When it comes to inheritance tax, setting up a trust is often viewed as an effective way to reduce taxes. By placing your savings, property, or other assets into a trust, these assets technically no longer belong to you—meaning they might not be included in your estate when calculating inheritance tax upon your death. However, the relationship between inheritance tax and trusts is quite complex. Transferring assets through a trust to your relatives does not necessarily completely exempt them from taxes. Different types of trusts have different tax rules. Therefore, it’s essential to thoroughly understand the relationship between trusts and taxes before making any decisions. 1. What is a trust? A trust is a financial arrangement and a special form of property management that has been used by many families for centuries. You can transfer cash, property, or any investments to a trust, empowering trustees to manage these assets for the benefit of the beneficiaries, who will eventually receive the assets or income from them. In any trust, there are three roles: Settlor – The original owner of the assets. Trustee – The person or institution managing the trust assets, with powers similar to owning, buying, selling, and investing these assets. Trustees are responsible for operating the trust and managing its assets. Beneficiary – The person or entity for whom the trust is set up, ultimately enjoying the benefits of the trust. For example, you (the settlor) can set up a trust and arrange for your children (trustees) to manage it, paying for your grandchildren’s (beneficiaries) university education or covering lifetime living expenses for a disabled family member (beneficiary) until they reach a certain age. All these arrangements would be outlined in the trust deed. 2. How is inheritance tax applied to trusts? Under current UK legislation, when a person dies, their heirs must pay inheritance tax on their estate—currently at a rate of 40% of the estate’s value. If you set up a trust, the value of cash, investments, or property within the trust is usually not included when calculating inheritance tax upon the settlor’s death. However, trusts are not entirely tax-free and have their own set of tax rules. If the assets placed into the trust exceed the nil-rate band, typically 20% inheritance tax is payable upon setting up the trust. Additionally, further taxes are applied at different intervals. While trusts can help reduce tax liabilities to some extent, it’s crucial to consult a professional to understand the specific tax implications of different types of trusts. Here’s a common example of using a discretionary trust for inheritance tax planning: Pay 20% Inheritance Tax when setting up the trust Calculate the value of assets exceeding the inheritance tax nil-rate band and pay 20% tax on that amount. The 20% charge applies to the value of the assets placed into the trust, minus any unused nil-rate band from the past seven years. For instance, if you place £400,000 worth of assets into a trust and have not used any of your £325,000 nil-rate band elsewhere, you will pay £15,000 (20% of the £75,000 exceeding the nil-rate band). If multiple trusts are set up within seven years, the nil-rate band is split accordingly. Pay 6% Inheritance Tax every 10 years Every 10 years, the assets in the trust are revalued, and a 6% inheritance tax is applied to their value, after deducting the nil-rate band. For example, if the value of a £400,000 investment increases to £500,000 over 10 years, £175,000 would be subject to 6% tax, resulting in a £10,500 tax charge. Pay up to 6% exit charge When the trust is terminated or assets are transferred out, an exit charge of up to 6% is applied, proportionate to the number of years since the last 10-year charge. For instance, if Sally places her £500,000 property into a discretionary trust, and over 10 years its value rises to £750,000, an exit charge would be calculated on £425,000 at 6%, resulting in a £25,500 tax charge. 3. Types of trusts Several types of trusts can assist with inheritance and tax planning.  We will cover a few common ones, but please note that other arrangements can also be set up using a will.  We suggest that you consult a relevant professional for further advice. Bare Trusts Bare trusts are simple and used to hold assets for others until they choose to take ownership. For instance, parents might use bare trusts to hold assets for their children to ensure they do not use them prematurely. Assets in bare trusts are treated as potentially exempt transfers, meaning no tax is payable when the trust is set up, but if the settlor dies within seven years, the trust’s assets become part of the estate and may be taxed. Discretionary Trusts This flexible trust type allows trustees to decide how to distribute income and capital to beneficiaries. Because the trust fund is independent, it is not included in the estate. For example, parents may use discretionary trusts to provide for children and future descendants for education, health, or purchasing property. Loan Trusts With a loan trust, you lend your assets to a trust, meaning the assets remain part of your estate. However, any investment gains remain in the trust and are not part of your estate, reducing tax liability on those gains. Discounted Gift Trusts These trusts typically hold insurance bonds, providing up to 5% income annually. The capital is not part of your estate and transfers to beneficiaries upon death. A word from TB Accountants Trusts offer a way to manage your estate, allowing you to control the distribution and use of your assets while potentially reducing tax liabilities. However, the relationship between inheritance tax and trusts is complex, and in special cases, setting up a trust may result in higher tax payments. TB Accountants recommend consulting a knowledgeable accountant for professional advice if you intend to use a trust to manage your inheritance tax bill. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

