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Add Button

Add Button - Click this button to display the About screen from which you can view the Life Web Page on the Internet providing you have a modem and access to the internet.


Adding A New Client.
Adding A New Client

To add a new client click the Add New Client Button and fill in the form which will then be displayed on the screen. When the details have been correctly entered click the Save button. The new client will be added to the database and the system will open the clients tax form so that you may start work on it immediately.

Should you decide not to add a new client click the Cancel button to return to the main screen.

The Clients Code entry is used to sort and display your client records when opening a clients tax return. Either make up a code based on the client's name to keep your clients in alphabetical order or if you already have a coding system for your clients enter your code for the client in question.

You may enter the tax district number directly into the number box provided on the screen. Alternatively you may click the spy glass to the right of that box to display a list of all the tax offices in the country. You may then select the required tax office from the list by clicking on it. The tax district number and address will then automatically be entered into the boxes on the screen. For more information on selecting a tax office see Updating and Maintaining a Tax Office.

Clients may be allocated to particular partners and/or members of staff by pressing the button marked ... to the right of the Fee Earner box.

Clicking on the Notes button brings up the following screen where information specific to the client in question may be recorded.


Backing up and restoring the Tax Database

This is a fast and easy way to make backup copies of your tax return database.

NB This routine does not back up your data to a floppy disk or other external media.

You should also make a copy of the database files to a floppy disk by using the standard backup system provided in Windows (MS Backup or MW Backup). Alternatively use some other external media in order to protect your data from a complete machine failure.

The database files, which contain your data, are Tax99.mdb and Tax99.ldb and are located in the C:\Program Files\TaxKit99 subdirectory provided the product was installed into the default directory.


Backup/Restore Button

Backup/Restore Button - This is a fast and easy way to make backup copies of your tax returns. However, you should also make copies of the tax database files to floppy disks or some other external media in order to protect your data from a complete machine failure or the loss of the machine due to fire etc.

The database files which contain your data are TAX98.MDB and TAX98.LDB and are located in the C:\Program Files\TaxKit99 directory provided the product was installed into the default directory


Capital Gains
Notes on Capital Gains I

CONTENTS

Filling in your Capital Gains Pages

Section 1 - Filling in Pages CG1,CG2 and CG3  Filling in Pages CG2 and CG3   Filling in Page CG1  Capital losses

Section 2 - A simple guide to Capital Gains Tax

Section 3 - An introduction to Capital Gains Tax  Chargeable gains  Who pays Capital Gains Tax?  Assets  Exempt assets  Disposals  Small receipts  Building Society mergers, conversions and take-overs  Company reconstructions and take-overs  Allowable losses set against income   Other taxable gains  Gains of earlier years

Section 4 - Calculating gains and losses  How to calculate gains and losses  A simple calculation  How is a loss allowed  Carry back of losses  Do losses have to be claimed?  How to make a claim for a loss  Is there a time limit for claiming losses?  What is the date of disposal (or acquisition)?  What are disposal proceeds?  What expenses can be deducted ?  What acquisition costs can be deducted?  What enhancement costs can be deducted?  What incidental costs can be deducted?  What is expenditure on establishing, preserving or defending your title to an asset?  What is meant by market value?  Estimates and valuations  Valuations already checked by the Inland Revenue  Who are connected persons?  What is a wasting asset?  Is there any adjustment for capital allowances?  What is rebasing?  What is indexation allowance?  What are part disposals?

Section 5 - Indexation allowance  When does indexation allowance apply?  How is indexation allowance calculated?  What about losses?  Which costs attract indexation allowance?  What about part disposals?  What about transfers to spouses?  What about assets held at 31 March 1982?  What about disposals of shares or securities?  Indexation allowance table for disposals after 31 March 1998

Section 6 - Taper relief  Introduction  What is a business asset?

Section 7 - Reliefs and elections  Your home  Other reliefs

Section 8 - Worked examples of gains and losses

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for capital gains are available from the Orderline

IR279: Taper relief

IR280:  Rebasing assets held at 31 March 1982

IR281:  Husband and wife, divorce and separation

IR282:  Death, personal representatives and legatees

IR283:  Private residence relief

IR284:  Shares and Capital Gains Tax

IR285:  Share reorganisations, company take-over and Capital Gains Tax

IR286 Income Tax losses for shares you have subscribed for in unlisted trading companies

IR287:  Employee share schemes and Capital Gains Tax

IR288:  Partnerships and Capital Gains Tax

IR289:  Retirement relief and Capital Gains Tax

IR290: Business asset roll-over relief

IR291:  Reinvestment relief - shares acquired before 6 April 1998

IR292:  Land and leases, the valuation of land and Capital Gains Tax

IR293:  Chattels and Capital Gains Tax

IR294:  Trusts and Capital Gains Tax

IR295:  Relief for gifts and similar transactions

IR296:  Debts and Capital Gains Tax

IR297: Enterprise Investment Scheme and Capital Gains Tax

IR298:  Venture Capital Trusts and Capital Gains Tax

IR299: Non-resident trusts and Capital Gains Tax

IR301:  Calculation in the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts

Filling in your Capital Gains Pages

Gather together the material you need, such as:

contracts for the purchase or sale of assets

invoices for allowable expenditure.

If you have capital gains, you will have to fill in the Capital Gains Pages unless:

any gains arose from the disposal of your only or main residence as these are exempt as a result of private residence relief (see the note on ‘Your home’ and

any other assets you disposed of in the tax year were worth less than £13,600 or less in total (ignoring exempt assets - see below - but including any residence that is not exempt or is only partly exempt; if you are not domiciled in the UK and are chargeable on the remittance basis (see Question 9 on your Tax Return) you should include the proceeds from any overseas asset disposed of in this year or an earlier year, to the extent that these have been remitted to the UK during this year), and

your chargeable gains (before any losses are deducted or taper relief is applied) were £6,800 or less. (When calculating this, you should include, for example, gains attributed to you as settlor or beneficiary of a trust and any amounts remitted to the UK for gains accruing in this year or an earlier tax year, where those gains are chargeable on the remittance basis.)

You must also fill in the Capital Gains Pages if you want to claim an allowable loss The notes below will help you decide if you have chargeable gains.

The following notes, and the Help Sheets and leaflets, cannot describe all the possible circumstances in which you may have to pay Capital Gains Tax.  In more complex cases you may need to obtain professional advice or you can ask to see the Inland Revenue Capital Gains Manual, which is available at any Tax Enquiry Centre.

The Notes are dividend into eight sections.

Section 1 explains how to fill in the Capital Gains Pages .

Section 2 provides a simple guide to Capital Gains Tax .

Sections 3 to 8 provide more detailed guidance .

Section 1 - Filling in Pages CG1, CG2 and CG3

The details in the Capital Gains Pages provide the information we need about your chargeable gains and allowable losses.  You must fill in all three Pages.

Fill in Pages CG2 and CG3 first.  If you think that you will need more than one copy of Pages CG2 and CG3 to give details of all your disposals, make photocopies before making any entries.  Please put your name and tax reference on each photocopy. Alternatively you may send in a computer generated document to replace Pages CG2 and CG3 provided it follows the layout of the paper copy of these two Pages.

In some situations, if you receive an amount in respect of an asset which is small compared to the value of the asset, the receipt may not be treated as a disposal.  You will find more details on where this may apply, and how to fill in Pages CG1, CG2 and CG3 in these cases, under the heading  ‘Disposals'.

You are not required to submit any calculations or other supporting documents with your Tax Return. If you want to provide more information to show how you calculated your figures, please give the details on Page CG4 if there is room. If there is not enough room and you want to provide more information or calculations you are welcome to do so. If you provide calculations you must still complete Pages CG1, CG2 and CG3.

Filling in Pages CG2 and CG3

Fill in Pages CG2 and CG3 to give details about your disposals in the year ended 5 April 1999.  This information helps determine whether the we need to ask you any question about your Tax Return.

Column A

Enter in this column details of each asset you have disposed of. For example, if you have disposed of land or buildings, give the address and a description of the property.  If you have disposed of shares, give the name of the company, the type of shares you have disposed of and how many shares you have disposed of.

We have split the section for recording your gains into two. This is so you can record how much taper relief you are entitled to on each gain you make. Always use the first section ‘Gains (on assets without mixed use)’ where you have made disposals of assets that were wholly business assets, see note, or wholly non business assets. Use the second section ‘Gains on mixed business and non-business use assets’ where you have made disposals of assets that were partly business assets and partly non business assets. In column 1 you need to split these gains into a business asset gain and a non-business asset gain to record how much taper relief is due on each part.

If you are not domiciled in the UK and have disposed of assets outside the UK to which the remittance basis applies, you should include details of such assets disposed of in this tax year or an earlier year where there have been remittances to the UK in this tax year.

If you have made any chargeable gains or allowable losses in 1998-99 without making a disposal, you should include details of these gains and losses in the list.  This could occur, for example, because a deferred gain is treated as made in 1998-99 (see the section on gains of earlier years) or a loan to a trader has become irrecoverable (see the section on disposals) If you have gains attributed to you as settlor or beneficiary see note 1 and note 2.

Column B

This column is only relevant if the asset you listed in column A is shares, including securities, in a company.

Tick the box in this column unless a price quote for the shares was available on the Stock Exchange Daily Official List (SEDOL) throughout the period you held them.  You will also need to tick the box if you obtained the shares on a share exchange or other company reorganisation, and the shares you originally held did not appear on SEDOL throughout the period you held them.

Column C

Tick the box in this column on any row where you have used an estimate or valuation in calculating the gain or loss. (You should include any valuations you have used in column O on Page CG3 see the note.) For example, valuations need to be used where an asset you have disposed of was:

acquired from, or disposed of to, a connected person, or

held by you at 31 March 1982.

Column D

Tick the box in this column on any row in which you are recording the disposal of an asset you owned, or are treated as having owned, at 31 March 1982.

Column E

Chargeable gains accruing in 1998-99 are subject to taper relief. However, taper relief is only due in 1998-99 on the disposal of business assets.

If you acquired the asset which you have now disposed of on or after 17 March 1998 you should enter in column E the actual date of acquisition of the asset. If you acquired the asset now disposed of before 17 March 1998 and still held it at 6 April 1998 enter 16 March 1998. All dates should be entered in a six number format, for example 16 March 1998 should be shown as ‘16/03/98.’

This note explains when an acquisition takes place.

If you have disposed of shares or securities which were pooled you should insert the later date of 16 March 1998 and the date when you first acquired the shares in the pool. For more information on disposals of shares and securities see ‘what about disposals of shares and securities?’ and Help Sheet IR284: Shares and Capital Gains Tax.

Column F

Enter in column F the date of disposal of each asset that gave rise to a chargeable gain. If, for example, the date of disposal was 5 June 1998 you should show the date in the appropriate row of column F as ‘05/06/98’.

Note 1 and note 2 explain when a disposal for Capital Gains Tax purposes occurs and on what date your disposal will be treated as having occurred.

Column G

Enter in this column the total disposal proceeds you have received or will receive from each disposal. This note explains what to include in the disposal proceeds. If remittance basis applies, enter only the amounts of any remittances to the UK in this tax year from the proceeds of the disposal of assets outside the UK (whether the disposal occurred in this tax year or in an earlier year).

Column H

Tick the box in this column on any row where you have provided details of a disposal that is affected by a relief.  For example you may have claimed roll-over relief or you may be entitled to retirement relief.  Section 7 describes the common reliefs.

Column I and boxes 8.1 and 8.2

Enter in the gains part of this column the net gain from each disposal, after all reliefs, but before losses and taper relief have been taken into account. If you have recorded gains in rows 9 and 10 under the section ‘Gains on mixed business and non-business use assets’ make sure you split those gains into business asset and non-business asset gains so that you can work out how much taper relief is due on the business asset part; see Help Sheet IR279: Taper Relief.

A loss arising on a disposal should be entered in the Losses section of column I. Section 4 explains how to calculate gains and losses. Section 7 describes some common reliefs. If the remittance basis applies, enter only the amounts of any remittances to the UK in respect of gains from the disposal of assets outside the UK (whether the disposal occurred this tax year or in an earlier year).

Now total your gains and losses at boxes 8.1 and 8.2. You must complete the whole of Page CG3:

if you have gains at 8.1 greater than £6,800 and no losses available to you, or

your gains after deducting losses of the year (and where applicable losses brought forward from earlier years) are greater than £6,800.

You need only complete the totals boxes (boxes 8.3 to 8.6 and the total taxable gains boxes) on Page CG3 (you can ignore the remainder of Page CG3) provided you have no gains attributed to you or income losses available to set against your gains, and you fall into one of the following:

your gains (8.1) after deducting losses of the year (8.2) are £6,800 or less. (If this is the case you have no liability to Capital Gains Tax this year, even if taper relief is available to you. In these circumstances, you may enter the amount of your net gains (box 8.1 minus box 8.2) in both box 8.3 and the total taxable gains box. Enter 0 (zero) in boxes 8.4 to 8.6 and proceed to Page CG1)

your gains after deducting losses of the year are greater than £6,800 but you have sufficient losses brought forward, to reduce those gains to £6,800. (If this is the case you again have no liability to Capital Gains Tax, even if taper relief is available to you. In these circumstances, you may enter the amount of the losses needed to reduce your gains to £6,000 in box 8.6 and enter £6,800 in box 8.3 and the total taxable gains box. Enter 0 (zero) in boxes 8.4 and 8.5 and proceed to Page CG1)

your allowable losses at box 8.2 exceed your chargeable gains at box 8.1. (You may 0 (zero) in boxes 8.3 to 8.6 and the total taxable gains box and proceed to Page CG1).

If you have any gains of trustees attributed to you as settlor or beneficiary, or income losses available to set against your gains, or you are unsure whether you fall into one of the specific situations described above, you should always complete the whole of Page CG3.

Column J

If the asset disposed of was a business asset or used partly for business purposes during your period of ownership falling after 5 April 1998, see note, you should enter ‘B’ in the appropriate row(s) of this column.

Column K

Enter against each individual gain the taper percentage rate appropriate to the qualifying holding period for the asset disposed of. The percentage rates are shown in this table. If the asset disposed of was a business asset acquired before 17 March 1998 and still held at 6 April 1998 the percentage of the gain chargeable will be 92.5%. All other disposals falling in the tax year 1998-99 will be chargeable in full (that is, the rate to enter will be 100%).

Column L and boxes 8.5 and 8.6

There are special rules for allocating your capital losses against chargeable gains, see note. These rules ensure you use your losses in the most beneficial way so that gains that qualify for the greatest rates of taper reduction remain chargeable. If you are setting off losses brought forward from earlier years you should use only enough losses to reduce your chargeable gains to the level of the annual exempt amount, see note. However, if you have attributed gains and also capital losses, see ‘How is a loss allowed’.

In column L2 you should enter details of any trading losses, losses from furnished holiday lettings, post-cessation expenditure or post employment deductions that you wish to claim against chargeable gains. You should only enter the lower of:

the total losses you can claim, and

the amount required to reduce the figure of gains, after capital losses of the year have been set off, to zero.

