Q&A: Tax relief, temporary work place rules and Inheritance Tax

25 January 2018

This month we provide answers to questions relating to tax relief on a buy-to-let property, temporary work place rules relating to allowable expenses and estate valuation for IHT purposes.

Q. I recently bought a residential property to rent out. To enable me to purchase this property I took out a mortgage on my own home and used the money to buy the rental property. Can I claim tax relief for mortgage interest against my rental income?

A. The rules for residential landlords claiming tax relief on interest paid changed from April 2017. The answer to your question is, yes, the interest you are paying on this mortgage can be offset against the rental income you are receiving from the purchased property. The HMRC Business Income Manual (at BIM45685) confirms that ‘the security for borrowed funds does not determine the use of those funds’.

Q. I am an IT consultant and provide my services via my limited company, which operates outside the IR35 rules. I started working on my current contract just over two years ago, though when I started, I did not know that it would last this long. Do the temporary work place rules on allowable expenses apply in this situation?

A.There are several circumstances where, even though an employee attends a workplace to perform a task of limited duration or for some other temporary purpose, it will still be treated as a permanent workplace. This will be the case where the 24-month or fixed term appointment rules apply or where the workplace is a depot or base.

The 24-month rule prevents a workplace being a temporary workplace if an employee attends it during a period of continuous work which lasts, or is likely to last, more than 24 months.

HMRC’s guidance on employee travel (Booklet 490) advises:

‘Where it is expected that the employee will attend a workplace to perform a task of limited duration or for some other temporary purpose for a period of less than 24 months, the workplace will be a temporary workplace from the outset.

However, if at a later date circumstances change, and the employee is required to attend the workplace for a period that extends beyond 24 months, it will cease being a temporary workplace from the date that the expectation changed.’

Q: How is an estate valued for Inheritance Tax purposes?

A. Inheritance Tax on death will be calculated on the net value of the estate. This is effectively assets less liabilities.

Examples of assets include; land and property, shares and securities, savings, jewellery, paintings and antiques. Assets within an estate on death will also include any assets gifted within seven years of death.

Liabilities include; credit card debts, loans, overpayments of pensions and outstanding utility bills. The estate will also be reduced by reasonable funeral costs and any Income Tax or Capital Gains Tax.

An estate will consider all a person’s assets and liabilities. For the debt or liability to be an allowable deduction from the estate, it must be owed by the deceased at the date of death. There must be a genuine commercial reason for the liability and if included within the estate, it must be a liability that is repaid from the estate.

Liabilities will be paid either out of the estate’s available cash or can be via the sale of an asset or by the personal representatives taking out a loan.

For further information about these topics, please contact me or speak to one of our accountants in Newcastle, Jarrow or Sunderland.

As one of the leading firms of accountants in the North East, with offices in Newcastle, Sunderland and Jarrow, we have the expertise to advise you on a wide range of tax related issues.  If you would like to speak to one of our local experts, please contact us.