We previously discussed how National Insurance credits could be purchased to supplement your State Pension.  Did you know that there is another way? You may be eligible to apply for Pension Credit. 1. What is Pension Credit? Pension Credit is a benefit provided by the UK government for people with low income who have reached the state pension age. It mainly consists of two parts: Guarantee Credit Savings Credit According to current rules, only those who reached the state pension age before April 6, 2016, are eligible to apply for the Savings Credit portion of Pension Credit. If you reached state pension age on or after the 6th April 2016, you can only receive the Guarantee Credit portion. The current state pension age is 66 years, however this is set to increase to 67 soon. 2. How much can I get? As mentioned, Pension Credit is divided into two parts. You might be eligible for both parts or only one. To apply for Guarantee Credit, you must have reached the state pension age. For the 2024-25 tax year, you can receive the following amounts: Single person: £218.15 per week Couple: £332.95 per week To receive Savings Credit, you must have reached the state pension age before the 6th April 2016. The amount you can get depends on your savings and income. If you have some savings or an income higher than the basic state pension, you can receive additional money through Savings Credit. For the 2023-24 year, the maximum amounts are: Single person: up to £17.01 per week Couple: up to £19.04 per week 3. What other help can I get? After applying, you may also be eligible for other benefits. Medical Expenses Free NHS dental treatment, glasses, and travel costs to and from the hospital If you are a carer, you may receive an extra amount of up to £44.60 per week (Carer’s Allowance) If you are disabled, you may receive an extra amount of up to £81.50 per week. Housing Costs You might not need to pay council tax (unless others live with you) If you are a tenant, your rent might be fully covered by Housing Benefit If you own your home, you might get help with mortgage interest, ground rent, and service charges Other Costs Free TV licence if you are 75 or older Cold Weather Payment during particularly cold seasons 4. Who can apply? To apply for Guarantee Credit, you must have reached the state pension age. For Savings Credit, you must have reached the state pension age before the 6th April 2016. You can apply whether you are still working or retired, as long as you meet the age requirements. You can also apply if you have other income, savings, or own your home. Pension Credit is specifically for people with low income. Your income will be assessed to decide whether to approve your application, and how much to give you. Your pension savings, any withdrawals from them, and any remaining money will be considered in this assessment. Under current rules, if your savings or investments (including your pension savings) do not exceed £10,000, it won’t affect the amount you get. If your savings exceed £10,000, the amount may reduce. Every £500 (or part of £500) over £10,000 is treated as £1 per week of income, added to any other income (like a private pension). 5. How do I apply? If you’re eligible, you can apply four months before you reach the State Pension age, or alternatively when you want to start receiving it. You can apply online at GOV.UK, or call the application hotline at 0800 99 1234 for assistance. When applying, you’ll need to provide the following details: National Insurance number Bank account information Details of your income, savings, and investments Pension information (if applicable) Housing costs details (e.g., mortgage, interest payments, or service charges), and your partner’s details (if applicable). Applying will not incur any losses.  If anything, it might even yield unexpected benefits. So, we suggest that you give it a try if you’re eligible. If your application has been unsuccessful before, you can sill apply in the following year.  For any further questions regarding your pension arrangements, get in touch with us for a consultation. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

If you’ve walked through the Clapham area of South London, you might have noticed a large billboard from Waitrose supermarket. This billboard appears to be leaning and looks like it’s about to fall. The billboard, which was recently put up by Waitrose, has alarmed passers by who are worried that it might fall and cause injury. Concerned citizens have been trying to find a solution: some called the supermarket staff to report the issue, hoping someone would come to adjust the billboard; others posted online to warn people to stay away; some even complained to the local government, hoping they would intervene. If the billboard really were to fall and injure someone, what then? Local council officials, having received numerous reports, decided to take action by cordoning off the area around the billboard to prevent any potential harm.  It turns out this was a marketing stunt by Waitrose. The leaning billboard in Clapham was meant to give the impression of falling prices, indicating their products are now cheaper. After seeing the council’s response, Waitrose humorously responded on social media: ‘Hi – thanks for your swift action. While our prices are indeed falling, our billboard definitely isn’t!’ Despite this playful exchange, many people didn’t get the joke or understand the billboard’s true message. Discussions on social media showed that the public found the billboard confusing, with some criticizing it for not clearly conveying its intended message. The billboard had no structural integrity clues, only a headline stating, ‘This is good, hundreds of your favourite foods now at lower prices’ along with images of foods and arrows pointing to the billboard’s unstable bottom corner. Most people’s initial reaction was concern over the billboard’s safety rather than understanding the metaphor about falling prices. 1. Did Waitrose achieve its desired effect? The local council issued a statement stating that a concerned member of the public had reported the issue, and that whilst it may have been intentionally designed this way, it was not worth the risk to public safety.  The council removed the barriers once it had been confirmed with Waitrose that the design was in fact intentional. It’s surprising how much debate a leaning billboard can generate. Despite the controversy, it appears that Waitrose does not intend to update the billboard, letting it remain as is. Perhaps this is a deliberate marketing strategy to attract attention and increase customer traffic. Waitrose has a history of creative advertising for their price-cut promotions. Last year, they launched a £100 million price-cut plan with a very creative billboard. The billboard simply stated, “Hundreds of your favourite products at lower prices,” with a series of downward arrows indicating the discounted items and prices. This ad was placed in several prominent outdoor locations, including London’s Westfield White City shopping centre. In hindsight, this ad was probably more effective than this year’s leaning billboard since it was easier for people to understand the message about discounted prices. What’s your opinion on Waitrose’s leaning billboard marketing strategy? Do you support it? 2. Advertising regulations in the UK The crisis around Waitrose’s billboard has been resolved, but TB Accountancy wants to remind businesses that, in some cases, the government does have the authority to require you to remove your store signs or billboards. In the UK, if your store sign or any billboard is larger than 0.3 square meters, you need to apply for advertisement consent from your local