Now allocate your losses starting with column L1, next consider column L2 and finally column L3. Losses should be firstly allocated against chargeable gains with the highest percentage rate shown in column K. If you still have losses available after setting them against these gains you should set the remaining losses against the remaining gains.

Example

You have two gains in column I:

Gain 1 £20,000; where the percentage rate in column K is 92.5%

Gain 2 £10,000; where the percentage rate in column K is 100%

You have an allowable loss brought forward of £17,000.

First you should allocate in column L3 £10,000 of your loss to Gain 2 as this gain is chargeable at 100%. Next allocate the remaining £7,000 of your loss in Column L3 to Gain 1 as only 92.5% of this gain is chargeable.

If you have a number of gains and losses you should consider each gain in turn and allocate losses so that gains shown with the smallest percentages in column K remain chargeable. Do not forget to fill in the capital loss summary boxes on page CG1.

Total your losses claimed in columns L2 and L3 and enter the amounts in boxes 8.5 and 8.6.

Column M

Subtract all losses claimed in columns L1, L2 and L3 from the chargeable gains entered in column I. Any net gains remaining chargeable should be entered in the appropriate rows of column M.

Column N and box 8.3

Each gain remaining chargeable after losses have been set-off in column M should now be multiplied by the taper relief rate appropriate to that gain. The taper rate is entered in column K. For example if a gain in column M was £20,000 after losses have been set-off and the taper rate was 92.5%then the tapered gain to enter in column N will be £18,500 (£20,000 x 92.5%). If you have more than one gain in column M work out each tapered gain in turn entering all the figures in column N as you go.

Add up all of the gains in column N and enter the total in box 8.3.

Column O

Use column O or page CG4 to provide other information. For example

If there were transactions with a connected person

why estimates or valuations have been used

what reliefs have been claimed

whether taxable value has been transferred

whether you have made a part disposal

whether you have exchanged shares or securities in a company reconstruction or take-over.

whether remittance basis applies

Attributed gains and box 8.4

Enter in rows 11 and 12 on Page CG3 any gains of trustees which are attributed to you as settlor or beneficiary, see note. Insert the name of the trust in column O. Add up all of the attributed gains and enter the total in box 8.4.

Total taxable gains

Add together all of your tapered chargeable gains from box 8.3 and any attributed gains from box 8.4 and enter the result in the total taxable gains box.

Filling in Page CG1

Now you have completed Pages CG2 and CG3 you have the information to fill in Page CG1.

box 8.7 Copy the total taxable gains entry from Page CG3 to box 8.7

box 8.8  You do not have to pay tax on the first £6,800 of chargeable gains that you made in 1998-99.  This amount is referred to as your ’annual exempt amount’.

Deduct £6,800 from the figure in box 8.7.  Enter the net amount in box 8.8.

The figure in box 8.8 is the net amount of chargeable gains on which you must pay Capital Gains Tax for 1998-99.

box 8.9 You may have to pay tax because you have directly or indirectly received, or you are treated as having received, capital or a benefit from any non-resident or dual resident trust. A benefit includes interest free loans and loans at less than a commercial rate of interest, rent free occupation of trust property or use of trust property at less than market rental.

The previous paragraph may also apply to capital payments or benefits provided by the trustees of an ‘immigrating trust’ that is by trustees of a trust resident in the UK that either had been resident abroad previously, or has had money or other assets transferred to it by a trust that is still abroad or has been abroad previously. If you are not sure if this applies to you, ask the trustees, your tax adviser or Tax Office. If you have directly or indirectly received capital or a benefit, ask the Orderline for Help Sheet IR301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts to work out the amount of tax to go in box 8.9.  Enter the name of the trust (and the tax reference if known) in the ‘Additional information’ box on Page CG4 of the Capital Gains Pages.

You may have to pay Income Tax instead, or as well as, Capital Gains Tax - see the notes on box 6.5 of the Foreign Pages, which you should ask the Orderline for if you have not already got them.

Capital losses

boxes 8.10 to 8.14 These boxes summarise the losses you have made this year and the various ways in which they have been used. In box 8.10 enter the total sum of all the losses you have made during the year. This figure can be copied from box 8.2 on Page CG2. If you are claiming to set capital losses against your income, capital losses against your income, please ensure that you complete boxes 8.13A and 8.13B as well as the total box, 8.13.  Any remaining losses are carried forward to use against gains of later years.

boxes 8.15 to 8.17.  These boxes summarise the allowable losses that you have claimed and the amount of unused losses to be carried forward to use against gains of later years.

boxes 8.18 to 8.19  These boxes summarise the losses you have made in earlier years that have not yet been used against chargeable gains.  See the notes for details of how they are set against chargeable gains.

boxes 8.20 to 8.21 These boxes summarise your losses to carry forward.

Section 2 - A simple guide to Capital Gains Tax

As its simplest Capital Gains Tax is a tax you pay if you make a gain from selling something you own.  Some things, such as your home, your car or shares held in a PEP, are usually outside the charge to tax, see notes.

You may be one of the many people who hold shares directly in major UK companies. If you sell any of these shares, you will have to consider whether you have to pay Capital Gains Tax. This guide deals only with the case in which you bought shares listed on the Stock Exchange in one lot after 5 April 1982 through a broker, and where you sold the shares in the same way.  In any other case, or if you are in any doubt, you should read the notes in Section 3 to 7.

You need to work out your gain using the rules for Capital Gains Tax. This gain is called your chargeable gain. You must pay Capital Gains Tax if your net chargeable gains for 1998-99 exceed £6,800 after deducting any allowable losses or taper relief. Section 1 shows how to fill in the Capital Gains Pages.

So how do you start? Here is a simple example.  Let us say that on 1 March 1988 you bought 3,000 shares in a company for £2.50 each. Your broker charged a fee of £100. On 5 August 1998 you sold those shares for £4.50 each. Your broker charged a fee of £200.

Your gain is

Sale Price	£13,500

minus broker’s fee	£      200

-----------

£13,300

Cost	£7,500

plus broker’s fee	£   100

---------

£  7,600

-----------

Net gain	£  5,700

You must then deduct indexation allowance which is an adjustment for the effects of inflation from this gain. Indexation allowance is available to April 1998. You multiply the cost of buying the shares (£7,600 in the example) by a figure known as the indexation factor and deduct the resulting amount from your gain. The notes explain how to find the indexation factor from the table. In this case the indexation factor is 0.562 and so your indexation allowance is:

£7,600 x 0.562 = £4,271

Deduct this from your gain to give your chargeable gain. This will be:

Gain	£5,700

Minus indexation allowance	£4,271

---------

Chargeable gain	£1,429

There is a new relief known as Taper relief explained here. However it does not apply to this disposal.

If this is your only chargeable gain in 1998-99, you will have no Capital Gains Tax to pay because you can make chargeable gains of up to £6,800 before you pay Capital Gains Tax.

If you have made a loss on your sale, the rules are different. You cannot deduct any indexation allowance to increase the loss.  Nor can you deduct all of your indexation allowance if you would turn your gain into a loss.  If your indexation allowance is greater than your gain, you can only deduct enough to reduce your gain to zero.

Losses you make from sales in the year must be deducted from your indexed gains to decide whether your total gains are greater than £6,800.  You can also deduct losses you have made from sales in earlier years if they have not yet been deducted from gains you made in earlier years. See Section 4 on 'Calculating gains and losses' for more information.

Section 3 - An introduction to Capital Gains Tax

These notes are a simplified summary of the Capital Gains Tax law as it applies in some common cases.  If you are in any doubt about whether you have Capital Gains Tax to pay, ask your Tax Office or tax adviser.

Chargeable gains

A chargeable gain is made when something you own (an asset)

is wholly or partly disposed of (or treated as disposed of) and

its value has increased since you acquired it, or since 31 March 1982 if that is later, or

its value at the date of disposal is greater than the reduced value for which you are deemed to have acquired the asset because of an earlier relief.

You may also be treated as making a gain in other circumstances, for example where:

a gain on an earlier disposal of an asset has been deferred, and a particular event, for example, disposed of another asset, or the lapse of time has ended the deferral period, or

the value of an asset you own has had its value decreased by a transfer of rights, or by any other means that would not by itself be regarded as a disposal, or

you dispose of a wasting asset, which has not diminished in value as quickly as was expected (see Help Sheet IR293: Chattels and Capital Gains Tax), or

you derive a capital sum from your ownership of an asset, or

you disposed of an asset that you acquired from your spouse.

You do not pay tax on the price you receive for the asset, but only on the increase in its value while you have owned it. If it has lost value in that time, you deduct that loss from any gains you make on other assets in the same year or later. Section 4 helps you work out your gains and losses.

You also may be treated as making a disposal if you recover money for which you have had some relief under the capital gains rules. Ask the Orderline for Help Sheet IR296: Debts and Capital Gains Tax.

Who pays Capital Gains Tax?

You must pay Capital Gains Tax on all your chargeable gains, after deducting allowable losses (and, if you sold a business asset, applying taper relief) if you are resident or ordinarily resident, and domiciled in the UK in 1998-99.

If you are not domiciled in the UK, you pay tax on gains made on the disposal of assets situated outside the UK, only when the gains are remitted to the UK (the ‘remittance’ basis).  Gains on the disposal of assets situated in the UK are taxable as in the paragraph above.

If you are neither resident nor ordinarily resident in the UK, you are taxable on gains made in 1998-99 from assets of any branch or agency in the UK through which you are trading or carrying on a profession or vocation. If you left the UK after 5 April 1998 you may also be taxable on gains made in 1998-99 from disposals after the date of your departure. You may also be taxable on gains made from any other assets which you owned while you were resident or ordinarily resident in the UK and disposed of  in 1998-99 if you left the UK after 16 March 1998 and your period of residence outside the UK does not exceed five full tax years. However, any such gains will not be taxable until the year in which you resume residence in the UK.

If you are not sure whether you are resident, ordinarily resident or domiciled in the UK, you should ask the Orderline for the Notes for the Non-residence Pages which explain residence and domicile in more detail and, if appropriate, complete the Non-residence etc. Pages.

Assets

Any form of property, wherever it is situated, may be an asset that attracts Capital Gains Tax.  The most common assets include:

stocks and shares

land and buildings

business assets, such as goodwill

Some assets are exempt from Capital Gains Tax. Common exempted assets are listed below.

The gains made on some assets may be wholly or partly relieved from tax.  See the explanation of the common reliefs.

Exempt assets

The disposal of some types of asset is exempt from Capital Gains Tax.

If you receive a sum of money or an asset that is taxable as part of your income, you will not have to pay Capital Gains Tax on that sum as well.

The following types of asset are exempt from Capital Gains Tax:

private cars

personal effects and goods worth £6,000 or less when you dispose of them

Savings Certificates, Premium Bonds and British Savings Bonds

gains made within a Personal Equity Plan (PEP)

bonuses from tax exempt special savings account (TESSAs)

UK Government stocks (gilts)

personal injury compensation

foreign currency for you or your family’s personal use

life assurance policies and deferred annuity contracts, unless purchased from a third party

betting, lottery or pools winnings

SAYE terminal bonuses

compensation for mis-sold personal pensions taken out as a result of disadvantageous advice given between 29 April 1988 and 30 June 1994.

If your only disposals are of these types of assets, you should tick the ‘No’ boxes in Question 8 of your Tax Return.

If a gain on the disposal of an asset would be exempt from Capital Gains Tax, any loss you make on that asset will not be an allowable loss.

Gains from the disposal of personal effects or goods, each of which was worth £6,000 or less, when you disposed of them, are exempt.  You may be able to use any loss that you make on such a disposal.  This is dealt with in more detail in Help Sheet IR293: Chattels and Capital Gains Tax, available from the Orderline.

In most cases you will not pay tax on any gain you make when you dispose of your home.  See the section dealing with the disposal of your home.

Disposals

Capital Gains Tax is payable on gains from the disposal of assets.  A disposal will occur when you:

sell, or

give away, or

exchange an asset, or

receive a capital sum from your ownership of an asset, or

the value of an asset you own has been reduced to increase the value of an asset owned by some other person.

A capital sum is a sum that is not part of your taxable income.

You can claim to be treated as making a disposal if an asset you own has become of negligible value.  This may give you a loss that you can set against your gains.

If you dispose of only part of an asset, you can only use part of the cost in calculating your gain. Part disposals are explained here

Any disposal which is made by your nominee, or by a person who is a bare trustee in relation to assets to which you are absolutely entitled, will be treated as your disposal.

Some disposals do not result in a charge to Capital Gains Tax.  For example:

when somebody dies and their assets pass to their personal representatives, or

where shares are disposed of in exchange for other shares - see the notes on ‘company reconstructions and take-overs’.

If you transfer an asset to your husband or wife and you are living together, you will not be taxed.   Instead, any gain or loss is deferred until the asset is disposed of by your spouse.  Your spouse may then pay tax on any gain made during the whole time that one or other of you has owned the asset.

If you are a member of a partnership, there are special rules dealing with the disposal or acquisition you make when there is a change in your share of partnership assets.  If you need advice, ask the Orderline for Help Sheet IR288: Partnerships and Capital Gains Tax.

Small receipts

In some situations, an amount received in respect of an asset, which would otherwise be treated as part disposal of the asset, need not be treated as a disposal at all if the amount is small compared to the value of the asset.  This applies where amounts are received:

as a capital distribution in respect of shares.  This includes amounts received where rights to further shares which are allotted to you are sold nil paid, or

as compensation, or under an insurance policy, for damage or injury to the asset, or

for surrendering or agreeing not to exercise rights, or

for use or exploitation of the asset, or

in some cases where there is a compulsory acquisition of land.

Where the receipt is not treated as a disposal, the amount will need to be deducted from the expenditure available to set against any later disposal of the asset.  If the amount of the receipt exceeds the available expenditure, a gain may still arise on receipt.  Ask your tax adviser or Tax Office for further details.

If you receive cash on an exchange of shares for qualifying corporate bonds, or on a conversion  of securities, any gain arising on the cash element may also be deferred if the amount is small compared to the value of the shares.  Again, you should ask your tax adviser or Tax Office for further details.

What is small?

If in the situation described above the amount you receive:

does not exceed £3,000, or

does not exceed 5% of the value of the asset in respect of which it is paid, and

the amount you receive is less than the allowable cost of the asset

then you do not need to enter the amount as a disposal on Pages CG1, CG2 and CG3.

If the amount exceeds these limits, but you think that it should be regarded in the circumstances as small, you should:

enter the gain or loss on the list of disposals on Page CG2, and

explain in column O and on Page CG3 if necessary why you think the amount should be treated as small;

but do not include the gain or loss in the totals at boxes 8.1 or 8.2 on Page CG2.  Your Tax Office may ask for further details in these cases.

Building Society mergers, conversions and take-overs

If you have:

received cash as a result of a merger of two or more societies, or

received cash, or been issued with shares, or received both cash and shares, as a result of either

a conversion of a building society to a company, or

a take-over of a building society by a company,

there may be liability to either Income Tax or Capital Gains Tax.  The building society may be able to tell you whether there is any tax liability.  If not, ask your Tax Office or tax adviser.

