Author: Glenn

The limit on Income Tax reliefs has applied since 6 April 2013. This measure was the first time a limitation to existing reliefs had been introduced.

The cap is set at the greater of 25% of income or £50,000. This limit applies to the total amount of relevant reliefs claimed in a tax year and is calculated individually for each tax year in which relief is claimed.

The main reliefs subject to this limit are:

• trade loss relief against general income and early trade losses relief claimed on the self-employment, Lloyd’s underwriters or partnership pages;
• property loss relief (relating to capital allowances or agricultural expenses) claimed on the UK property or foreign pages;
• post-cessation trade relief, post-cessation property relief, employment loss relief, former employees deduction for liabilities, losses on deeply discounted securities and strips of government securities claimed on the additional information pages;
• share loss relief, unless claimed on Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) shares claimed on the capital gains summary pages; and
• qualifying loan interest.

The limit applies in addition to other provisions that restrict the amount of relief that can be used to reduce total taxable income for the year. The limit does not affect the amount of trading losses which may be claimed against capital gains.

HMRC’s guidance explains, with supporting examples, how the limit is calculated, the measure of income used to calculate the limit, which reliefs are subject to the limit, and how different circumstances are treated. As the 2024-25 tax year begins to draw to a close, taxpayers should seek to ensure that wherever possible, they structure their finances to avoid the cap.

The current tax benefits for the letting of properties as short-term holiday lets (known as Furnished Holiday Lets – FHL) is to be abolished from April 2025. The changes will take effect on or after 6 April 2025 for Income Tax and for Capital Gains Tax and from 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains.

The changes will remove the tax advantages that current FHL landlords have received over other property businesses in four key areas by:

• applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax;
• removing capital allowances rules for new expenditure and allowing the replacement of domestic items relief;
• withdrawing access to reliefs from taxes on chargeable gains for trading business assets;
• no longer including this income within relevant UK earnings when calculating maximum pension relief available.

After the repeal, properties previously classified as FHLs will be integrated into the individual's UK or overseas property business and will be governed by the same rules as non-FHL property businesses.

An anti-forestalling rule also prevents individuals from gaining a tax advantage by entering into unconditional contracts to claim capital gains relief under the current FHL rules. This provision applies from 6 March 2024, the date the measure was first announced.

The removal of the special tax regime for holiday lets is expected to have a significant impact on many involved in the short-term holiday rental market in the UK.

Capital allowances enable businesses to claim tax relief on certain capital expenditures. Different rules apply to various types of capital expenditure, and the amount you can claim depends on the specific capital allowance you use. If an item is eligible for more than one type of capital allowance, you can choose which to apply.

The main capital allowances currently available are:

• Annual Investment Allowance (AIA) – The AIA is available to all businesses (companies, sole-traders and partnerships) regardless of size. The AIA allows businesses to write off 100% of the cost of qualifying Plant & Machinery (P&M), up to the allowed maximum, against taxable profits. You can claim up to £1 million on qualifying purchases.
• Full expensing and 50% First Year Allowances – The full expensing measure currently applies from 1 April 2023 until 31 March 2026 and allows companies to claim 100% capital allowances on qualifying plant and machinery investments. Under full expensing, for every pound a company invests, their taxes will be cut by up to 25p. For “special rate” expenditure, which does not qualify for full expensing, a 50% FYA can be claimed instead. 
• Writing down allowances – For P&M expenditure that exceeds the AIA or does not qualify for a FYA. You can claim these allowances if your plant and machinery does not qualify for AIA, or you have already claimed the maximum amount. This relief is based on the cost of the items in the year they are acquired. A standard 18% writing down allowance is available on qualifying assets. There is a lower rate of 6% available for certain long-life assets and integral features.

A salary sacrifice arrangement involves an agreement by an employee to lower their cash salary in exchange for non-cash benefits. Importantly, this reduction must not bring their earnings below the National Minimum Wage (NMW).

If an employee wishes to join or leave a salary sacrifice arrangement, the employer is required to update their contract, thus ensuring clarity on cash and non-cash entitlements.

Additionally, significant lifestyle changes—such as marriage, divorce, a partner's redundancy or pregnancy—may necessitate adjustments to the arrangement, allowing employees to opt in or out.

The following benefits are currently exempt from Income Tax or National Insurance contributions and do not need to be reported to HMRC:

• payments into pension schemes;
• employer provided pensions advice;
• workplace nurseries;
• childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018; and
• bicycles and cycling safety equipment (including cycle to work schemes).

In some circumstances when a salary sacrifice is tax-free, for example, swapping salary for an employer contribution to a pension scheme, the reduction in salary will reduce an employers’ NIC charge.

When evaluating the annual running costs of electric vehicles (EVs) compared to diesel cars, several key factors come into play: fuel (or electricity) expenses, maintenance, insurance, taxation, and depreciation. Here's a detailed comparison:

Fuel/Electricity Costs

• Diesel Cars: Assuming an average fuel efficiency of 50 miles per gallon (mpg) and a diesel price of £1.49 per litre, driving 10,000 miles annually would cost approximately £1,361.
• Electric Cars: With an average consumption of 17.5 kilowatt-hours (kWh) per 100 miles, the cost varies based on charging methods:
  • Home Charging: At a standard rate of 29p per kWh, the annual cost is about £508.
  • Public Charging: Using public chargers at an average of 59p per kWh, the cost rises to approximately £1,033.

Therefore, EVs can offer significant savings on energy costs, especially when primarily charged at home.

Maintenance Costs

• Diesel Cars: These vehicles have complex engines with numerous moving parts, leading to higher maintenance needs and costs over time.
• Electric Cars: EVs have fewer moving components, resulting in lower maintenance expenses. Estimates suggest servicing electric cars is about 23% cheaper than servicing diesel or petrol cars over a three-year/60,000-mile period.

Insurance Costs

• Diesel Cars: Insurance premiums are generally based on factors like vehicle value, performance, and repair costs.
• Electric Cars: Insurance for EVs can be higher due to their higher purchase price and specialised repair requirements. Some studies indicate that electric car insurance premiums are 14% higher than their petrol or diesel equivalents.

Taxation

• Diesel Cars: Subject to Vehicle Excise Duty (VED) based on CO₂ emissions, leading to higher annual tax charges.
• Electric Cars: Currently exempt from VED, offering annual savings. However, starting in April 2025, EVs will no longer be exempt from road tax.

Depreciation

• Diesel Cars: Tend to depreciate steadily over time.
• Electric Cars: Initially faced higher depreciation rates, but recent trends show EVs retaining value better, especially as the market grows and technology improves.

Overall Comparison

While EVs often have higher upfront costs, their lower fuel and maintenance expenses can lead to reduced annual running costs compared to diesel cars. However, factors like insurance premiums and future tax changes should be considered. Individual driving habits, charging options, and specific vehicle models will influence the total cost of ownership.