council (similar to planning permission) before displaying it on or outside your business premises. If your sign is illuminated, the requirements are stricter, and you must apply for planning permission to ensure it does not pose a hazard to nearby traffic. When seeking planning permission for your store sign or billboard, you must: Keep it clean and tidy Ensure it is safe Get approval from the property owner (if applicable) Ensure it does not obstruct public signs Ensure it does not block official road, rail, waterway, or aircraft signs or otherwise pose a danger to these types of transportation Ensure that it is easily removable. In special circumstances, the local government may require you to remove the sign immediately (e.g., if Waitrose’s billboard were genuinely about to fall, the government could order the supermarket to remove or relocate it immediately). Thus, planning regulations require billboards to be easily removable without damaging buildings. Usually, obtaining planning permission for store signs is straightforward, with high approval rates. Planning regulations are designed to ensure the safety and non-intrusiveness of signs, ads, and displays. However, regulations vary by location, so it’s best to consult with your local government. If you put up a sign or advertisement without the necessary planning permission, the government can order you to remove it, regardless of your prior investment. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

50 KFC stores in the UK entered a dispute with HMRC over incorrect VAT payments, leading to a court case which ruled in HMRC’s favour.  KFC not only incurred legal fees but also £75,000 in VAT debt. As a leading global fast-food chain, is it possible they don’t know how to collect VAT? What caused this conflict? Let’s take a closer look. 1. Should KFC sauces be subject to VAT? Queenscourt is a franchisee operating around 50 KFC stores in the UK.  The dispute between KFC and HMRC revolves around the VAT treatment of dipping sauces. KFC’s dipping sauces include ketchup, BBQ sauce, garlic mayo, and sweet chili sauce. Typically, these sauces are complimentary with combo meals. However, customers can also purchase them separately for 40 pence each. Here’s a little knowledge nugget for everyone: the UK’s VAT rules for food are quite complex. VAT treatment will differ between items sold individually, and those sold as part of a combo meal. For example, dipping sauces sold separately fall under the cold takeaway food category, which is VAT-exempt. But how should they be treated when sold as part of a combo meal? Since combo meals are hot food items, they are generally subject to standard VAT rates. So, the question arises – should dipping sauces included in KFC takeaway combo meals be VAT-exempt as they are when sold separately, or should they be taxed as part of the hot food supply in the combo? Historically, Queenscourt treated the sale of dipping sauces as VAT-exempt cold takeaway food when sold separately. When sold as part of a combo meal, they treated it as taxable hot food. However, in 2019, the company decided that since sauces could be VAT-exempt when sold separately, they should also be VAT-exempt when sold with takeaway combo meals. The company then submitted a VAT refund claim for the dipping sauces. Initially, HMRC accepted and refunded the previously collected VAT on dipping sauces (part of the combo). However, HMRC also indicated that this issue might be reconsidered in future audits. In April 2020, Queenscourt submitted a second claim. Unexpectedly, HMRC changed its stance. They agreed that cookies and yogurts in combo meals could be treated as separate items, but they rejected the VAT refund claim for dipping sauces. HMRC argued that dipping sauces are not typically consumed alone and are meant to enhance the enjoyment of combo meals. Therefore, they should be considered part of the hot food supply in the combo and subject to VAT. Worse yet, HMRC reviewed the previous claims and issued an assessment demanding the repayment of the £75,000 VAT previously refunded to Queenscourt. 2. KFC’s Court case Queenscourt appealed HMRC’s decision, arguing that dipping sauces are not just a way to enjoy hot food better but are also popular products often bought separately by customers. However, the First-tier Tax Tribunal sided with HMRC. The tribunal found that while some people might buy KFC dipping sauces separately to pair with other foods, this is limited in scale, with each store averaging only four separate sauce sales per day. Conversely, sauces are not typically consumed alone, and the term ‘dipping sauce’ itself suggests that customers use them to enhance the taste of hot food. Therefore, sauces should not be treated as VAT-exempt when part of a combo meal, and Queenscourt was not entitled to the VAT refund. The case is complex, partly because HMRC had initially accepted and paid the company’s VAT claim in 2019, only to reverse its decision a year later. The KFC operator argued that HMRC’s assessment was invalid since it had already paid the first claim, leading them to believe they could handle VAT in this manner. The tribunal did not accept this argument, stating that even if a claim has been paid, HMRC has the legal right to recover the payment within two years if it believes the refund was not justified. This holds even if HMRC is correcting its error in approving the claim. The tribunal noted that the first claim combined various food items, and it was not until the second claim that HMRC properly considered the full details and Queenscourt’s exact VAT position on sauces, deciding not to pay the sauce claim. Furthermore, HMRC had explicitly stated during the initial refund that it reserved the right to review the claim in future audits. 3. Some advice from TB Accountants Whether you run a restaurant or a supermarket, VAT collection rules have always been a headache for businesses. According to UK tax law, if businesses bundle or sell items with different VAT rates as a package (a common example is combo meals), calculating VAT becomes complex. Specifically, while a combo meal has one price, different parts of the combo may have different VAT liabilities. For instance, cold takeaway sandwiches are zero-rated for VAT, while carbonated drinks and confectionery are standard-rated. Technically, this is a mixed supply for VAT purposes. The challenge is how to allocate the received amount fairly to different parts of the combo. For example, consider a UK supermarket’s combo meal VAT calculation: Sandwich: £2.00 Crisps: £0.75 Drink: £1.00 Total VAT: £3.75 The combo meal is offered at a discounted price of £3.00. The system allocates the £0.75 discount proportionally based on the value of each component. Sandwich: 53.33% – Discount £0.40 Crisps: 20% – Discount £0.15 Drink: 26.67% – Discount £0.20 Thus, the