If you have received cash, which is liable to Capital Gains Tax (which is likely if you received it following a conversion or take-over of a building society), then you should include details in the list on Page CG2.

If you need more detailed guidance on how to calculate the gain, you should ask your Tax Office or tax adviser.

If you have received shares, then you only need to provide details of any gain you make when you dispose of the shares or authorise someone to dispose of them on your behalf.

Company reconstructions and take-overs

If you have exchanged shares or securities of a company for other shares or securities, as part of a company reconstruction or take-over, you may be treated as having acquired the new shares or securities at the same price, and on the same date, as the old.  It will not be counted as a disposal for tax purposes.

You may, however, be treated as making a disposal if the company reconstruction or take-over is not carried out for commercial reasons, or is made in order to avoid tax. Companies can apply in advance to the Board of Inland Revenue for clearance from these anti-avoidance rules.  The clearance will only be valid if the take-over, reconstruction or amalgamation is carried out in accordance with the clearance application.

If you think you have obtained shares or securities as part of a company reconstruction or take-over, of you need advice about the anti-avoidance rules, ask the Orderline for Help Sheet IR285: Share reorganisations, company take-overs and Capital Gains Tax.

Allowable losses set against income

If you have losses from the disposal of certain unlisted shares, you may be able to make a claim to set those losses against your income, rather than your gains.  The rules for making such a claim are explained in Help Sheet IR286: Income Tax losses for shares you have subscribed for in unlisted trading companies, and for Enterprise Investment Scheme companies in Help Sheet IR297:  Enterprise Investment Scheme and Capital Gains Tax, available from the Orderline.

If you are making a claim on your Tax Return to set such losses against your income, you should remember to enter the amount of the loss in box 8.13A or box 8.13B and also enter details of your claim on Page CG2.

Other taxable gains

In certain circumstances you may have to pay Capital Gains Tax on gains made by a company or a trust in which you have an interest.   This includes gains made by:

certain types of company not resident in the UK and in which you are a participator, or

a trust not resident in the UK at that time, the gains of which are attributed to you because you have received capital payments or benefits (ask the Orderline for Help Sheet IR301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts), or

a trust not resident in the UK and of which you are a settlor (ask the Orderline for Help Sheet IR299: Non-resident trusts and Capital Gains Tax), or

a trust resident in the UK from which you can or do benefit and of which you or your spouse are the settlor.

If you think you may be liable to Capital Gains Tax on gains made by any such company or trust, ask your Tax Office or tax adviser.

Gains of earlier years

Some gains that were made before 1998-99 may be taxable in 1998-99. For example, where:

roll-over relief was claimed on the purchase of a wasting asset, see Help Sheet IR290: Business asset roll-over relief, or

gifts hold-over relief has been claimed on a transfer of an asset to you and you have become non-resident, see Help Sheet IR295: Relief for gifts and similar transactions, or

a gain has been deferred as a result of a share reorganisation in which you have been issued with qualifying corporate bonds, see Help Sheet IR285: Share reorganisations, company take-overs and Capital Gains Tax, or

you have claimed a deferral of a gain on a subscription for Enterprise Investment Scheme or Venture Capital Trust shares, see Help Sheet IR297: Enterprise Investment Scheme and Capital Gains Tax or Help Sheet IR298: Venture Capital Trusts and Capital Gains Tax.

You must include these gains in the Capital Gains Pages.

Section 4 - Calculating gains and losses

Remember, these notes are a simplified summary of the Capital Gains Tax rules, as they apply in some common cases.  If you are in any doubt about your liability, ask your tax adviser or Tax Office.

How to calculate gains and losses

To calculate the gain you have made on the disposal of an asset deduct:

the allowable costs, and

the indexation allowance

from the proceeds you receive on the disposal.  The amount of the gain can be affected by the date of disposal, see example below showing how to work out your gain or loss.

If you have disposed of shares or securities there are special rules for identifying the assets involved and working out the gain or loss. See Help Sheet IR284: Shares and Capital Gains Tax, available from the Orderline.

Help Sheet IR287: Employee Share Schemes and Capital Gains Tax, available from the Orderline, explains more about shares which you acquired in connection with your employment or by exercising an employee share option.

A simple calculation

At its simplest a calculation of a chargeable gain will use the format:

See notes

Disposal proceeds	Note A

minus Incidental disposals costs	Note B

minus Cost of acquisition (a)	Note C

minus Incidental costs of acquisition (b)	Note D

minus Enhancement costs (c	Note E

-------------------------------------------

Total costs	x	x

minus Indexation allowance on

a, b and c (to April 1998 only)	Note F

--------------

equals Chargeable gain	Note G

=========

If after deducting indexation allowance you still have a chargeable gain, you are probably entitled to taper relief if the asset disposed of qualifies as a business asset, see ‘What is a business asset’. The remainder of your calculation will look like this:

Chargeable gain (from above)	£X

Taper rate (based on the qualifying holding period

after 5 April 1998 for the asset now disposed of)	X%

Tapered gain: chargeable gain multiplied by taper % 	£

-----------

If the asset disposed of does not qualify for the business asset taper your final gain will be the same as the chargeable gain above.

This simple calculation will not work if:

the disposal is a part disposal, see note, or

relief is due, see note, or

you have losses to set against the chargeable gain, see notes on losses below, or

it is a disposal of shares or securities, unless it is a disposal of the whole of a single holding of a particular class of shares or securities.

If you have made a loss on your sale, the rules are different. First you cannot deduct any indexation allowance to increase the loss. Nor can you deduct all of your indexation allowance if it would turn your gain into a loss. If your indexation allowance is greater than your gain, you can only deduct enough to reduce your gain to zero. Second the new taper relief rules do not apply to losses. Instead you should set your losses against any chargeable gains you have made before you consider applying taper relief to those gains.

You can also be treated as having made a loss when:

certain loans you have made to persons who are trading cannot be recovered, or

you have had to make payments as a result of guarantees you have given for loans to persons who are trading.

In each case you must make a claim. Help Sheet IR296: Debts and Capital Gains Tax explains how to make a claim.

How is a loss allowed?

The total allowable losses of 1998-99 are deducted from the total chargeable gains for the year, with the exception of attributed gains. Your personal losses cannot be set against your attributed gains. Attributed gains are chargeable gains which are treated as yours because you are the settlor or beneficiary of a trust. See the second to fourth bullets in the section headed ‘Other taxable gains’. The  deduction of losses takes place before the application of taper relief, see note.  If the allowable loss is greater than the chargeable gains these losses are carried forward to be set against gains you make in future years.

When you set losses brought forward against chargeable gains of a later year, you use only enough losses to reduce the chargeable gains, before taper, to the level of the annual exempt amount.  Losses from 1996-97 and 1997-98 must be used in priority to any other losses you may have from 1995-96 and earlier years.  Allowable losses must be set against the gains for the year in which they arose before you carry them forward to later years.  These points are illustrated in Example 20, headed ‘Allowable losses’ in Section 7.

If you have attributed gains, in determining what losses brought forward are required to reduce the chargeable gains to the level of the annual exempt amount, you first reduce the annual exempt amount by the amount of the attributed gains.

Carry back of losses

Personal representatives completing a Tax Return for the period up to the date of death in the year in which a person has died, should be aware that the losses of that period can be carried back to be set against gains of the three preceding years.  Further information is available in Help Sheet IR282: Death, personal representatives and legatees.

Allowable losses made on the expiry or termination of a mineral lease can be carried back and set against gains made from mineral royalties.

If you are making a claim on your Tax Return to set such losses against earlier years’ gains you should remember to enter the amount of the loss in box 8.12 and also enter details of your claim on Page CG4.

Do losses have to be claimed?

A loss made in 1996-97 or later  years has to be claimed.  These losses are not allowable losses until you have given notice of the amount of the loss to your Tax Inspector.  You do not have any choice about the order in which allowable losses are used. They must be deducted from gains in the order set out in the notes above.

Losses for 1995-96 and earlier years cannot be claimed.  The accumulated amount of such losses should be entered in box 8.18. If you are using some of these losses against gains of 1998-99 the amounts being used should be entered in the boxes for allowable losses brought forward on Page CG3, column L3 and box 8.6 of your 1998-99 Tax Return.  Such losses will form part of this Tax Return and the Tax Inspector may make enquiries into them.  There is no time limit before which these losses must be used.

How to make a claim for a loss

The rules for completing Returns mean that many losses will have to be included in the Tax Return for the year in which they are made.  In 1998-99, if the total worth of all the assets you disposed of was more than £13,600 or you have made chargeable gains of more than £6,800, you must include all allowable losses for the year in the losses section on Page CG2. By giving the details requested on Page CG2 your Tax Inspector will treat the entries as your claim to allowable losses.

If you discover a loss that should have been claimed on your tax Return but you have already sent the Return to your Tax Inspector you should, if the time for amending your Return:

has still to pass - write to your Tax Inspector giving details of your loss and ask for your Tax Return to be amended

has passed but you are still in time to make a claim, see the next section - send a separate notice of the amount of the loss to your Tax Inspector.

If your loss is one that you do not need to claim right away see the next section, Is there a time limit for claiming losses? for details of when the loss should be claimed.

Is there a time limit for claiming losses?

Allowable losses for 1996-97 and later years have to be claimed within five years and ten months of the end of the tax year in which they were made.  This applies whether the losses are used in that time period or not.  The latest date for claiming losses made in 1997-98 is 31 January 2005.

If losses brought forward have been claimed in the Tax Return for the year they were made, or by a separate claim, they will still have to be included in a later year’s Tax Return when they are used.

What is the date of disposal (or acquisition) ?

If the disposal (or acquisition) is by way of a contract, the date of disposal (or acquisition) is usually the date of the contract

In a small number of cases the contract may be conditional.  This will be so if one or more conditions have to be met before the contract becomes binding.  In these cases the date of disposal (or acquisition) is the date on which the last of the conditions is met.

In other cases where there is no contract the date of disposal (or acquisition) will usually be the date when ownership of the asset was effectively transferred.

There are exceptions, for example, in most of the cases where you get a capital sum from your ownership of an asset.  There, the date of disposal is the date you receive the capital sum.

Example 1

You sell a piece of land in a contract dated 02.04.99.

The land was conveyed to the purchaser on 02.05.99.

Your disposal, for the purpose of working out your gain or loss, is treated as taking place on 02.04.99.

Your disposal is in the tax year ending on 05.04.99 and you should include any gain or loss in your Tax Return for 1998-99

What are disposal proceeds?

In most cases your calculation should begin with the total amount of disposal proceeds you will receive.  This may include:

cash payable now or in the future, or

the value of any asset received in exchange for the asset you have disposed of, or

the value of a right to receive future payments.

The disposal proceeds should include cash, or anything that can be turned into cash, but not anything that is taxable as part of your income.

If disposal proceeds include any amount taken into account as a balancing charge in calculating your income, ask the Orderline for Help Sheet IR293: Chattels and Capital Gains Tax.

Example 2

You exchange a painting you own, which is worth £30,000, for a painting that you consider to be worth £33,000.  Your calculation of the gain or loss on the first painting should begin with £33,000, the value of the painting you have received.

The distinction between future payments and the right to receive future payments is important when you do not receive all of the money to which you are entitled straightaway.

If the total amount to which you are entitled is known or can be calculated, include the full amount you are due to receive.  No allowance can be made for the possibility that the whole sum may not be paid to you.  However, if it becomes clear later on that you will never receive some part of the total amount originally due, the calculation of the gain can be adjusted.

If you will receive the total amount due in instalments over a period exceeding 18 months, you may not have to pay the tax which is due on the gain in one sum.  Ask your Tax Office for details.

Example 3

You sell shares in a company in December 1998 for £50,000, together with a sum equal to 10% of the profits made by the company in the year ended 30 June 1998.  You should begin your calculation by bringing in the £50,000 and the sum equal to the percentage of profits to which you are entitled.  Accounts can be prepared and the sum can be calculated.

If some part of the amount to which you are entitled cannot yet be calculated when you make the disposal because of an unknown factor, you should include the value of the right to that future sum.

When you receive the amount to which you are entitled, you will make a further gain or loss on the disposal of that right.

Example 4

You sell land for £40,000 and you will also be entitled to receive 50% of any increase in the value of the land, if the purchaser is able to obtain planning permission for a housing development.  When you make the disposal you cannot know whether planning permission will be obtained or what effect that will have on the value of the land. So you do not know how much you will finally get. You should begin your calculation by bringing in the £40,000 together with your estimate of the value of your right to further money.

In some circumstances, the amount you are to receive should be replaced in your calculation by the market value of the asset you have disposed of.  The phrase ‘market value’ is explained in this section.  Market value will apply where the disposal is, for example:

to a connected person, or

otherwise than by a bargain made at arm’s length, for example a gift (unless the no gain/no loss rules apply, see ‘What about transfers to spouses’) or

wholly or partly for a consideration that cannot be valued.

The phrase ‘connected person’ is explained in this section.

List the total disposal proceeds of each of your disposals on Page CG2 of the Capital Gains Pages.

Example 5

You transfer a piece of land worth £10,000 to your former spouse in a divorce settlement.  In exchange for their undertaking to give up all claims against you.  The consideration given cannot be valued. You should begin your calculation by bringing in disposal proceeds of £10,000.

A disposal which is otherwise than by way of a bargain made at arm’s length is a disposal in which one or other of the parties intends in that transaction to confer a gratuitous benefit on the other.

Example 6

You sell land worth £40,000 to a friend for £25,000 as a token of your friendship. You should begin your calculation on the disposal of the land by bringing in disposal proceeds of £40,000.

What expenses can be deducted?

In working out a gain, the expenses you can deduct fall into four categories.  These are:

acquisition cost

enhancement costs

incidental costs of acquisition and disposal

expenditure on establishing, preserving or defending your title to an asset.

These phrases are explained in the following notes.

Expenses you deduct must be expenditure on the asset disposed of.  These must not be expenses that you can claim against income. Expenditure which has been taken into account in a claim to capital allowances can be deducted.  You cannot claim for the cost of normal maintenance and repairs, or payments of interest.

The expenses you can deduct may be reduced if the asset you have sold is a wasting asset.  This phrase is explained here.

If you have only made a part disposal of an asset, you can only deduct part of the expenditure on that asset.  See here for more details about part disposals.

What acquisition costs can be deducted?

You can deduct any amount you gave wholly and exclusively for the acquisition of the asset.  In certain circumstances the amount you gave may be replaced by the market value of the asset when you acquired it.  The phrase market value is explained in more detail below.

Market value will apply where you acquired the asset, for example:

from a connected person, or

otherwise than by a bargain made at arm’s length, for example a gift (unless the no gain/no loss rules apply, see ‘What about transfers to spouses’), or

wholly or partly for a consideration that cannot be valued, or

where rebasing to 31 March 1982 applies. See note.

If the asset is not one you acquired but one you created yourself (for example, a copyright or the goodwill of a business), deduct any capital expenditure you incurred wholly and exclusively in creating the asset.

