Common elections and claims that are useful tax planning or compliance tools
Some of these claims have strict time limits, which should be given due consideration to avoid missing any deadlines.
1. Form 17 (Declaration of beneficial interests in joint property and income)
Income and gains from jointly owned properties are usually taxed equally on spouses (or civil partners) regardless of the actual ownership of the property. Completion and submission of this form specifies a different apportionment for tax purposes (based on actual proportion of ownership), which can be useful where owners are subject to different rates of income tax. The declaration will take effect from the date that the last spouse signs it, provided that the form is submitted to HMRC within 60 days of that date.
2. Holdover relief claim s165 TCGA 1992 and s260 TCGA 1992
Hold-over relief is available under s165 TCGA 1992. The gift must be of ‘business assets’. The transferor and the transferee must claim jointly within four years from the end of the tax year in which the disposal occurs. The time limit for claiming gift hold-over relief is four years and 10 months from the end of the tax year of disposal. Hold-over relief is also available under s260 TCGA 1992, where the disposal is a chargeable transfer for Inheritance Tax purposes, but not a potentially exempt transfer. Cases where there is no liability to inheritance tax, because the value transferred is within the zero-rate band, qualify for hold-over relief.
3. Main residence nomination s222 (5a) TCGA 1992
Taxpayers with two or more residences may choose which property is to be treated as their main residence for capital gains tax purposes by lodging an election under TCGA 1992, s222(5). The election must be made within two years of acquiring a second (or subsequent) residence unless there is a delay in occupation, in which case the date of moving into residence is the trigger event. Once an election has been made it can be varied at any time and so even where the facts would suggest that a nomination is not necessary, it is prudent to make one to leave the door open for a variation at a later date.
4. Claim to reduce income tax payments on account - SA303
A claim to reduce tax payments on account can be made by a taxpayer at any time up to 31 January after the end of the tax year concerned if they believe that their tax liability will be lower than the previous year. The taxpayer must make the claim by notice, giving reasons why the payments on account should be reduced. If a taxpayer deliberately makes a claim to reduce the payment on account for the benefit of obtaining a cash flow advantage when they know that their tax liability for the year would be higher than the amount paid, then HMRC reserves the right to charge a penalty.
5. Deed of variation s142 Inheritance Tax Act 1984 (IHTA 1984) and s62 (7) TCGA 1992
If the variation includes a statement that the parties to the variation intend that the provisions of s142(1) Inheritance Tax Act 1984 and s62(6) Taxation of Chargeable Gains Act 1992 are to take effect for inheritance tax, capital gains tax or both, the variation is treated as if the deceased had made it. In other words, the changes are treated as having been made by the deceased and as having taken effect from the date of death. For a variation to take effect for inheritance tax, capital gains tax or both, it must be made within two years after the death, be in writing and signed by all the beneficiaries who would lose out because of it.
6. Negligible value claim s24 (2) TCGA 1992
Under this legislation a taxpayer who holds an asset which has become of negligible value may make a claim to be treated as though the asset had been sold and then immediately reacquired for an amount equal to its value. When a negligible value claim is made, the taxpayer may wish to specify an earlier time, falling in the two previous tax years, at which to treat the deemed disposal as occurring. The taxpayer has to meet all the necessary conditions for the claim at that earlier time as well as at the time of the claim. The effect of crystallising such a 'paper' loss, without actually selling the asset, can often be useful for reducing income tax, corporation tax or capital gains tax.
7. Share loss relief set off against income tax s131 ITA 2007
Under this section a taxpayer may be able to reduce income tax liability by making a claim to offset losses on disposal of shares acquired by subscription in a qualifying trading company (or following a negligible value claim for such shares), against other income in the current or previous year.
8. Payment of capital gain tax by instalments s281 TCGA 1992
Where hold-over relief is not available, or only partial relief is available, and the asset is:
the taxpayer can make a claim under s281 TCGA 1992 to pay tax in 10 equal yearly instalments.
Also, under s280 TCGA 1992 if any of the consideration is payable more than 18 months after the date of the disposal the tax due may be paid in instalments. The period over which the instalments are paid would be agreed with HMRC but cannot exceed the lesser of eight years and the point when all of the consideration is paid. The unpaid instalments carry interest.
9. Short-life asset election s85-s86 Capital Allowance Act 2001 (CA 2001)
An asset that is expected to be used in the business for a period of eight years or less, and have a nil or low disposal value, can be elected (under s85-s86 CA 2001) to be treated as a short life asset. De-pooling these items into a separate short-life asset pool will accelerate the tax relief.
10. Election by non-UK domiciled spouse or civil partner to be treated as UK domiciled for inheritance tax purposes IHTA84/s67ZA(3)
From 6 April 2013, a person can make an election to be treated as UK domiciled for IHT provided that during the period of seven years ending with the date on which the election is made, the person had a spouse or civil partner who was domiciled in the UK. Any transfers between spouses or civil partners made after that date qualify for full spouse or civil partner exemption.