reduced prices are: Sandwich: £1.60 (after £0.40 discount) Crisps: £0.60 (after £0.15 discount) Drink: £0.80 (after £0.20 discount) Then, VAT is calculated based on the sales value of each component, adhering to the VAT rates set for each item. The principle is to allocate the total payment fairly across the different parts, with businesses needing to justify their calculations’ reasonableness. In KFC’s case, this highlights several important VAT issues: Determining whether items sold as a bundle should be treated as a single supply (one VAT treatment) or separate supplies (different VAT treatments) can be difficult. The court’s decision on this matter usually depends on the detailed facts of each case. Even if HMRC has paid a claim, there is a risk it may reclaim the money later, especially if it has indicated future audits. Typically, HMRC has a two-year period to change its mind, but if it believes facts were not fully disclosed, this period can extend to four years. Investing this refunded money elsewhere in your business is unlikely to invalidate HMRC’s assessment. We recommend consulting tax experts beforehand regarding VAT collection methods if your business intends to sell products as discounted combos to avoid the risk of incorrect VAT charges. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

Investing in property in the UK is seen by many as lucrative.  Whether you are buying residential or commercial property, and whether you plan to rent or sell the property, VAT (Value-Added-Tax) is an important consideration. In one case, HMRC demanded the immediate repayment of a substantial VAT debt amounting to £4.5 million from a company.  The company claims to be innocent, arguing that renting residential property should not require a VAT payment. So, who is in the right? 1. Question to landlords – residential property, or hotel? In 1989, a landlord in London established a company named Reelreed Ltd, specializing in property investment and rental. This company owns properties in various parts of the UK, with 600 properties in West London alone. The current dispute with HMRC involves over 200 residential properties in Chelsea, London. Reelreed Ltd contended that renting out these 200 properties did not fall within the scope of VAT rules, thus they did not declare VAT. However, HMRC argued that the services provided by these 200 properties were identical to those of a hotel, making them subject to VAT. Initially, HMRC issued a VAT assessment of £4.8 million for unpaid taxes, later reduced slightly. 2. What are the rules on VAT for property? It is true that most residential landlords indeed do not need to worry about VAT.  According to current tax laws, HMRC does not charge VAT on ‘residential accommodation’.  This exemption applies to single rentals, HMOs (House in Multiple Occupations), and rent-to-rent properties.  Additionally, commercial property rentals or sales are also generally exempt from VAT. However, the issue is not that straightforward. Some residential properties, such as those used for short-term rentals or holiday accommodations, are still subject to VAT. Commercial properties offering services, like hotels, must also charge VAT at the standard rate of 20%. The rental company disputed this, arguing that their properties were equipped with essential household appliances like tumble dryers, washing machines, refrigerators, and freezers. They did not provide room service, did not charge per person, nor did they charge extra for additional guests. The company emphasized that although these apartments were for short-term rentals, their use was akin to typical residential rentals, not hotel stays. Moreover, their tenants were not tourists.  The company argued that the definition of tourists should be those seeking accommodation in hotels or similar establishments, typically for leisure or short stays with comprehensive services. Their tenants stayed for relatively long periods, not fitting this tourist definition. They also presented evidence showing that these properties were registered as residential with the local council. Even though some units included converted bars, two restaurants, and attached offices, these were categorised as commercial use for council tax purposes, not involving VAT. HMRC rejected this stance, leading the company to appeal to the court for a ruling. 3. Landlord at fault?  The court found that the company’s website advertised the apartments in a hotel-like manner. Promotional materials highlighted services such as maid service, hair and beauty salons, babysitting/crib rental, laundry services, and theatre ticket bookings, contradicting their claim of not being hotel-like. Additionally, the advertisements targeted those visiting London for leisure or business, claiming to accommodate ‘thousands’ of tenants annually. The court stated that the tax law’s definition of lodging for tourists refers to those staying at a specific place temporarily rather than making it their home, indicating the need for relatively short-term accommodation with some level of service.  Therefore, the court determined that Chelsea Cloisters, one of ReelReed’s properties with 200 apartments, actually operated similarly to a hotel. Consequently, the company Ltd owed VAT totalling £4,572,415 – slightly lower than HMRC’s original demand, but still a major win for HMRC. 4. Some advice for landlords, from TB Accountants As previously mentioned, HMRC does not charge VAT on rental income from residential accommodation.  Landlords with Assured Shorthold Tenancy (AST) agreements do not need to register for VAT, and tenants do not have to pay VAT on rent. However, VAT treatment varies for different types of residential properties. For example, income from self-catering holiday accommodation is subject to VAT. If furnished residential property is rented short-term or for holiday stays, it is subject to the standard 20% VAT rate. Serviced accommodation, like short-term rentals through Airbnb, is also not VAT-exempt. If the rental business exceeds the VAT registration threshold (now £90,000), it must register for VAT. When investing in property, various scenarios may involve VAT, including but not limited to: Commercial-to-Residential Conversions Converting commercial buildings to residential use can benefit from a 5% reduced VAT rate. The first substantial interest received will be zero-rated, allowing full VAT recovery on related costs. Changes in Residential Units Conversions altering the number of residential units can qualify for a 5% reduced VAT rate. For example, converting a house into apartments. HMO Conversions Converting single occupancy homes to HMOs can benefit from a 5% reduced VAT rate. Commercial Property Commercial property rentals or sales are generally VAT-exempt, reducing transaction costs for tenants or buyers. However, landlords can opt to charge VAT on rental income, allowing VAT recovery on related expenses. VAT rules for property are complex. To avoid surprises, seeking professional tax advice is crucial. TB Accountants offers expert guidance on property tax issues. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