If you held the asset at 31 March 1982, rebasing will apply and the calculation should be based on the value at 31 March 1982 unless the comparison calculation described in the section headed ‘What is rebasing?’ applies.

If you:

inherit an asset, or

have become absolutely entitled to settled property,

you are treated as acquiring it at its market value at the date of death of the testator (or exceptionally the date on which the personal representative acquired it) or the date on which you became absolutely entitled, as appropriate, and not on the date on which you actually acquired it.

What enhancement costs can be deducted?

You can deduct any amount you spent wholly and exclusively for the purpose of enhancing the value of the asset.

Only expenditure that is still reflected in the state or nature of the asset at the date of sale is allowable.

Example 7

You have built an extension onto a property that you let, but demolished it before sale.  The cost of that extension cannot be deducted, because it is no longer reflected in the state of asset at the date of sale.  The costs of demolition will be allowable.

What incidental costs can be deducted?

You can deduct expenditure you incurred wholly and exclusively on the acquisition or disposal of the asset, and which is either:

fees, commission or remuneration paid for professional advice, or

the costs of transfer or conveyance

Advertising costs, to find a buyer or a seller, can be deducted and so can the costs of any valuations or apportionments needed to work out the gain or loss on a disposal.

You cannot deduct any subequent costs you incur if the Inland Revenue disagrees with your valuation.

What is expenditure on establishing, preserving or defending your title to an asset?

You can deduct expenditure you have incurred wholly and exclusively in establishing, preserving or defending your title to an asset, or your rights over an asset.

This may include, for example, the legal costs of a dispute with a neighbouring landowner whose fence encroaches on land of yours.

What is meant by market value?

In some cases the price you paid when you obtained the asset, or the price you received when you disposed of it, is replaced by the market value of the asset in working out your gain or loss.

The market value is the price an asset might reasonably have been expected to fetch on the open market at the date of that acquisition or disposal.

If the asset you have disposed of was held by you at 31 March 1982, rebasing will apply - rebasing is explained below.  If so, the price you paid for the asset may be replaced in the calculation by the market value of the asset at 31 March 1982.

There is a special rule that applies if you have disposed of assets by a series of linked disposals to connected persons, so that the value of the assets transferred, taken separately, is less than their combined value.  The value of each separate asset is replaced in your calculation by a proportion of the total market value of all the assets in the series.  You can exclude from the series any disposals that took place more than six years before the last disposal in the series.

Example 8

You own the freehold interest in a piece of land.  That interest is worth £100,000.  Four years later you grant your brother a lease over that land.  The lease is worth £20,000.  You then sell your brother the freehold interest for its market value of £60,000.  Because the freehold, and the lease, considered separately, are worth less than the unrestricted freehold you have only realised a total of £80,000 in disposing of land worth £100,000.  Because this was a series of transactions, you must replace the £20,000 you got from the grant of the lease by £25,000 in working out your gain. You must replace the £60,000 you got for the freehold interest by £75,000 in working out the gain on that disposal.

In the case of shares or securities listed on the Stock Exchange the market value is the lower of:

a figure one-quarter up from the lower of the two prices in the quotation for the relevant day, and

the figure halfway between the highest and the lowest prices of recorded bargains for that day.

Estimates and valuations

If you have used any estimated figures to work out your gains and losses, tick the appropriate box in column C on Page CG2 of the Capital Gains Pages, and describe which figures you estimated and why you had to estimate.

You should include any valuations you have used to work out your gains or losses, for example, because the asset acquired from or was disposed of to a connected person or because you held the asset at 31 March 1982. You should tick the appropriate box in column C, whether you have prepared your own estimate of the value of the asset, or have taken professional advice.

The values you have used may need to be checked for accuracy.  The Inland Revenue uses specialist valuers to value some assets, mainly unquoted shares, land, goodwill and works of art.  You will be able to discuss the values you have used with the valuers.  If the valuation cannot be agreed after discussion you can appeal to an independent tribunal.

Valuations already checked by the Inland Revenue

If you have already asked the Inland Revenue on form CG34 to check any of the valuations you have used in your calculations, put a note to that effect in column O on Page CG3.  The Revenue needs to know which valuations have been agreed already and which have not yet been agreed.

Who are connected persons?

If you dispose of an asset to a connected person, or acquired an asset on a disposal by a connected person, the price you pay or receive is replaced by the market value of the asset in working out your gain or loss on the disposal of that asset.

Connected persons are:

your husband or wife (but if you are living together any gains are deferred), see Help Sheet IR 281: Husband and wife, divorce and separation

your brothers or sisters and your spouse’s brothers or sisters

your parents, grandparents or other ancestors and your spouse’s parents, grandparents or other ancestors

your children and other lineal descendants and your spouse’s children and other lineal descendants

the husband or wives of any of the relatives listed above

your business partners and their relatives, together with the husbands and wives of those partners except for genuine commercial acquisitions or disposals of partnership assets

any company that you control, either by yourself or with any of the persons listed above

the trustees of a settlement of which you, or an individual (still alive) who is connected with you, are the settlor.

If you make a loss on the disposal of an asset to a connected person, you can set that loss only against gains you make on disposals to that same connected person.

What is a wasting asset?

A wasting asset is an asset that had a predictable life of 50 years or less on the date on which you acquired it.   All plant and machinery is treated as a wasting asset.

When you dispose of a wasting asset the expenses you can deduct are reduced to account for the remaining predictable life of the asset.

If you have disposed of such an asset, ask the Orderline for Help Sheet IR293: Chattels and Capital Gains Tax, which explains how to make the calculations.

Is there any adjustment for capital allowances?

You may have claimed capital allowances on the assets you disposed of.  You do not need to adjust the Capital Gains Tax calculation if the disposal has produced a chargeable gain reduced to zero by indexation allowance. If the disposal produces an allowable loss, the amount of the loss is reduced by restricting the expenses by the net capital allowances.  ‘Net capital allowances’ means total capital allowances minus any balancing charges.  This restriction can only reduce the loss to zero.  It cannot produce a gain.

Example 9

In March 1993 you bought a printing press for £100,00.  You sold it in June 1998 for £27,000.  The net capital allowances after deducting the balancing charge are £73,000.  The loss of £73,000 is reduced to zero by restricting the allowable expenses by the amount of the capital allowances.

What is rebasing?

A gain or loss is basically restricted to the amount of the gain or loss since 31 March 1982.  You can:

elect to have gains and losses on all assets covered by the election calculated by reference to the value of the assets on 31 March 1982, or

compare that calculation with the calculation based on the original cost of the asset, and

if there is a gain on both calculations, the smaller gain is taxable.

if there is a loss on both calculations, the smaller loss is allowable, or

if one calculation produces a loss, while the other produces a gain, you will be treated as having made neither a gain nor a loss.

If you:

have acquired an asset from your spouse at a time when you were living together, and

your spouse owned that asset at 31 March 1982,

you can be treated as if you owned that asset at 31 March 1982, in order to work out your gain or loss.  The asset will be covered by the election or non-election of the transferor.

If you have disposed of an asset which you held at 31 March 1982, ask the Orderline for Help Sheet IR280: Rebasing - assets held at 31 March 1982, which explains these rules in more detail.

Your election is called a ‘rebasing election’ and will apply to all of the assets you held at 31 March 1982.  An election may not always be to your advantage, but if you wish to make the election you must do so within two years from the end of the tax year in which you first made a disposal of an asset which you held at 31 March 1982.  The Board of Inland Revenue has discretion to allow you a longer period.  Once you have made an election, it will not be possible for you to withdraw it at a later date.

Show where you have used a valuation at 31 March 1982 by ticking the appropriate boxes in columns C and D on Page CG2 of the Capital Gains Pages.

If you want to make a rebasing election in your 1998-99 Return:

tick column H on Page CG2 of the Capital Gains Pages against each disposal affected by the election

write ‘rebasing election’ in column O.

What is indexation allowance?

This allowance ensures that only gains adjusted up to April 1998 for the effects of inflation since you acquired the asset are taken into account. Indexation allowance is frozen from April 1998. However, taper relief applies to disposals on or after 6 April 1998, see Section 6 which explains how taper relief works.

It does this by giving you an allowance equal to the amount by which the cost of the asset would have risen if its value had kept pace with inflation between the time you acquired it and April 1998.

If you held the asset at 31 March 1982 (or you acquired that asset from your spouse and he or she held it on that date) and the market value of the asset on that date was greater than when you acquired it, indexation allowance is calculated on that higher value.  There is an exception if you have made an election described under the section headed ‘What is rebasing’. In that case, indexation allowance is calculated on the 31 March 1982 value irrespective of cost, unless you acquired the asset from your spouse and they had not made an election.

Indexation allowance will reduce, or may eliminate, the gains on which you are taxable.  But it cannot be used to create or increase an allowable loss.  See Section 5 below for help with working out your indexation allowance.

What are part disposals?

If you have made a disposal of part of an asset so that part of the asset is retained by you (or you have retained an interest in the asset), there are rules to allocate expenditure between the part sold and the part retained.  These are:

expenditure which relates wholly to the part disposed of is deductible in full

expenditure which relates wholly to the part retained is not deductible

a proportion of expenditure which partly relates to the part sold is deductible (the proportion relating to the part retained is not).

The deductible proportion is the following fraction:

Disposal proceeds

-------------------------------------------------------

Disposal proceeds + Value of part retained

Example 10

You sell part of an asset for £25,000.  The asset cost you £30,000 and the part of the asset that you have retained is worth £50,000.  You have also incurred expenditure of £5,000 wholly on the part of the asset you have sold.  To work out your gain or loss you can deduct the £5,000 spent on the part sold together with:

          £25,000

--------------------------------  x £30,000  =  £10,000

£25,000 + £50,000

Where the part of the asset sold, particularly in the case of shares and securities, is a recognisable fraction of the asset, the allowable expenditure may be allocated according to that fraction to avoid unnecessary valuation work.  The expenditure not allowed this time can be allowed on a later disposal

Section 5 - Indexation allowance

This Section shows you how to work out the indexation allowance on some simple disposals.  But it is only an introduction.  If you are in any doubt about your entitlement to relief, ask your Tax Office or tax adviser.  In particular the basic rules are modified if:

you have made a disposal of an asset that you held at 31 March 1982, or

you have made a disposal of pooled shares or securities.

The changes to the rules are mentioned here, but you may need Help Sheets to understand them fully.  You can also ask to see the Inland Revenue Capital Gains Manual at any Tax Enquiry Centre, which explains the rules for indexation allowance in detail.

When does indexation allowance apply?

In the computation of chargeable gains accruing on or after 6 April 1998 indexation allowance has been frozen. This means that indexation allowance will be given for periods up to April 1998, but not after then. So, for an asset held at 6 April 1998 and disposed of after that date, indexation allowance will be computed for the period from the date of acquisition (or the date the expenditure was incurred) to April 1998 but not for the period from April 1998 to the date of disposal. For assets acquired on or after 1 April 1998 no indexation allowance can be deducted in computing the chargeable gain.

How is indexation allowance calculated?

You work out indexation allowance by multiplying the amount you spent by the indexation factor. You can find a table of indexation factors in this section. You need to select the indexation factor for the year and the month in which you acquired the asset or, for subsequent expenditure on the asset, the year and month in which you incurred the expenditure. For example the indexation factor for expenditure incurred in June 1989 is 0.409.

Example 11

You buy an asset for £10,000 in June 1989 and sell it for £20,000 in November 1998.

Your indexation allowance will be:

£10,000 x 0.409 = £4,090

You deduct an allowance of £4,090 in calculating your indexed gain.

Filling in your Capital Gains Pages

Section 1 - Filling in Pages CG1,CG2 and CG3  Filling in Pages CG2 and CG3   Filling in Page CG1  Capital losses

Section 2 - A simple guide to Capital Gains Tax

Section 3 - An introduction to Capital Gains Tax  Chargeable gains  Who pays Capital Gains Tax?  Assets  Exempt assets  Disposals  Small receipts  Building Society mergers, conversions and take-overs  Company reconstructions and take-overs  Allowable losses set against income   Other taxable gains  Gains of earlier years

Section 4 - Calculating gains and losses  How to calculate gains and losses  A simple calculation  How is a loss allowed  Carry back of losses  Do losses have to be claimed?  How to make a claim for a loss  Is there a time limit for claiming losses?  What is the date of disposal (or acquisition)?  What are disposal proceeds?  What expenses can be deducted ?  What acquisition costs can be deducted?  What enhancement costs can be deducted?  What incidental costs can be deducted?  What is expenditure on establishing, preserving or defending your title to an asset?  What is meant by market value?  Estimates and valuations  Valuations already checked by the Inland Revenue  Who are connected persons?  What is a wasting asset?  Is there any adjustment for capital allowances?  What is rebasing?  What is indexation allowance?  What are part disposals?

Section 5 - Indexation allowance  When does indexation allowance apply?  How is indexation allowance calculated?  What about losses?  Which costs attract indexation allowance?  What about part disposals?  What about transfers to spouses?  What about assets held at 31 March 1982?  What about disposals of shares or securities?  Indexation allowance table for disposals after 31 March 1998

Section 6 - Taper relief  Introduction  What is a business asset?

Section 7 - Reliefs and elections  Your home  Other reliefs

Section 8 - Worked examples of gains and losses


Capital Gains II
Notes on Capital Gains II

Filling in your Capital Gains Pages

Section 1 - Filling in Pages CG1,CG2 and CG3  Filling in Pages CG2 and CG3   Filling in Page CG1  Capital losses

Section 2 - A simple guide to Capital Gains Tax

Section 3 - An introduction to Capital Gains Tax  Chargeable gains  Who pays Capital Gains Tax?  Assets  Exempt assets  Disposals  Small receipts  Building Society mergers, conversions and take-overs  Company reconstructions and take-overs  Allowable losses set against income   Other taxable gains  Gains of earlier years

Section 4 - Calculating gains and losses  How to calculate gains and losses  A simple calculation  How is a loss allowed  Carry back of losses  Do losses have to be claimed?  How to make a claim for a loss  Is there a time limit for claiming losses?  What is the date of disposal (or acquisition)?  What are disposal proceeds?  What expenses can be deducted ?  What acquisition costs can be deducted?  What enhancement costs can be deducted?  What incidental costs can be deducted?  What is expenditure on establishing, preserving or defending your title to an asset?  What is meant by market value?  Estimates and valuations  Valuations already checked by the Inland Revenue  Who are connected persons?  What is a wasting asset?  Is there any adjustment for capital allowances?  What is rebasing?  What is indexation allowance?  What are part disposals?

Section 5 - Indexation allowance  How is indexation allowance calculated?  What about losses?  Which costs attract indexation allowance?  What about part disposals?  What about transfers to spouses?  What about assets held at 31 March 1982?  What about disposals of shares or securities?  Indexation allowance table for disposals after 31 March 1998

Section 6 - Taper relief  Introduction  What is a business asset?

Section 7 - Reliefs and elections  Your home  Other reliefs

Section 8 - Worked examples of gains and losses

What about losses?

