than £1,000 and over 20pc of your total tax liability for that year it triggers a demand by HMRC for early payment of an estimate of tax due in the following year based on this same amount. This is on top of your outstanding liability for the year itself.
So, in your case the error in your tax code left £1,100 outstanding for 2022-23, which I assume was also more than 20pc of your overall liability. This tax will be due on 31 January 2024 in the normal way.
On top that you will have been asked for £550, due at the same time, with a further £550 due on 31 July 2024.
The good news is that you may not have to pay this. If you think the amount of tax outstanding at the end of the current 2023-24 tax year will be less than £1,100 you can apply through your self-assessment to reduce it to what you calculate it should be. You can select this option from the tax return options menu. Interest will run if your estimate is too low but it would be worth checking before the end of this month.
Incidentally, this is another good reason to check your tax code when it arrives so that you do not finish up with an underpayment of over £1,000.
Dear Mike,
After a long time on the market, I have just sold a flat which I own jointly with my son. Please can you answer two questions:
1. During the extended time on the market, we were paying costs for council tax and utilities (electricity to run lights and alarms, and so on). Can we claim relief from capital gains tax for these costs?
2. Can I pay my son’s capital gains tax charge for him?
Best,
Martin
Dear Martin,
I suspect this will become a more common problem with higher interest rates slowing down the property market, but sadly the tax rules remain unhelpful.
The legislation on what costs can be claimed against capital gains tax in these circumstances is restrictive. The rules on incidental costs of acquisition and disposal are explained in the HMRC manuals here.
Allowable costs can include professional services such as lawyer or surveyor as well as the costs of an estate agent advertising the property for sale. Capital expenditure to improve the state of the property prior to selling should also be allowed.
However, the normal running costs that you mention would not qualify. I am not sure whether you or your son have lived in the property as your main home. If so there will be relief for your period of occupation as well as for the last nine months of ownership. If the property has been let out, the expenses you mention will have been allowable against rental income during the letting period but could also be claimed as a “post cessation” expense after the letting ceased.
This is explained in the HMRC manuals here, which includes:
“The taxpayer can deduct from post-cessation receipts expenses that would have been allowable had the business continued, for example, the cost of background heating for empty premises to keep down condensation and so maintain the value of the property for later sale.”
As you own the flat jointly your son will be responsible for declaring and paying his share of any CGT due. However, there is nothing to prevent you from paying the tax for him. This would be treated a lifetime gift to your son being a “potentially exempt transfer” for inheritance tax purposes which would drop out after seven years.
Mike Warburton was previously a tax director with accountants Grant Thornton and is now retired. His columns should not be taken as advice, or as a personal recommendation, but as a starting point for readers to undertake their own further research.
‘HMRC is demanding I pay tax in advance – for its error’
Tax Tips: Plus, a reader has questions about capital gains on a jointly owned property