Let’s address some common tax issues. In the UK, if you sell a property and make a capital gain, you need to pay Capital Gains Tax (CGT).  However, if this property is your only or main residence, you can use Private Residence Relief (PRR) to reduce this tax liability. 1. What qualifies as a main residence? We have a very typical case worth discussing. In 2012, a client of ours bought a property in the UK and lived there until 2020. Then, his employer seconded him to an office in China. During his four years in China, he lived in a company-provided rental property. This year, he returned to the UK and wanted to sell his original property to buy a new one. The question arose: since he hadn’t lived in this property for four years, could it still be considered his ‘main residence’? Could he still apply for Private Residence Relief when selling this property? 2. What is Private Residence Relief? Private Residence Relief (PRR) is a type of Capital Gains Tax relief that applies to the sale (or disposal) of a property that has been your only or main residence. If you have a property in the UK and it is your main home, you can consider using PRR to reduce the taxable gain when you sell it. A property is considered your only or main residence if it’s your family address, and you’ve lived there for a long time. During the time you lived there, you considered it your ‘home’ and never rented it out. Usually, a residence is a building where an individual lives. Sometimes, it can include other buildings associated with the main house, such as workshops, outdoor studies, or garages that are part of the household. Additionally, gardens and grounds within a permitted area, usually defined as less than 5,000 square meters, may also qualify for relief. In past cases, HMRC has allowed larger areas, provided they serve the functional enjoyment of the property. If the property is partly or wholly used for business purposes (e.g., office, surgery, workshop, hotel), your relief will be restricted and apportioned. Remote work arrangements where employees work from home a few days a week are not classified as business use. Moreover, if the property is co-owned or rented out, apportionment may be necessary, and you might owe Capital Gains Tax on part of the gain. 3. When do you qualify for PRR? If you meet all the following conditions, you can get full CGT relief on the sale of your house: The property is your only home. You have used it as your main residence since you acquired it. You haven’t used part of it exclusively for business purposes. The total area, including grounds and buildings, is less than 5,000 square meters. You didn’t buy the property just to make a gain. Remember, if any of these conditions are not met, you might owe some Capital Gains Tax. 4. Complex cases If you own only one property and can provide necessary evidence that it meets all the criteria, your PRR application will be straightforward. However, the rule allows owners to benefit from relief on an ‘old’ property. This means that if you own multiple properties or plan to develop properties and intend to sell just one ‘main residence’, this property might still qualify for PRR. Therefore, if you own multiple properties, your case will be more complex. If you own two or more residences, you need to notify HMRC and make an election to designate which property is your main residence for CGT purposes. This must be done within two years of acquiring the property. If you don’t make such a declaration, HMRC will decide based on the facts which property is your main residence. For example: Dan owns two properties – one in Brighton and a cottage in London that he inherited 18 months ago from his late aunt. Dan spends most of his time in the Brighton property, is registered to vote there, and receives all his mail (bank, HMRC, DVLA) at the Brighton address. However, he loves the London cottage and spends weekends there, decorating and setting it up, without renting it out. Based on these facts, HMRC would likely consider the Brighton property as Dan’s ‘main’ residence. However, Dan can nominate the London cottage as his main residence, provided he does so within two years of acquiring (inheriting) it. We strongly recommend that owners of multiple properties consult professionals in advance to obtain CGT relief correctly. 5. What if you don’t live in the property for a period of time? As per our client’s case, if due to special reasons you are not able to live in your ‘main residence’ for a period of time, can it still qualify as the main residence? For CGT purposes, if you don’t live in the main residence for a period and do not have another new residence during that time, the property can still be considered ‘occupied’, allowing you to qualify for PRR. However, there are special time limits and requirements. You can be absent from the property for up to three years (either continuously or in total). During the absence, you must provide proof of employment overseas with duties performed abroad. For absences up to four years, you need special proof: either that your work location was too far from the property to use as a residence, or that your employer required you to live elsewhere (matching our client’s four-year period, thus requiring evidence). Generally, you should occupy the property before and after the period of absence as your sole or main residence. If you can’t return to the property due to job constraints after the work-related absence, the period can still count as occupation. 6. Other rules For gains arising after April 5, 2015, the following situations do not qualify for PRR: Non-UK residents who do not spend at least 90 days in their UK home in a tax year. UK residents claiming relief on overseas homes if they don’t spend at least 90 days in that home in a tax year. For married couples: Unseparated spouses and civil partners are considered one person and can only nominate one property as their main residence. Transfers between spouses/civil partners have special rules, effectively backdating the period of ownership. Divorce situations have special rules that can extend PRR. 7. Some advice from TB Accountants If you qualify for PRR, you could save 18% or 24% on taxes when selling your property, which is a significant benefit. However, there are practical difficulties. The first is the absence issue (not living in the main residence for a period), which is complex. HMRC does not specify a minimum time required to occupy a property to qualify as a main residence for PRR. This depends on the ‘quality of residence’, meaning you need to demonstrate an expectation of some degree of permanence, continuity, or persistence when you move in and live there. Some tax advisors suggest living there for 6 to 12 months, while others recommend different durations. The second challenge is having multiple properties or selling a main residence while buying a new one, where PRR rules differ based on specific circumstances. The third challenge arises in cases of separation or divorce, affecting how residence periods are calculated. We recommend consulting a tax advisor in advance if you plan to use PRR to organize a CGT bill correctly, avoiding overpayment or underpayment. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