You cannot use indexation allowance to turn a gain into a loss or to increase your loss.

Example 12

You sell an asset in May 1998 for £20,000.  It cost you £30,000 in November 1989.  You have made a loss of £10,000.  You cannot deduct any indexation allowance, because the allowance cannot be used to increase the amount of a loss.

Example 13

You sell an asset in July 1998 for £70,000.  It cost you £50,000 in June 1984.  Before indexation allowance you make a gain of £20,000.

Your indexation allowance would be:

£50,000 x 0.823 = £41,150

But your gain before indexation allowance is only £20,000 and indexation allowance cannot turn a gain into a loss.  Your indexation allowance is restricted to £20,000 so that you are treated as making neither a gain nor a loss

Which costs attract indexation allowance?

You can deduct indexation allowance from your gain if you have any of the following types of expenditure:

the cost of an asset, or

the incidental cost of acquiring an asset, or

the cost of creating an asset if it was not acquired.

Any of these types of expenditure is treated as having been made when the asset was acquired or created.

Example 14

You acquire an asset under a contract made in March 1999.

Payment does not have to be made until June 1999.  When you calculate your indexation allowance you should treat the expenditure as if it had been made in March 1999.

You can also deduct indexation allowance if you have either of the following types of expenditure.

expenditure on enhancing the asset, or

expenditure on establishing, preserving or defending your title to an asset

Either of these types of expenditure is treated as having been made when that expenditure became due and payable

Example 15

In May 1998 you entered into a contract with a builder to add an extension to a property you own. The cost was due and payable when the work was completed in September 1998.  When you calculate the indexation allowance you should treat the expenditure as incurred in September 1998.

You cannot have indexation allowance on the costs of disposing of an asset, regardless of when you met those costs.

What about part disposals?

If you make a disposal of part of an asset you own, you will only be able to deduct part of the costs of that asset in working out your gain or loss.  Section 4 explains how the calculation is made.

Your indexation factor is multiplied by the part of the cost that can be deducted - not by the whole of the cost of the asset.

Example 16

You sell part of an asset which cost you £20,000.  The part disposal formula allows you to deduct £5,000 of that cost to work out your gain.  You should multiply the indexation factor by £5,000 to work out your indexation allowance.

What about transfers to spouses?

If you dispose of an asset to your husband or wife, you do not pay Capital Gains Tax if you are living together.

The asset is treated as having been disposed of for an amount that is enough to ensure that you make neither a gain nor a loss.  This amount includes indexation allowance.   This sort of disposal is referred to here as a no gain/no loss transfer

Your husband or wife will pay tax on any gain they make when they dispose of the asset.  Ask the Orderline for Help Sheet IR281: Husband and wife, divorce and separation.

Example 17

In August 1998 you give a painting to your husband. It cost you £50,000 in June 1986.  You are treated as having disposed of it for £83,150 as shown below. He is treated as having acquired it for the same amount

Transferred at	 £83,150

Cost  	 	£50,000

Indexation allowance

£50,000 x 0.663	£33,150

----------

no gain/no loss	zero

The calculation is exactly the same if the painting is sold to your husband regardless of any amount he might have paid.

Use the figures on this and the next page if you want to calculate indexation allowance, see instructions

What about assets held at 31 March 1982?

If you:

owned an asset at 31 March 1982, or

you acquired an asset from your spouse in a no gain/no loss transfer after that date, and your spouse held the asset at 31 March  1982,

the rules are modifed for that asset.

Your indexation allowance is caluclated on the greater of:

the total cost you or your spouse incurred up to 31 March 1982 on that asset (including its initial acquisition price), or

the value of that asset at 31 March 1982, unless

you have made an election for rebasing to 31 March 1982 to apply to all your disposals.  If you have made a rebasing election, indexation allowance is calculated on the value of the asset at 31  March 1982.

You can calculate separately indexation allowances on any relevant expenditure incurred after 31 March 1982 that is allowable in working out your gains.

You can find out about rebasing to 31 March 1982 by asking the Orderline for Help Sheet IR280: Rebasing - assets held at 31 March 1982.

Example 18

You bought an asset in 1979 for £20,000.  At 31.03.82 it was worth £15,000.  You should calculate your indexation allowance by multiplying £20,000 by the indexation factor unless you have made a rebasing election; in which case you should multiply £15,000 by the indexation factor.

What about disposals of shares or securities?

Shares acquired (or treated as acquired) after 5 April 1982 and before 6 April 1998 are treated as a single asset, the share pool, if they are:

in the same class

in the same company

acquired in the same capacity

Shares acquired (or treated as acquired) between 7 April 1965 and 5 April 1982 form a separate pool.

The same treatment applies to some securities and similar assets.

The rules for indexation allowance are modified to cope with share pooling.

Shares etc. acquired on or after 6 April 1998 are not pooled. They also do not attract any indexation allowance, see note.

If you have disposed of shares or securities ask the Orderline for Help Sheet IR284: Shares and Capital Gains Tax.

Help Sheet IR287: Employee share schemes and Capital Gains Tax, available from the Orderline, explains more about shares which you acquired in connection with your employment or by exercising an employee share option.

Indexation allowance table for disposals after 31 March 1998

You work out indexation allowance by multiplying the amount you spent by the indexation factor. All of the factors you will need are included in the table below.

For example, if you incurred expenditure in June 1989, look across the Month columns to find June and then look down the column until you find the row for 1989. Your indexation factor for June 1989 will be 0.409.

1982  1983  1984  1985  1986  1987  1988  1989  1990  1991  1992  1993  1994  1995  1996  1997 1998

Month
March 1982	1.047
April	1.006
May	0.992
June	0.987
July	0.986
August	0.985
September	0.987
October	0.977
November	0.967
December	0.971
January 1983	0.968
February	0.960
March	0.956
April	0.929
May	0.921
June	0.917
July	0.906
August	0.898
September	0.889
October	0.883
November	0.876
December	0.871
January 1984	0.872
February	0.865
March	0.859
April	0.834
May	0.828
June	0.823
July	0.825
August	0.808
September	0.804
October	0.793
November	0.788
December	0.789
January 1985	0.783
February	0.769
March	0.752
April	0.716
May	0.708
June	0.704
July	0.707
August	0.703
September	0.704
October	0.701
November	0.695
December	0.693
January 1986	0.689
February	0.683
March	0.681
April	0.665
May	0.662
June	0.663
July	0.667
August	0.662
September	0.654
October	0.652
November	0.638
December	0.632
January 1987	0.626
February	0.620
March	0.616
April	0.597
May	0.596
June	0.596
July	0.597
August	0.593
September	0.588
October	0.580
November	0.573
December	0.574
January 1988	0.574
February	0.568
March	0.562
April	0.537
May	0.531
June	0.525
July	0.524
August	0.507
September	0.500
October	0.485
November	0.478
December	0.474
January 1989	0.465
February	0.454
March	0.448
April	0.423
May	0.414
June	0.409
July	0.408
August	0.404
September	0.395
October	0.384
November	0.372
December	0.369
January 1990	0.361
February	0.353
March	0.339
April	0.300
May	0.288
June	0.283
July	0.282
August	0.269
September	0.258
October	0.248
November	0.251
December	0.252
January 1991	0.249
February	0.242
March	0.237
April	0.222
May	0.218
June	0.213
July	0.215
August	0.213
September	0.208
October	0.204
November	0.199
December	0.198
January 1992	0.199
February	0.193
March	0.189
April	0.171
May	0.167
June	0.167
July	0.171
August	0.171
September	0.166
October	0.162
November	0.164
December	0.168
January 1993	0.179
February	0.171
March	0.167
April	0.156
May	0.152
June	0.153
July	0.156
August	0.151
September	0.146
October	0.147
November	0.148
December	0.146
January 1994	0.151
February	0.144
March	0.141
April	0.128
May	0.124
June	0.124
July	0.129
August	0.124
September	0.121
October	0.120
November	0.119
December	0.114
January 1995	0.114
February	0.107
March	0.102
April	0.091
May	0.087
June	0.085
July	0.091
August	0.085
September	0.080
October	0.085
November	0.085
December	0.079
January 1996	0.083
February	0.078
March	0.073
April	0.066
May	0.063
June	0.063
July	0.067
August	0.062
September	0.057
October	0.057
November	0.057
December	0.053
January 1997	0.053
February	0.049
March	0.046
April	0.040
May	0.036
June	0.032
July	0.032
August	0.026
September	0.021
October	0.019
November	0.019
December	0.016
January 1998	0.019
February	0.014
March	0.011

Section 6 - Taper relief

Introduction

Taper relief is a new relief that reduces the amount of a gain chargeable to Capital gains Tax, according to the number of whole years the asset has been held after 5 April 1998. The greater the number of whole years up to a maximum of ten that you have held the asset the smaller the percentage of gain which is chargeable to tax. The amount of the reduction is shown in the table below and depends on whether the asset is a business asset or a non-business asset.

Gains on business assets	Gains on non business assets

Number of	Percentage of	Number of	Percentage of

whole years	gain chargeable	whole years	gain chargeable

1	92.5	1	100

2	85	2	100

3	77.5	3	  95

4	70	4	  90

5	62.5	5	  85

6	55	6	  80

7	47.5	7	  75

8	40	8	  70

9	32.5	9	  65

10 or more	25	10 or more	  60

The complete taper relief table has been included for information, although for disposals in the tax year 1998-99 that you include in this return it will only be possible to accumulate one whole year. The percentages rates for two or more years (those that are greyed out) will not be available until later tax years.

For most people the new provisions will have no effect on the calculation of gains chargeable to Capital Gains Tax for the tax year 1998-99. If none of the assets you have disposed of in the tax year 1998-99 have been business assets to any extent in the period between 6 April 1998 and the date of disposal, taper relief will not reduce your gain. If you are in any doubt ask for Help Sheet IR279: Taper relief.

What is a business asset?

A business asset is:

an asset (other than shares or securities) which is used for the purpose of a trade, profession or vocation carried on by you (either alone or in partnership) or by your qualifying company

an asset (other than shares or securities) held for the purpose of a qualifying office or employment with a trading employer to which you are required to devote substantially the whole of your time

shares held by you in a qualifying company

A qualifying company is a trading company (or the holding company of a trading group) in which you hold shares which entitle you to exercise at least 25% of the voting rights in that company, or 5% of the voting rights if you are a full time working officer or employee of that company (or group).

Section 7 - Reliefs and elections

Reliefs from Capital Gains Tax are given in different ways to meet different purposes.  Some reliefs are given automatically and so you do not need to make a claim.  You should take account of the amount of any ‘automatic’ relief that is due when you work out your gains and losses together with all other reliefs you are claiming.

Some reliefs are only given if you claim them.  In some cases you can make a claim in the Tax Return.  In others you must make the claim on a separate form, which you attach to the Tax Return.

You can also use the Capital Gains Pages to make any elections that determine how your gains are to be worked out.

The most common reliefs and elections are introduced briefly below, and are dealt with more fully in Help Sheets available from the Orderline. See the list at the beginning of the Capital Gains Notes.

Your home

In most cases you will not pay tax on any gain you make when you dispose of your only home. Similarly, if there is a loss on the disposal the loss will not be allowable.  You may have to pay tax if, for example:

the garden or grounds of your home including the site of the house exceed half a hectare (one and a quarter acres) and some or all of that excess does not qualify for relief.

part or all of your home has at some time not been used as your home; for example if it has been let or used for business.

you have had a second home, and the property you have disposed of has not been your main home during your whole period of ownership.

If you think you may be entitled to private residence relief on a disposal you have made, ask the Orderline for Help Sheet IR283: Private residence relief.

Other reliefs

Roll-over relief allows gains on the disposal of business assets to be deferred if replacement assets are acquired.  If you want this relief, ask the Orderline for Help Sheet IR290: Business asset roll-over relief. The definition of business asset for this purpose is not the same as that set out in the preceding note.

Complete the claim form attached to Help Sheet IR290.  Please attach the claim form to the Tax Return when you send it back to me.  If you are claiming in relation to any disposal, tick column H on Page CG2 next to that disposal write ‘roll-over relief’ in column O on Page CG3 next to that disposal.

Retirement relief relieves gains made by an individual aged 50 or over, or who retired early on ill-health grounds, on the disposal of their business (or shares in a personal trading company).  If you think you may be entitled to this relief, ask the Orderline for Help Sheet IR289: Retirement relief and Capital Gains Tax.  For relief on age grounds, tick column H on Page CG2 next to the relevant disposal and write ‘retirement relief’ in column O on Page CG3.  If you want relief on ill-health grounds, tick column H next to the relevant disposal and write ‘ill health retirement relief’ in column O on Page CG3.

Gifts hold-over relief allows gains to be deferred when certain assets are given away.  If you want this relief, ask the Orderline for Help Sheet IR295: Relief for gifts and similar transactions.  Claims must be made by completing the claim form attached to Help Sheet IR295 or a copy of the form. Please attach the claim form to your Tax Return.  Tick the box in column H on Page CG2 next to the relevant disposal and write ‘gifts hold-over relief’ in column O on Page CG3. Other reliefs for gifts and similar transactions are described in Help Sheet IR295: Relief for gifts and similar transactions, for example gifts to charities and claims to defer payment of tax.

Please note that in most cases the claim is a joint claim by you and the person to whom you gave the asset.

Reinvestment relief allows gains to be deferred if they were reinvested in certain unlisted company shares before 6 April 1998. See Help Sheet IR291: Reinvestment relief shares acquired before 6 April 1998.  This relief may be claimed by completing the claim form attached to Help Sheet IR291 and attaching it to your Tax Return.  Also tick the box in column H on Page CG2 next to the relevant disposal and write ‘reinvestment relief’ in column O on Page CG3. This relief has been replaced by the Enterprise Investment Scheme deferral relief, see below.

Dependent relative relief allows relief on the disposal of a home you have provided to a dependant relative and which was occupied by the relative as their sole residence before 6 April 1988.  See Help Sheet IR283: Private residence relief.  If you want this relief, you must claim it on the Capital Gains Pages by ticking the box in column H on Page CG2 next to the relevant disposal and write ‘dependant relative relief’ in column O on Page CG3.

Halving relief relieves half of a gain arising from a gain deferred from before April 1988.  See Help Sheet IR280: Rebasing - assets held at 31 March 1982.  If you want this relief, you must claim it on the Capital Gains Pages by ticking the box in column H on Page CG2 next to the relevant disposal and writing ‘halving relief’ in column O on Page CG3.

Enterprise Investment Scheme and Venture Capital Trust deferral reliefs allow gains to be deferred when you subscribe for Enterprise Investment Scheme shares or Venture Capital Trust shares.  See Help Sheet IR297: Enterprise Investment Scheme and Capital Gains Tax and Help Sheet IR298: Venture Capital Trusts and Capital Gains Tax. To claim Venture Capital Trust deferral relief, complete the claim form attached to the Help Sheet and attach it to your Tax Return. Enterprise Investment Scheme deferral relief can only be claimed on receipt of an EIS3 certificate from the company invested in. A claim form is attached to the certificate for completion  and submission with your Tax Return. When claiming, tick the box in column H on Page CG2 next to the relevant disposal and writing ‘Enterprise Investment Scheme deferral relief’ or ‘Venture Capital Trust disposal relief’ in column O on Page CG3.

