Q. I am a sole trader using cash basis accounting. I have purchased a new van for work. I paid £15,000 deposit and the rest on hire purchase (HP) for four years. How do I claim this on my tax return? Do I claim the deposit as an expense and then claim the monthly payments in the year they are made?
A. When an asset is purchased under a HP agreement, the expenditure is regarded as incurred as soon as the asset comes into use, even though the asset is not strictly owned until the option to purchase payment is made. The HP charges are not part of the cost but are allowed as a business expense, spread appropriately over the term of the agreement. See HMRC’s Capital Allowances Manual at CA23310. The fact that you use cash basis accounting does not change this regarding the purchase of your new van.
Q. I moved into my father’s home in the Midlands circa three years ago. He’s 92, and I’m 63. I travel around the UK for work and stay there when I’m able. I have continued to have my father’s house as my main residence as it also protects the family home against any care home costs in the future, given my age and as I am a family member. I am not on the title deeds there.
I bought a property in Yorkshire with my brother (I needed him on the mortgage because of my age), and it was a 95:5% split. The 5% was a token. I paid the deposit and have paid the mortgage.
I stay in this house when I’m up North. My divorce settlement came through a few weeks ago and I paid off the mortgage on the house.
I bought this house for £124,000 in August 2020 and it is now worth circa £180,000. My concerns are: (1) If I were to sell the house in Yorkshire, what would be the capital gains tax (CGT) position? (2) What can I do to protect my position? My brother is looking to move back into my father’s home and make it his main residence. If he does, then I would then make the Yorkshire house my main residence. My brother has a house which he owns outright in the Midlands. I’m looking not only to minimise capital gains but also to protect my father’s home from care costs.
A. It appears that your father’s house is your main residence, so if you sold the Yorkshire house now for £180,000, you would be subject to CGT on £56,000. When a person starts to occupy two residences, they can make an election within two years that one of them is their main residence for CGT purposes, even if it is not factually their main residence; see HMRC’s Capital Gains Manual at CG64485. It seems that you have gone past the two-year deadline for making the election. However, if you look at CG64500, you can see that since you do not own your father’s house (I assume he is the sole owner) you have ‘nil capital value’ in the house. Therefore, you are entitled to make an election now (even though it is past the two-year deadline) that the Yorkshire house is your main residence for CGT purposes. This should enable you to claim principal private residence relief.
Q. I own an apartment in a five-star resort that is rented out for nine months a year. The resort provides services including 24-hour security, room service, childcare, gym, tennis courts, golf course, restaurants, pools, and daily cleaning. All management is carried out by the resort. Rental income is pooled and shared between owners whose apartments were available on that day. Would I be able to claim BPR?
A. If you look at HMRC’s Inheritance Tax Manual at IHTM25277 and IHTM25278, you can see that there is a fine line between a hotelier and the owner of a property who lets furnished rooms and provides services regarding inheritance tax business property relief (BPR). Case law supports HMRC’s position that the latter is not eligible for business relief because it is classified as ‘holding the property as an investment’. HMRC does, however, concede that in some cases, the level of additional services provided may be so high that the activity can be considered as non-investment, and each case will be treated on its own facts. In short, I can’t give you a definitive answer because this is a grey area.