It is well known that there are many taxes for business operating in the UK.  If you seek professional advice to plan your tax bill carefully, you can potentially reduce some of these costs. However, there are some businesses that choose to follow less legitimate routes… HMRC recently launched a tax evasion crackdown on takeaway shops which were alleged to have altered their sales figures to lower their tax liability.  What is going on? 1. What was alleged? Many people have heard of restaurants only accepting cash in order to evade taxes.  Recently, many more businesses have started using software known as ‘Electronic Sales Suppression’ (ESS) to manipulate their digital sales records. HMRC caught wind of this and launched an investigation which has so far resulted in a raid of 17 takeaway shops across London, Ipswich, Manchester, and Newcastle. ESS is a sophisticated software tool that can be installed on electronic sales systems. It allows businesses to manipulate sales transactions, enabling them to hide or ‘suppress’ part of their sales, thereby reducing their annual tax liabilities. In many cases, ESS transfers a portion of the sales income to hidden bank accounts (sometimes offshore). The businesses then use the ESS tool to submit falsified tax returns to HMRC to evade taxes. This method is particularly attractive for businesses with revenues approaching the VAT registration threshold or those with high annual profits. When someone pays by credit card for food, the transaction might seem normal. However, using the ESS tool, the restaurant can covertly delete sales records and link them to local or overseas payment platforms to manipulate the records. 2. HMRC’s response HMRC has collected detailed information on multiple ESS providers and have obtained customer lists from these providers. During the recent raids, HMRC officials visited one takeaway in Manchester, one in Ipswich, eight restaurants in London, and seven locations in Newcastle. They found that the chip and PIN machines had been tampered with, and immediately seized the suspected devices. In Manchester, a 47-year-old man was arrested. He admitted to using the software to evade income tax, VAT, and possibly engaging in money laundering. Additionally, four takeaway owners in Cheshire voluntarily requested meetings to confess to using the software while operating without VAT registration. 3. What happened after? HMRC’s stance is clear: using ESS is illegal tax evasion. Businesses found with this software face an initial fixed penalty of up to £1,000. Depending on the severity of the fraud, further fines of up to £75 per day can be imposed. Additionally, HMRC warns that using ESS can lead to penalties for failing to notify about VAT registration, as well as fines for offshore non-compliance and underpayment of corporation tax, income tax, and VAT (if applicable). Suppliers of ESS software face much higher fines—up to £50,000 per instance of manufacturing, distributing, or promoting the tool, with severe cases leading to imprisonment. This investigation covers only a small fraction of the affected businesses. HMRC has issued notices to hundreds of takeaway shops, urging restaurant owners to voluntarily disclose information.  Since these letters were sent, over 50 businesses have voluntarily disclosed information, but many more are suspected of using ESS to deceive the state. HMRC encourages citizens to report any ESS or tax fraud online. 4. What is tax evasion? Tax evasion is a serious criminal offense. It involves deliberately and dishonestly not paying the taxes owed to HMRC. Anyone who deliberately conceals information or fails to declare taxable income or gains may be charged with tax evasion. Here are some common examples of tax evasion: Failing to declare taxable trading income: Deliberately hiding trading income or not submitting tax returns Missing trader fraud/carousel fraud: Importing goods VAT-free, selling them with VAT, then not reporting the VAT collected to HMRC Declaring tax-exempt expenses: Misusing funds that qualify for tax relief, such as film production or eco-forest expenses False invoices/personal expense claims: Common in the construction industry, submitting non-existent or personal expenses to evade taxes Import goods: Not declaring or underreporting the value of imported goods to evade import duties Cash or cryptocurrency transactions: Avoiding traceable transaction records to evade income or gains taxes False identity: Using someone else’s identity for taxable transactions, retaining the proceeds, then disappearing. If identity theft occurs, the victim may be liable for the taxes Tax avoidance schemes: Complex transaction structures to save on taxes, often leading to higher long-term costs and being deemed tax evasion by HMRC 5. Penalties for tax evasion Tax evasion can result in heavy fines, with the most severe penalties leading to imprisonment. The penalties vary, but examples include: Tax evasion: Up to 6 months in jail or a £5,000 fine for summary convictions. The maximum penalty for tax evasion in the UK is 7 years in prison or unlimited fines Public revenue fraud: The highest penalty in the UK is life imprisonment or unlimited fines Providing false documents to HMRC: Fines up to £20,000 or up to 6 months in jail Smuggling (tax evasion): Fines up to £20,000. For criminal court cases, up to 7 years in prison or unlimited fines If HMRC is investigating your tax evasion, you will receive a notification letter. 6. Some advice from TB Accountants If your tax returns are inconsistent or your accounts show suspicious activities, HMRC’s anti-fraud team will use their advanced ‘Connect’ database to investigate. This database collects information from applications like Apple, Amazon, and Airbnb to identify tax evaders. Additionally, HMRC collaborates with other investigative and law enforcement agencies to catch tax evaders. For offshore tax evasion, HMRC works with international law enforcement to track UK citizens who illegally transfer funds abroad to evade taxes. Regarding ESS, HMRC can identify suspected businesses by comparing third-party data from bank accounts and online order platforms with reported amounts on tax returns. Using ESS to control and hide sales is a criminal offense. While HMRC’s penalties have been relatively lenient so far, severe cases can lead to criminal investigations, penalties, or even imprisonment, potentially barring you from conducting related businesses for life. Voluntary disclosure may result in lighter penalties. Anyone with information related to ESS usage should contact HMRC online. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