Enterprise Investment Scheme and Venture Capital Trust deferral reliefs. See Help Sheets IR297 and IR298, as above. Any gain on the disposal of Enterprise Investment Scheme and Venture Capital Trust shares may not be chargeable to Capital gains Tax. If you have taken advantage of either of these reliefs on the disposal of any shares, tick the box in column H on Page CG2 next to the relevant disposal and writing ‘Enterprise Investment Scheme disposal relief’ or ‘Venture Capital Trust deferral relief’ in column O on Page CG3.

Business transfer relief defers a gain made when a business is transferred to a company in exchange for shares.  This relief is given automatically.  If you have taken advantage of this relief on any disposal, tick the box in column H on Page CG2 next to the relevant disposal and write ‘business transfer relief’ in column O on Page CG3.

Unremittable gains.  If you have disposed of an asset situated outside the UK and you are unable to transfer the gains to the UK because of exchange controls or a shortage of foreign currency in the overseas country, then you can claim that the unremittable gain should not be taxable in 1998-99.  You can claim relief by ticking the box in column H on Page CG2 next to the relevant disposal and writing ‘unremittable gains’ in column O on Page CG3.

Gains becoming remittable.  Where a gain was not taxed in an earlier year because it was unremittable but it can now be remitted to the UK it is treated as a gain arising in 1998-99.  A gain may become remittable if, for example, exchange controls are lifted.  Include any gains to which this applies whether or not they are actually remitted to the UK.

Relief for losses against income.  See note.  If you are claiming this relief, tick the box in column H on Page CG2 next to the relevant disposal and write ‘relief for losses against income’ in column O on Page CG3. Enter the amount claimed in box 8.13.

Rebasing.  See note.

Relief for foreign tax paid.  If gains chargeable to Capital Gains Tax have also been charged to tax in another country, you may be able to claim relief by way of credit for the foreign tax paid (‘tax credit relief’).  Tax credit relief is deducted from that part of your Capital Gains Tax liability that relates to the gain on which the foreign tax has been paid.  If you wish to claim tax credit relief you should ask the Orderline for a copy of the Foreign Pages, if you do not already have one.

If you have gains which are chargeable on the remittance basis and wish to claim relief by way of credit for foreign tax paid in respect of those gains, you will need to add the amount of net gains brought to the UK (that is, the gains less the foreign tax) the appropriate proportion of the foreign tax attributable to the net gains remitted.

It will usually be to your advantage to claim tax credit relief in respect of foreign tax paid.  But this will not be the case where no Capital Gains Tax is chargeable on a particular gain.  For example, where the disposal results in a loss, or losses brought forward extinguish any chargeable gains, there may be no UK tax against which the foreign tax can be credited.

If you do not wish to claim tax credit relief, deduct the foreign tax paid in calculating the amount of the chargeable gains or allowable losses to be shown in column I on Page CG2. You cannot, however, deduct part of the foreign tax in calculating the gain on disposal and claim credit for the balance.

If you do wish to claim tax credit relief, you should obtain the Foreign Pages and complete page F3.  If you are calculating your tax, you will also need Help Sheet IR261: Tax Credit Relief: Capital Gains available from the Orderline.

Section 8 - worked examples of gains and losses

The basic calculation

Example 19

A piece of land, which was bought in June 1988 for £20,000, was sold in May 1998 for £100,000.  The incidental costs of the acquisition were £1,000, while the incidental cost of the disposal were £5,000.  A barn had been built on the land in August 1988 at a cost of £15,000 and it was still there when the land was sold.

Disposal proceeds	£100,000

minus Incidental costs	£     5,000

-------------

Net disposal proceeds	£   95,000

Cost	£20,000

plus Incidental costs	£  1,000

plus Enhancement expenditure	£15,000

------------

total	£36,000	£  36,000

-------------

Unindexed gain	£  59,000

minus Indexation allowance

Acquisition costs £21,000

Indexation allowance 0.525 x £21,000 =	£  11,025

Enhancement expenditure     £15,000

Indexation allowance 0.507 x £15,000 =	£    7,605

------------

Chargeable gain, subject to taper relief	£  40,370

Allowable losses

Example 20

An individual has the following chargeable gains and allowable losses

1996-97	1997-98	1998-99

Gain	£10,000	£15,000	£25,000

Losses	£25,000	£  5,000	zero

The chargeable gain or allowable losses position for each year would be:

1996-97	Gain	£10,000

Minus losses	£10,000

Losses to carry forward	£15,000

Losses of the same year are set-off to reduce the gains to zero

1997-98	Gain	£15,000

Minus current year losses	£  5,000

Minus losses brought forward	£  3,500

-----------

Net gains	£  6,500

Minus annual exempt amount	£  6,500

-----------

zero

Losses to carry forward	£11,500

(£15,000 minus £3,500)

Losses of the same year are set-off in priority to losses brought forward

Losses brought forward are set-off to reduce gains to the annual exempt amount

1998-99	Gain	£25,000

Minus losses brought forward	£11,500

------------

Net chargeable gain, subject to taper relief	£13,500

Rebasing to 31 March 1982 - No election made

Example 21

An asset cost £250,000 on 1 May 1979 inclusive of incidental costs.  It is worth £200,000 at 31 March 1982 and was sold on 15 April 1998 for £1,000,000 net of incidental costs.  No election has been made for rebasing to 31 March 1982.

Original cost	Rebased gain

Disposal	£1,000,000	Disposal	£1,000,000

proceeds	proceeds

minus	Cost	£   250,000	minus value at

31 /03/82	£   200,000

---------------	---------------

Unindexed gain	£750,000	Unindexed gain	£   800,000

minus	indexation	minus indexation

250,000 x 1.047=£261,750	£250,000 x 1.047=	£   261,750

-------------	---------------

Indexed gain	£488,250	Indexed gain	£   538,250

The indexed gain to which taper relief should be applied is the lower of the two figures: £488,250.   See notes and Help Sheet IR280

A part disposal

Example 22

A house was bought for letting in December 1987 for £50,000 including incidental costs.  In March 1988 it was subdivided into 2 flats at a cost of £5,000.  One flat was sold in April 1998 for £120,000.  Immediately before sale a central heating system was installed at a cost of £2,000 in the flat that was sold.  The incidental expenses of the disposal were £6,000 and the value of the retained flat was £80,000

Disposal proceeds	£120,000

minus	incidental costs	`	£     6,000

--------------

£114,000

minus	Part of cost of house

£50,000 x	             £120,000	       = £30,000

-----------------------------

£120,000 + £80,000

minus	Subdividing house

£    5,000  x	             £120,000	       = £  3,000

-----------------------------

£120,000  + £80,000

minus	Central heating	          £  2,000

              ---------

Total costs	          £35,000	£35,000

-----------

Unindexed gain	£79,000

minus	Indexation allowance

cost of house 0.574 x £30,000	    =  £17,220

subdivision 0.562     x £  3,000            =  £  1,686

Total indexation	         £18,906	£18,906

-----------

Chargeable gain, subject to taper relief	£60,094

A disposal of pooled shares

Example 23

2,000 shares were bought in May 1988 at a cost of £9,000 including incidental costs.  In January 1990 there was a rights issue of two shares for each one held as a result of which a further 4,000 shares were bought for £20,000.  In June 1998, 600 shares were sold for £6,000 net of incidental costs.

Number of shares	Pool of qualifying	Indexed pool

expenditure	of expenditure

A new holding is

created in May 1988:	2,000	£9,000	£  9,000

The rights issue is an 'operative event'

(This phrase is explained in Help Sheet IR284)

Indexation	£9,000  x  0.125	=	£  1,125

---------	----------	-----------

2,000	£9,000	£10,125

Add the cost of the rights issue shares to the two pools

4,000	£20,000	£20,000

---------	----------	-----------

6,000	£29,000	£30,125

The part disposal in June 1998 is an 'operative event'

Indexation	£30,125  x  0.361	=	£10,875

----------	-----------	------------

6,000	£29,000	£41,000

Reduce the two pools by the apportioned amounts of cost and indexation

 (600)	(£2,900)	(£ 4,100)

----------	-----------	------------

5,400	£26,100	£36,900

Calculation of chargeable gain:

Disposal proceeds	£  6,000

minus	cost	£  2,900

-----------

Unindexed gain	£  3,100

Minus	Indexation (£4,100 minus £2,900)	£  1,200

-----------

Chargeable gain, subject to taper relief	£ 1,900

Relief for foreign tax paid

Example 24

You sold a property abroad realising a gain of £30,000 which is chargeable to UK Capital Gains Tax on the remittance basis. Foreign tax of £9,000 is paid on the gain.  Of the net after-tax gain of £21,000 you bring £5,250 into the UK.  You wish to claim relief by way of credit for the foreign tax paid.

The amount of gains chargeable to UK tax is:

Amount remitted	£5,250

add foreign tax

£5,250  x  £9,000	=	£2,250

-----------	---------

£21,000

Tax credit relief is available for foreign tax (£2,250) attributable to the gain remitted.

If the UK Capital Gains Tax on the figure of taxable gains is less than the amount of the foreign tax available for credit, the excess foreign tax is not repayable nor can it be deducted in calculating the taxable gains.  For example, if the gains of £7,500 are taxable at 23%, the tax due of £1,725 will be wholly covered by tax credit relief.  No relief of any kind is available for the excess foreign tax of £525 (that is, £2,250 minus £1,725).

Filling in your Capital Gains Pages

Section 1 - Filling in Pages CG1,CG2 and CG3  Filling in Pages CG2 and CG3   Filling in Page CG1  Capital losses

Section 2 - A simple guide to Capital Gains Tax

Section 3 - An introduction to Capital Gains Tax  Chargeable gains  Who pays Capital Gains Tax?  Assets  Exempt assets  Disposals  Small receipts  Building Society mergers, conversions and take-overs  Company reconstructions and take-overs  Allowable losses set against income   Other taxable gains  Gains of earlier years

Section 4 - Calculating gains and losses  How to calculate gains and losses  A simple calculation  How is a loss allowed  Carry back of losses  Do losses have to be claimed?  How to make a claim for a loss  Is there a time limit for claiming losses?  What is the date of disposal (or acquisition)?  What are disposal proceeds?  What expenses can be deducted ?  What acquisition costs can be deducted?  What enhancement costs can be deducted?  What incidental costs can be deducted?  What is expenditure on establishing, preserving or defending your title to an asset?  What is meant by market value?  Estimates and valuations  Valuations already checked by the Inland Revenue  Who are connected persons?  What is a wasting asset?  Is there any adjustment for capital allowances?  What is rebasing?  What is indexation allowance?  What are part disposals?

Section 5 - Indexation allowance  When does indexation allowance apply?  How is indexation allowance calculated?  What about losses?  Which costs attract indexation allowance?  What about part disposals?  What about transfers to spouses?  What about assets held at 31 March 1982?  What about disposals of shares or securities?  Indexation allowance table for disposals after 31 March 1998

Section 6 - Taper relief  Introduction  What is a business asset?

Section 7 - Reliefs and elections  Your home  Other reliefs

Section 8 - Worked examples of gains and losses


Capital Gains Q8

Fill In the Capital Gains Pages If you had capital gains, unless:

the gains from the disposal of your only or main residence are exempt as a result of private residence relief, and

any other assets you disposed of in the tax year were worth £13,600 or less in total (when calculating this you should exclude exempt assets, but include any residence which is not exempt or which is only partially exempt: if you are not domiciled in the UK and are chargeable on the remittance basis (see Question 9), you should include the proceeds from  any overseas assets disposed of in this year or an earlier year, to the extent that these have been remitted to the UK during the year), and

your total chargeable gains were less than £6,800 or less. (When calculating this you should include any amounts remitted to the UK in respect of gains accruing in this year or an earlier year, where those gains are chargeable on the remittance basis).

Otherwise you must fill them in. You must also complete them if you wish to claim an allowable capital loss.

Private Residence Relief

Any gain from the disposal of your home will be fully exempt, if your disposal was of some or all of a house and its grounds, which has been your only or main residence throughout the period you owned it (ignoring the last three years of ownership), and which, in total, did not exceed half a hectare. You may still be entitled to some relief in other circumstances. Ask for Help Sheet IR283: Private Residence Relief from the Orderline.

Exempt assets

The disposal of some types of assets is exempt from Capital Gains Tax. For example, you will not have to pay tax when you sell your car.


Client Event Dates

This screen records the dates on which an events occurred for the client. The dates can either be entered manually or automatically by the Mail Merge facility. For more information see Mail Merge.


Client Grid
Client Grid - This Grid displays details of your existing clients records. The clients are displayed alphabetically in client code order. You may scroll though the clients in the grid by clicking on the scroll bar on the right hand side of the grid or by dragging the scroll box  with the mouse. You may also click the grid with the mouse and then use the up/down arrow and page keys to scroll the list. When you have found the required client record double click the entry in the grid to open the clients tax form or click then Open Button.


Client correspondence/standard letters

From this screen the system provides the facility to write ad-hoc letters to clients and standard letters to be used as templates when writing to clients and for use with the mail merge facility. For more information on sending a mail merged standard letter see Mail Merge.

If you open this window before opening a clients tax form the grid will display a list of the standard letters that you have already written. To view and edit a standard letter select the document within the grid with the highlight bar and then click the view button. Alternatively you may also double click the entry in the grid to perform this task in one action. The system then loads and displays the standard letter in the word processing window. See Word Processing for more information on operating the word processor.

You may add a new standard letter by clicking on the Add button and entering the date, subject and author of the letter. Once you accept these by clicking on the OK button a blank word processing window is displayed for you to compose your letter. The icons displayed on the toolbar are similar to those in Word for Windows and allow you to perform all the basic word processing functions. If you position the mouse cursor over a toolbar button the system displays a bubble help. To build up a letter to include fields which are automatically filled in by the system with your clients details click the {a}. The last four buttons of the toolbar will be replaced with a drop down list box of your client fields such as name, address, tax reference etc. Select the field from the list box to be included in the letter and then click the Insert Field button immediately below the list box. The description of the field will appear in the body of the letter you are composing. When the letter is printed the system will automatically replace the field description with the relevant client data.

In addition to the toolbar the system displays a menu at the top of the window. This menu provides further word processing options and facilities. For example, if you wish to set margins click on Options and then Document format from the drop down menu.

A standard letter may be deleted by selecting it within the grid with the highlight bar and then clicking the delete button. The system asks you to confirm your action before removing the letter.

If you have already opened a clients tax form before clicking of the Correspondence button the grid displays the letters you have sent to this client. You may view, add and delete these in the same way as described above for standard letters. In addition the Standard Letters button will become active and you may change the contents of the grid to display the standard letters by clicking this button. Clicking the button a second time will revert the grid to displaying the clients letters.