We recently handled a case which we’d like to share with you.  It’s regarding the investigation of an individual’s overseas income. So, what happened here? What counts as ‘overseas income’, and why is HMRC interested in it? 1. What happens when I have overseas income? Our client obtained British citizenship in 2015, and has since been working and living in the UK on a long-term basis. In 2018, during a visit to China to see family, they also dealt with the sale of an empty property worth approximately £500k. After selling the house, the funds were deposited into a bank account in China, and some of the money was gradually transferred to the client’s personal account in the UK. Last year, the client suddenly received a letter from the tax authorities regarding an audit of their personal income declaration – HMRC had detected the transfer from the client’s Chinese bank account to their British bank account. Our client was quite surprised upon receiving the letter, particularly about why overseas income earned in China would be investigated by HMRC in the UK. Understandably, they were also concerned, as nobody wants to deal with tax authorities, especially for something that could easily cause further trouble. This was where we stepped in to help. 2. Why is HMRC interested in overseas income? Let’s first talk about why HMRC might be notified of overseas income. You may have heard of the Common Reporting Standard, also known as CRS. In October 2014, 45 countries signed this agreement, agreeing to exchange asset and income information of tax residents with each other. In April 2016, HMRC issued guidelines for information exchange. Also, in September 2016, HMRC also launched the ‘Worldwide Disclosure Facility’, encouraging taxpayers living in the UK who have overseas assets to voluntarily fulfil their tax obligations. Now, over 100 countries and regions have agreed to share information, including the EU, UK, China, India, Hong Kong, Russia, and others. Consequently, HMRC started receiving updated information about overseas accounts, trusts, and investments from over 100 jurisdictions worldwide. So, once the tax authorities receive information about overseas income and assets, they will examine whether this income has been properly taxed. 3. Reporting overseas income correctly In the case of our client, since they have been living in the UK for many years and hold British citizenship, they are subject to the global taxation system, also known as the ‘arising basis of taxation’. This taxation rule means that the client must pay taxes based on their overseas income within the tax year in which it was generated. It doesn’t matter whether the overseas income is brought back to the UK; they must disclose their global income and capital gains to HMRC and follow the principle of global income taxation. There’s also a significant possibility of facing double taxation.  however, tax residents in the UK are entitled to personal allowances and capital gains tax exemptions. We recalculated the amount of tax owed for this client and also helped resolve the issue of double taxation. We also helped to explain the reasons for the errors to HMRC, and successfully helped our client reduce the tax penalties owed. For more information on how overseas income should be declared and taxed, arrange a consultation with one of our tax advisors.  We’re here to provide professional guidance and support, no matter your tax situation. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

Will HMRC know if I have secretly earned extra money? How does HMRC track your income? How should I manage my additional income? These are all excellent questions that we will answer today! 1. Will HMRC know if I work part-time and secretly earned extra money? HMRC typically relies on PAYE records to see your full-time income. If you have other income, such as rental income, and you don’t report it in your Self-Assessment, HMRC won’t directly know if you’ve earned additional income. However, that’s not to say that HMRC will be unaware.  There are other ways that HMRC can find out. In an effort to combat and reduce tax evasion, HMRC invested £80 million over seven years to develop a powerful data analysis system called ‘Connect’. This system is incredibly impressive and has taken the monitoring capabilities of the UK’s financial system to a whole new level. HMRC Connect contains a vast database of personal and business information, allowing them to cross-check data from various transactions to identify any potentially undeclared taxes.  Therefore, it’s extremely difficult to hide any secret earnings from part-time work! 2. How does HMRC track your income? HMRC’s Connect system can obtain information from the following sources: Bank accounts in the UK and 60 other jurisdictions Various pension and investment records which are typically used to check whether taxpayers have claimed the correct pension relief or exceeded ISA tax-free limits Other government and public agencies such as the Land Registry, to check if taxpayers own multiple properties Online sales platforms such as Amazon, eBay, Airbnb, and property websites like Rightmove and Zoopla, to see if you have earned income from selling goods, renting out property, or selling houses 3. How should I manage my part-time work income? That’s just part of what the Connect system can investigate.  There is much more that HMRC has not disclosed! Even if you only have a few extra income transactions per year, if they meet the threshold for taxation, it’s important that you correctly declare and pay the right amount of tax! If you’re not sure what to do, we recommend appointing a specialist tax advisor to help you with this. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

Here’s a quick read for you today – let’s find out about how VAT is applied to some foods. 1. Essential vs luxury foods Luxury foods in the UK are usually subject to the standard rate of VAT at 20%.  So, what foods are considered luxury items? Typically, items like champagne and caviar might be regarded as luxury foods, but the main focus is on non-essential items like chips and chocolate, which are also subject to the same 20% rate. On the other hand, essentials like bread and milk fall under the zero-rate category and are therefore exempt from VAT. 2. Bubble tea and more Recently, some of our clients have asked whether the bubble tea sold in their bubble tea shops qualify for zero-rating. If the main ingredient in the bubble tea is milk, with only a small amount of tapioca pearls, it may qualify for zero-rate VAT, but it must meet the following two conditions: It cannot be consumed on the premises, as dine-in requires an additional 20% VAT It must be a cold drink, as take-away hot drinks are also subject to 20% VAT It’s important to note that if the bubble tea shop sells other items like fruit teas or carbonated drinks, those products would not usually qualify for zero-rating. There are many other similar examples in other stores.  For example, when we buy a sandwich at Pret A Manger (very popular in the UK!), the staff might ask if you’re eating in or intend to take the food away. The price is different because of the VAT charged on dine-in food. Additionally, even if you take the sandwich away, if it needs to be heated, you’ll still be charged 20% VAT. 3. Other foods? The government also often imposes 20% VAT on high-sugar content to control sugar intake, as a public health policy. However, for cakes, they consider them not as desserts, but as something that can be filling, so cakes are actually zero-rated! Chocolate, on the other hand, is still subject to the 20% rate. As you can see, there are lots of complex rules in place, so if you’re selling food, it’s important to make sure you are charging the correct amount of tax! For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

Many of our clients have asked us – how do you set up a company in the UK? Today, we’ll share some essential things for you to think about before you set up a company. 1. Company type In the UK, most businesses fall into two categories: Limited liability companies Partnerships If you establish a limited company, your company’s finances and your personal finances are kept separate. As the person in charge of the company, you are responsible for reporting and managing the company. On the other hand, a partnership involves two or more people running the business together, sharing responsibility for all the business’s debts and liabilities. 2. Prerequisites Before registering a company, you need to prepare a few things. Firstly, decide on a company name and check if there are any existing companies with the same or a similar name. Secondly, determine the company’s address, which must be a residential or office address in the UK. Thirdly, appoint a director.  You’ll also need at least one shareholder, who can be an individual or a company. Finally, define the scope of the company’s operations, with up to four areas of operation allowed for a UK company. 3. Getting started Once these preparations are complete, you can start the process of registering your UK company. The company’s tax year usually begins twelve months after you complete the registration. It is the director’s responsibility to understand business and tax matters, including corporate tax, personal income tax, National Insurance contributions, VAT, and shareholder dividend tax, among others. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .

Previously, we discussed that rental income is considered part of your personal income, meaning all profits derived from it are subject to personal income tax. This implies that when you receive income from renting out a property, it is combined with other sources of income, such as your salary or investment gains, and taxed accordingly. However, there are ways to reduce your tax liability by deducting certain expenses that are deemed “qualified” by tax authorities. These qualified expenses can significantly lower the amount of taxable income from your rental activities. So, which specific expenses fall under this category? Let’s take a deeper look. 1. What qualifies as a vacancy? Throughout the rental process, many landlords experience vacancy periods for various reasons. For example, when you’re searching for new tenants by advertising the property or during the handover period when one tenant moves out and you’re preparing for the next tenant to move in. During these times, although you might not be collecting rental income, there are often ongoing costs associated with the property, such as property management fees, utility bills, or payments to letting agents for marketing the property. The key question is: Can these costs be considered deductible expenses for tax purposes? The answer lies in your intentions. If the vacancy is temporary and you plan to continue renting the property—whether due to tenant turnover, refurbishments, or routine maintenance—the tax authorities will view your rental business as ongoing. In this case, these costs related to the vacancy period can be claimed as legitimate deductions, reducing your overall tax burden. However, if you decide to stop renting out the property permanently, the expenses incurred during the vacancy may not be eligible for deduction. 2. Other possible scenarios It’s not uncommon to find that during a vacancy period, the lack of rental income might cause your expenses to exceed your revenue for that year, potentially resulting in a financial loss. For example, if your total rental income for the year is £10,000, but you have £12,000 in allowable expenses (which could include maintenance, repairs, insurance, and property management fees), this would create a £2,000 loss. While this loss can’t be used to offset other forms of income like wages or investment returns, it can still be beneficial. If you own multiple rental properties, and one incurs a loss while others remain profitable, the loss from one property can be used to offset the income from your other properties. This approach allows you to reduce the amount of taxable income from your overall rental portfolio, minimizing your personal income tax liability for that year. Some professional advice from TB Accountants Being a landlord involves navigating through a maze of often complex tax regulations and compliance requirements. Failing to understand which expenses can be deducted or how to handle losses from your rental properties can lead to costly mistakes. To avoid any uncertainties or oversights, we highly recommend consulting with a qualified professional. An accountant or tax advisor who specialises in rental property income can ensure that you’re making the most tax-efficient decisions, while staying fully compliant with tax laws. Getting professional advice is especially important if you own multiple properties or if you’re unsure how to handle vacancies, losses, or other unique circumstances that might arise. For individuals and businesses looking for UK taxation services, use our contact form  to get in touch for more information. Get in touch with us at info@tbgroupuk.com  or for a free one-to-one consultation.  This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact  TBA Group  via  email  or  WhatsApp .