Completing a tax return form
Completing a Tax Return

Whilst the use of this program is intuitive the following comments are appropriate:

This program has been designed to allow direct input of data to the relevant section of the return form in the same way as if it were done manually. It also allows for schedules to be completed in most of the sections. These are used where there is insufficient space on the return form proper or where substantial additional information is needed to enable the entry on the form to be compiled or for computational purposes. Access to the schedules is obtained by clicking on buttons with the fanned pages icon.

Details of dividends paid by UK companies are entered in boxes 10.15, 10.16 and 10.17 (foreign dividends paid by UK companies in boxes 10.24, 10.25 and 10.26) on page 3 of form SA 100 via the fanned pages icon.

The program incorporates a database of dividends paid by major corporations in the tax year covered by the return. Although this data is based on information obtained from a leading commercial source it is important that you check your entries. If the company you require is not listed or you believe the detail to be incorrect please make manual entries. Clicking on the fanned pages icons by the above-mentioned boxes brings up the dividend scheduling screen.

Click on the Add button and enter the number of shares held. Next enter the first few letters of the required company name and click on the downward pointing arrow at the right-hand end of the Company box. Highlight the company by clicking the left-hand mouse button (use the scroll bar if necessary). The dividend received is automatically computed and entered in the relevant boxes along with the date(s) of payment.

Please note that a box bearing the legend Manual override automatically calculated dividend figures  appears. Check this to edit your entries; for example, where because of an acquisition or disposal only one dividend has been received in the year. To delete a dividend payment remove the date and enter "0" in the Dividend/distribution box.

Finally click on the Save button and repeat the process until all dividends have been entered.

If you run either the Print Tax Return or Tax Computation routines whilst "eye" icons remain you are warned of possible incomplete schedules. This timely warning is designed to help avoid incorrect Returns being sent to the Inland Revenue or you incorrectly calculating your tax liability.

Please be sure to click on the Add buttons appearing on certain schedules e.g. the dividends schedule before entering any data.

Clicking on the F1 key whilst the cursor is positioned over the relevant box will bring up the appropriate Revenue Help Note.


Computation Button

Computation Button - Click this button to produce a calculation of the overall liability in a format similar to the Inland Revenue working sheets or a summary thereof. The computation is initially produced in summary form on the screen with the option to print a hard copy. For further information see Computing tax liabilities.


Computing tax liabilities

Clicking the Tax Computation button brings up the computation screen.

Click on Calculate Tax to produce a computation of the overall liability in a format similar to the Inland Revenue Tax Calculation Working Sheets.

The program provides a warning where incorrect entries have been made. However clicking on OK allows the calculation to proceed.

For the purposes of calculating Class 4 NIC you need to enter any appropriate adjustments to profits e.g. losses brought forward.  Also in the case of multiple sources of self-employed income you must select the source against which the Class 4 NIC liability is to be set. If you have not previously done so, after the Calculate Tax button is selected and prior to the computation of liability appearing you are reminded to take the relevant action.

A summary of the liability is initially produced on screen with the option to print a hard copy of this or the full working sheet.

The figure of liability whilst calculated can be omitted from the Return to be sent to the Inland Revenue. This is achieved by checking the box on the on the print tax form screen.


Contents
Life Tax Kit 99 Help Contents

The Life Tax Kit main screen with its toolbar shown below includes hot spots on each button. To get help relating to each button simply move the mouse pointer over the button and click the left mouse button. As the mouse pointer moves over the hot spot it will change from a pointer to a hand. To navigate through the help system click the left mouse button while the mouse pointer is positioned over the underlined green text. The help screen will then jump to the selected topic. You may also click the search button below the menu bar above to search for help using an index of keywords. For more information on using the Help System press the F1 key.

To call up, and if required print, the Inland Revenue Tax Return Guide relevant to the matter being worked on press the F1 key.

New Features

Operational Notes

Main Return Form

Supplementary Pages

Help Sheets


Correspondence Button

Correspondence Button - Click this button to write and manage correspondence to your client and to create standard letters which may be used as templates for writing client correspondence and in conjunction with the mail merge facility. For more information on client correspondence see Client correspondence/standard letters and for more information on Mail Merge click Mail Merge.


ELS button

ELS button - Click on this button to electronically submit your clients' tax returns to and receive data from the Inland Revenue.


Electronic Lodgement (ELS)

This facility enables selected client’s returns to be submitted to the Inland Revenue using the Electronic Lodgement Service (ELS). In order that this may be achieved our program interfaces with the Tax Exchange Module (TEM) produced by the Inland Revenue.

Refer to Section 21 of the Manual for further and detailed information.


Employment
Employment Q1

Fill In the Employment Pages if you were;

employed (on a full-time, part-time or casual basis), or

an office-holder, or

a director, or

an agency worker, or

receiving payments or benefits from a former employer (excluding a pension).

There are separate Pages for the special circumstances of Ministers of Religion.

If, in consequence of your residence or domicile status, you are not liable to UK Income Tax on your employment earnings you may not need to complete the Employment Pages. Please read Note 5

Pages E1 and E2

Ministers of Religion


Employment (notes)

CONTENTS

Filling in your Employment Pages   General rules on taxing employment income  Special rule  Money payments  Details of employer  Income from employment  Money  Benefits and expenses  Assets transferred and payments made for you  Vouchers, credit cards and tokens  Living accommodation  Mileage Allowance  Car and car fuel benefits  Vans  Interest-free and low-interest loans  Mobile telephones  Private medical or dental insurance  Other benefits  Expenses payments received and balancing charges  Lump sums and compensation payments or benefits  Foreign earnings  Expenses you incurred in doing your job  Travel and subsistence costs  Fixed deductions for expenses  Professional fees and subscriptions   Other expenses and capital allowances  Foreign Earnings Deduction  Foreign tax for which tax credit relief not claimed

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for employment are available from the Orderline.

IR125  Using your own car for work

IR134  Income Tax and relocation packages

IR136  Income Tax and company vans - a guide for employees and employers

IR145  Low-interest loans provided by employers

IR161  Tax relief for employees' business travel

IR201  Vouchers, credit cards and tokens

IR202  Living accommodation

IR203  Car benefits and car fuel benefits

IR204  Lump sums and compensation payments

IR205S  Foreign Earnings Deductions for Seafarers

IR206  Capital allowances for employees and office holders

IR207  Non-taxable payments or benefits for employees

IR208  Payslips and coding notices

IR209  Mobile telephones

IR210  Assets provided for private use

IR211  Employment - residence and domicile issues

IR212  Tax equalisation

IR213  Payments in Kind - assets transferred

Booklet 480  Expenses and Benefits - A Tax Guide

Filling in your Employment Pages

The word ‘employment’ is used in these Notes to include directorships, offices, and agency engagements as well as straightforward employee arrangements.  ‘P11D’ means P11D, P9D or equivalent information.

Remember, that even though your employer has provided you with figures, you are responsible for what you put on the Employment Pages.

Gather together the material you need, such as:

your certificate of pay and tax (P60) and any leaving certificate (P45 (Part 1A)) from your employer showing pay and tax details

your Notices of Coding (P2) for 1998-99 and 1999-2000

a P11D from your employer giving details of any benefits and expenses you have received

details of any business expenses you have incurred

If you had one employment during the year

Your P60 will show the total pay and tax. Your employer must give you a P60 by 31 May 1999.

If you had more than one employment during the year

Provided you are employed on 5 April 1999, your employer will give you a P60 by 31 May 1999.  Your P60 will show the total pay and tax in that employment and may show the total pay and tax in a year.

If you have changed employment during the year and your P60 does not have the pay and tax details from your previous employment, or there was more than one previous employment, you will need to obtain the total pay and tax details for each employment.  You can get these from your previous payslips (or from Page 1A of the P45 handed to you on leaving each job).

If you do not have a P60 you will need to obtain all the details from your payslips or P45s.

Fill in a separate copy of the Employment Pages for each employment from which you received any income.  Ask the Orderline for further copies, or you can use photocopies.  Please put your name and tax reference on any photocopies.

General rules on taxing employment income

The way your income should be returned depends on whether or not you were a director during the year ended 5 April 1999.

If you were not a director

Include all income received (or treated as recieved) in the year.

The amounts you enter in boxes 1.8 to 1.10 must include all the income you received in the 1998-99 tax year as an employee even if you earned it in an earlier tax year, or you have been paid for work not yet done.

You will be treated as if you received this income on the earliest of:

the date when the payment, or payment on account, was made, or

the date you became entitled to be paid.

This is so even if you were not paid until later, or received no actual payment because you arranged for the sum due to you to be applied in some other way instead.

If you were a director

Include all income received in the year.

The amounts you enter in boxes 1.9 to 1.10 must include all the income you received in 1999-99 from a company of which you were a director (including amounts received as an employee), even if you earned them in an earlier tax year, or you have been paid for work not yet done.  You should also include sums that were due to you but which, by arrangement, have been applied in some other way.

You should treat income as received on the earliest of:

the date when payment or payment on account was made, or

the date you became entitled to be paid even if you were not paid until later, or

the date you became entitled to a payment on account, or

the date on which amounts were credited to you in the company’s accounts or records, even if you were not able to draw on the money at the time, or

the date your earnings for a particular period were decided, unless the earnings for a particular period of work were decided before that period ended.  In this case you are treated as if you received the earnings on the last day of the period to which the earnings relate.

Special rule

Read the note for box 1.31 if you

were not resident or not ordinarily resident in the UK in the year ended 5 April 1998 or an earlier year, and you received payment in the year ended 5 April 1999 for an employment which ended in that earlier year, or

will be not resident or not ordinarily resident in the UK in the year beginning 6 April 1999 and you have received payment in the year ended 5 April 1999 for an employment which will start in a later year.

Ask the Orderline for the Non-resident Pages and Help Sheet IR211 Employment - residence and domicile issues.  These will tell you what figure, if any, to put in box 1.31 and how to deal with the payments you have received.

Money payments

You must enter in boxes 1.8 to 1.10 the amount before deducting any expenses you wish to claim.

Include:

salaries, wages, fees & commissions, overtime, bonuses, and other contractual payments for services

payments from third parties where the payment is made as a reward for services given in the employment. Examples include tips and gratuities received

voluntary payments and gifts made by your employer or by a third party, when the payment comes to you by virtue of your employment. Do not include gifts given to mark some personal event such as a gift given on marriage

payments made by your employer or a third party as inducement payments (golden hellos) to take up employment

payments that are not directly for services performed but that have a direct connection with your employment.  For example, a payment made solely to recognise changes in your conditions of service or employment

payments that are paid in a lump sum, rather than in weekly or monthly amounts, and are paid either in substitution of a right to employment income, or are paid as an encouragement to continue in employment

gross amount of any incentive award received and shown on form P443 (include any tax accounted for in box 1.11)

sick pay

statutory sick pay and statutory maternity pay, paid by your employer

payment for duties performed while working for an agency

payment of sums from the trustees of an approved profit sharing scheme

income from deferred remuneration plans

payments you get for agreeing to restrict your activities, for example, agreeing not to complete with the business of your former employer

a loan written off or cancelled by your employer during the year if the writing off or cancellation happened because you satisfied or completed some employment condition.  For example, a loan that is written off because you have completed an agreed period of service with your employer.

Do not include:

benefits and expenses payments received - these go  in boxes 1.12 to 1.23

lump sums paid in connection with termination of employment, retirement or death - enter these in boxes 1.27 to 1.29

statutory sick pay and statutory maternity pay paid by the Department Social Security - these go in box 11.7 on page 4 of your Tax Return

shares or interests in shares that you receive free or cheaply, unless PAYE has been operated - these go in the Share Schemes Pages

sums received for transferring, cancelling, releasing, or in connection with not exercising, share options, unless PAYE has been operated - these go in the Share Schemes Pages

Remember we do not need to know anything about:

donations made to a payroll giving scheme

profit-related pay relief calculated by your UK employer in working out your pay for tax purposes

contributions paid to your employer’s pension scheme

Do not put these anywhere in your Tax Return

Details of employer

box 1.1 and box 1.2  Enter your employer’s name and PAYE reference number (shown on your P60 or Part 1A of each P45).

box 1.3  Give the date your employment started, if this was after 5 April 1998.

box 1.4  Give the date your employment finished, if this was between 6 April 1998 and 5 April 1999 (get this from Part 1A of each P45)

box 1.5  Give your employer’s address

box 1.6  Tick this box if this employment was as a director.

box 1.7  Tick this box if this employment was as a director of a close company.  A close company is broadly, one controlled by:

five or fewer participators, or

any number of participators who are directors

‘Participators’ are persons who have a share or interest in the income or capital of the company, such as the shareholders and certain loan creditors.

If you are in any doubt about whether you are a director of a close company, ask your Tax Office or tax adviser for guidance.

Income from employment

Money

You must enter in the appropriate boxes your pay, tips and any other money you received from your employment.  Some of the commoner items are explained in the ‘Money payments’ section.  If you received a payment in connection with your employment and are not sure whether to include it, ask your Tax Office or tax adviser for guidance.

Remember, if you changed jobs or had more than one employment at the same time you have to fill in separate Employment Pages for each.

box 1.8  Enter in box 1.8 your net pay after superannuation included on your P60 (or payslips or P45 (Part 1A)) from your employer.  You may need to refer to some or all of these depending on your circumstances.

If you are uncertain about pay figures, ask the Orderline for Help sheet IR208: Payslips and coding notices.

Your P60 will show figures for pay and tax from the employment you held at 5 April 1999.  If you had more than one job or were unemployed in the year to 5 April 1999 the form may also include a second set of pay and tax details for previous employments and any Jobseeker’s Allowance you received.

The details for previous employments and any Jobseeker’s Allowance received will be added together in the figures on your P60.  So you will need to refer to other records (such as payslips, P45 (Part 1A) or statements of taxable State benefit) to work out:

the figures for pay from the earlier employments to go in the separate Employment Pages you complete (one set for each employment), and

the figures for Jobseeker’s Allowance that go in box 11.5 in your Tax Return. Make sure that you do not include figures for Jobseeker’s Allowance in your Employment Pages.

box 1.9  Enter in box 1.9 any tips you may have received not included on your P60 (or payslips or P45 (Part 1A)).

box 1.10  Enter in box 1.10 any other money payments not included on your P60 (or payslips or P45 (Part 1A)).

box 1.11  Enter in box 1.11 the amount of any tax deducted from the amounts in boxes 1.8 to 1.10 included on your P60 (or payslips or P45 (Part 1A)). If you are uncertain about tax figures, ask the Orderline for Help Sheet IR208: Payslips and coding notices. Do not include any foreign tax paid in this box. If tax has been deducted or paid in another country, please read the note for box 1.38 ‘Foreign Tax’. If your P45 (Part 1A) or P60 shows tax refunded for this employment, show the amount in brackets.

If you ceased an employment and subsequently received a tax repayment from the Tax Office or the DSS Benefits Agency, please enter in box 1.11 the figure of tax deducted shown on the P45 (Part 1A) handed to you when you left that employment. The repayment received should be entered in box 17.1 on page 7 of your Tax Return.

Benefits and expenses

General rules on boxes 1.12 to 1.23

boxes 1.12 to 1.15 apply to everybody.

Fill them in as appropriate.  See the notes

boxes 1.16 to 1.23 only apply to you if:

you were a director, or

your earnings from your employment were at a rate of £8,500 a year or more (including benefits and expenses).

If boxes 1.16 to 1.23 apply to you, enter the taxable amount of any benefit or expense in the appropriate box.  The taxable amount of a benefit is called the ‘cash equivalent’.  This will be on the P11D, which your employer should have given you (see below).

Remember, the benefits you may get include:

interest-free or low-interest loans provided to family members, and

any other benefits, that are provided to members of your family or household.

Enter in boxes 1.16 to 1.23 only amounts you have not included elsewhere.

Some of the terms used above have a particular meaning for tax purposes.  For example ‘at a rate of £8,500 a year or more’, ‘family members’, ‘members of your family or household’, and ‘director’.  More detailed information about these terms can be found in booklet 480, Expenses and Benefits - A Tax Guide available from the Orderline.  These Notes contain other help on benefits and expenses.

Form P11D

Your employer is required to send the Inland Revenue details of:

all taxable benefits provided to you by reason of your employment, and

taxable expenses paid to you.

The details are provided on the P11D.  Your employer is required to give you a copy of this (or the information it contains) by 6 July 1999.  Remember also that, even though your employer has provided you with figures, you are responsible for what you enter on your Employment Pages.

The details you get will not include any items for which your employer has a dispensation or makes a PAYE settlement agreement.  You do not need to tell the Inland Revenue about these items.

A dispensation is an arrangement your employer may have made with the Tax Office.  It saves you the trouble of including as income a benefit or expenses payment received from your employer then having to make a matching claim for the allowable expenses you incur.

A PAYE settlement agreement is an arrangement by which your employer can settle your Income Tax liability on minor benefits in kind and expenses payments.

If you are in any doubt about any dispensation or PAYE settlement agreement applying to you, your employer may be able to help.

You may also find that the details you get from your employer do not include some items that you think may need to be returned as benefits.  The reason for this is likely to be that the items are exempt from tax either by law, or by virtue of an extra-statutory concession.  If you have any doubt about any items ask the Order for Help Sheet IR207: Non-taxable payments or benefits for employees.

Assets transferred and payments made for you

box 1.12  The payments and payments in kind you should enter in box 1.12 fall into two broad categories.

Assets transferred by an employer

If an employer gives you something that can be converted into money, include the amount it can be sold for, that is, its second-hand value.  This value should be used whether or not you actually sell the article you have received. Examples are a television set, furniture or clothing given to you by your employer.

If you were a director or your earnings from your employment were at a rate of £8,500 or more a year (including benefits and expenses) the value to be used for a payment in kind may be more that its second-hand value.  An example would be your employer giving or selling you an unused item from stock.  If so, the figure on your P11D should be the greater of the cost of the item to your employer and its second-hand value, minus in either case the amount (if any) you paid for it.   Put this (higher) figure in box 1.12.  For information on other exceptional cases where the P11D figure may be higher than the second-hand value see Help Sheet IR213 Payments in kind -.assets transferredavailable from the Orderline

Anything (other than a car, dealt with in boxes 1.16 and 1.17) that you can give up immediately or at short notice in return for a higher cash wage is also a payment in kind (for example, board and lodging), and you should enter the cash alternative in box 1.12 as a payment in kind. Where living accommodation can be given up, Help Sheet IR202 Living accommodation explains how to calculate the figure to enter in box 1.12.

Payment made on your behalf by the employer.

Your employer may pay on your behalf a payment that you are due to make.  This should be shown on your P11D.  For example your employer may pay:

your rent direct to your landlord

You personal credit card bill direct to the credit card company

your tax

Where any payments that you were due to make were paid on your behalf, enter the amount in box 1.12.

PAYE tax paid by an employer, which is not effectively borne by you

If you receive pay in non-cash form, or from an intermediary, your employer may pay tax under PAYE on your behalf.  If the tax under PAYE exceeds any cash payment due to you for that pay period,your employers cannot deduct all the tax due on the non-cash items from your pay.  If this happens, and you do not account for the PAYE tax of your employer within 30 days of receiving the pay, include the amount of tax paid by your employer in box 1.12.  Get the figure from the P11D.

Vouchers, credit cards and tokens

box 1.13  Your income from employment includes the value of:

any vouchers, and

any goods or services obtained with a credit card or credit token,

that you (or your family or household) get by reason of your employment.  Your employer should have given you a figure for the value.  If you want to check the figures or work them out yourself, ask the Orderline for Help Sheet IR201 Vouchers, credit cards and tokens.  This contains more information and tells you which vouchers are not taxable.

If you used the vouchers or credit card to meet expenses of your job, enter in box 1.13 the value before any deduction and claim a deduction for allowable expenses in the appropriate box (1.32 to 1.35) after reading the notes on those boxes.

Living accommodation

box 1.14  Enter in box 1.14 the value of any living accommodation you (or your family or household) get by reason of your employment. Your employer should have given you a figure for this.  If you want to check it, or require further information, ask the Orderline for Help Sheet IR202 Living accommodation.  The Help Sheet also tells you when living accommodation provided by your employer is exempt from tax and how to claim a deduction if part of the accommodation is used exclusively for business purposes.

Mileage allowance

box 1.15  If you employer pays you an allowance for using your own car for business journeys, the amount you receive may be more than the amount of the tax relief you can claim.  The extra is a taxable profit - enter this in box 1.15.  If the amount you receive is less than the amount of the tax relief, the excess can be entered in box 1.32. Information about how to calculate the amount of tax relief you can set off against mileage allowance is contained in leaflet IR125: Using your own car for work, and in the notes about box 1.32.

Your employer may have an arrangement with the Tax Office called a Fixed Profit Car Scheme.  If so, your employer will give either details of the profit figure to be entered in box 1.15 or details of both the amount of mileage allowance paid to you in the year and the number of business miles for which the payments were made.  More information about these schemes, and about motor expenses, is in leaflet IR125: Using your own car for work, available from the Orderline.

Car and car fuel benefits

boxes 1.16 and 1.17  Enter in box 1.16 the cash equivalent of cars made available to you (or to members of your family or household) for private use.  Your employer should give you a figure.  Check it is adjusted to reflect business mileage.  You will also be given the figure for the benefit of fuel provided for private travel in a car made available to you.  Enter this in box 1.17.

If you want to check your employer’s figures, please ask the Orderline for Help Sheet IR203 Car benefits and car fuel benefits.

If you use your own private car for travelling in the performance of your duties or to a temporary workplace you have to attend to perform your duties, see the notes on boxes 1.15 and 1.32.

Enter in box 1.22 the benefit of any chauffeur provided by reason of your employment.

Vans

box 1.18  Enter in box 1.18 the total of the cash equivalentsof all vans made available to you for private use.  Your employer should have given you details.  If you had only one van and it was available exclusively to you throughout the year, the cash equivalent is:

£500 if it was first registered on or after 6 April 1994, or

£350 otherwise

reduced in either case by any payment you have to make as a condition of being able to use it privately.

If the van was first provided exclusively to you part-way through the tax year, or stopped being exclusively provided before the end of the tax year, the standard charge is reduced proportionately. For example, if you had exclusive use of the van for the last six months of the year, your tax bill for that use will be based on half the standard charge.

If you need more information about the taxation of a van shared with others, or more information about the taxation of company vans generally, please ask the Orderline for leaflet IR136 Income Tax and company vans - a guide for employees and employers.

Interest-free and low-interest loans

box 1.19  Enter in box 1.19 the cash equivalent of any interest-free or low-interest loan.  Your employer should have given you a figure for this.  If you want to check it, or need more information about the taxation of interest-free and low-interest loans generally, ask the Orderline for leaflet IR145 Low-interest loans provided by employers.  This will also explain how to claim any tax relief in box 15.2 or 15.3 of your Tax Return if the loan is for a qualifying purpose.

Mobile telephones

box 1.20  Enter in box 1.20 the cash equivalent of any mobile telephones made available to you.  The cash equivalent of each mobile telephone available throughout the year is £200, unless either there was no private use, or you were required to, and did, make good the full cost of such use.  Your employer should have given you a figure for this.

If you need more information about the taxation of mobile telephones, please ask the Orderline for Help Sheet IR209: Mobile telephones.

Private medical or dental insurance

box 1.21  Enter in box 1.21 the total cash equivalent of any private medical or other health insurance you get by reason of your employment.  Your employer should have given you details.  This will generally be what the benefit cost the person who provided it to you (minus any amount made good to that person).

Other benefits

box 1.22  Your employer should have given you details of any other benefits.  (Those mentioned in boxes 1.12 to 1.21 are the most common.) Enter in box 1.22 the total cash equivalent of any benefits not included elsewhere.

If your employer has made payments for you to an unapproved retirement benefit scheme, or you have received payments from an unapproved retirement benefit scheme, do not enter these in box 1.22.  See the notes on boxes 1.24 to 1.29 .

To help you arrive at a total for box 1.22, some of the commoner benefits are listed in the Working Sheet below.

Cash equivalents of other benefits

Cash equivalents are arrived at in different ways, according to the type of benefit.

Assets (other than land, motor cars, vans and mobile phones) provided for private use.  Where the asset has been available throughout the year, the cash equivalent will generally be based on:

20% of its market value when it was first used to provided a benefit, plus

expenses (other than the cost of acquiring it) incurred in connection with it which would not have been incurred but for the provision of the benefit.

But if that total represents benefits provided for more than one employee, the cash equivalent for each will be based on a proportion of the total.  The cash equivalent is reduced by any amount made good to the provider in return for the benefit.  For more information, ask you Tax Office or tax adviser.

Income tax paid but not deducted (for directors only).  The benefit is the amount of tax paid.

All other benefits.  The cash equivalent will generally be what the benefit cost the person who provided it (minus any amount made good to that person).  But if that amount represents benefits provided for more than one employee, the cash equivalent for each will be based on a proper proportion of the whole amount.  For more information see booklet 480, Expenses and Benefits - A Tax Guide available from the Orderline.

Certain share benefits

Some benefits in the nature of shares or share options will be shown on your P11D: for example, if your employer has enabled you to sell shares for more than their market value.  Enter the taxable amount in box 1.22.

If the share benefits are not shown on your P11D, or only shown by a tick, you may need to fill in the Share Schemes Pages.  Check the notes and ask the Orderline for a copy of the Pages if you need them.

Working Sheet for box 1.22

Qualifying relocation expenses payment and benefits (see below) £

Services supplied  £

Assets provided for private use  £

Subscriptions and professional fees  £

Income Tax paid (but not deducted) (directors only)  £

Nursery places provided (in some circumstance this benefit is not taxable - see booklet 480)  £

Education assistance provided (in some circumstances this benefit is not taxable - see booklet 480)  £

All other benefits  £

Total   A  £

Copy the figure in box A to box 1.22 in your Employment Pages

Relocation packages

When you move house any payments you receive from, or any goods or services provided to you by, your employer are part of your taxable earnings.  However if you move house for your job and meet certain conditions, the first £8,000 of any help you receive is exempt from tax.

When filing in the Employment Pages, remember that:

the £8,000 limit applies to the move as a whole and is not a limit for each tax year, and

your employer is required to tell the Inland Revenue about the excess of any relocation expense and benefits over the £8,000 limit.

Your employer should give you details of the amount to include in your entry in box 1.22.  More detailed information about relocation packages is in leaflet IR134: Income Tax and relocation packages, available from the Orderline.

Expenses payments received and balancing charges

box 1.23  You should enter in box 1.23 the total payments or reimbursements made to you and any balancing charges.

Expenses payments received

Your employer should give you details.  See the notes on boxes 1.32 to 1.35 to find out if you can claim a deduction for all or any of these.  If your employer has a dispensation for 1998-99 do not enter expenses covered by it either in box 1.23 or in boxes 1.32 to 1.35.

Expenses payments fall into three areas:

Travelling and subsistence payments.  Enter the amounts you have received for fares, hotels, meals etc. including travel between home and a permanent workplace.  Do not include,

payments or reimbursements of expenses in connection with company cars or vans (for example, a mileage allowance for business miles that does no more than cover the cost of the fuel used on business journeys), or

expenses for travel in a car(s) not provided by your employer (see the note on box 1.15 ).

Entertainment.  Enter the total of all amounts paid to you, or for your benefit, exclusively for entertaining.  Include,

all sums reimbursed

any round sum allowances

specific entertainment allowances

any sums paid to third parties

General expenses allowance(s).  Enter the amount of the allowance(s)

If you want more information about expenses, ask the Orderline for a copy of booklet 480, Expenses and Benefits - A tax Guide.

Balancing charges

If you have disposed of an asset for which you have claimed capital allowances, enter any balancing charge in box 1.23.  If you need details, ask the Orderline for Help Sheet IR206 Capital allowances (general).

Working sheet for box 1.23

Travelling and subsistence payments  £

Entertainment  £

General expense allowance for business travel  £

Non-qualifying relocation expenses (those not included in box 1.22)  £

Other expenses

Balancing charges  £

Total   A   £

Copy the figures in box A to box 1.23 in your Employment Pages

Lump sums and compensation payments or benefits including such payments or benefits from a former employer

boxes 1.24 to 1.29  Different rules apply to different types of these payments or benefits, so it is important to apply the correct rules. If all you want to enter here is a redundancy payment against which your employer allowed an exemption from tax of up to £30,000, do this by entering:

the amount of the payment minus the exemption in box 1.29, and

the amount of the exemption in box 1.24.

For example, if your redundancy payment was £7,500 it would be covered by exemption so leave box 1.29 blank and enter £7,500 in box 1.24. It is only an entry in box 1.29 which is used in the tax calculation. But if the payment was £40,000 enter £10,000 in box 1.29 (£40,000 minus the maximum exemption £30,000) and £30,000 in box 1.24.

Do not forget to fill in box 1.30, but leave it blank if you have already entered the tax deducted from the payment, (if any) in box 1.11.

But in any other circumstance you must complete Help Sheet IR204: Lump sums and compensation payments, available from the Orderline, before filling in these boxes. In particular you should complete the Help Sheet if:

what you received included items such as back pay, holiday pay, payments in lieu of notice, or

non cash items were part of the settlement, or

any exemption other than the £30,000 general exemption is involved, or

compensation other than for redundancy is involved, or

there will be further payments or benefits made after 5 April 1999 from the same employment termination, or

you have received other sums on termination of employment from the same employer or another employer associated with that employment at any time, or

you have received a lump sum from an unapproved retirement benefits scheme, or

your employer contributed to an unapproved retirement benefits scheme.

box 1.30  Enter tax deducted from lump sums and compensation payments.

Foreign earnings not taxable in the UK in the year ended 5 April 1999

In certain circumstances you may not be required to complete the Employment Pages. See notes, Question 1 in the Tax Return Guide and the Notes on Non-residence etc.

box 1.31  Use Help Sheet IR211 Employment - residence and domicile issues to work out the figures to go in box 1.31 if:

you have completed the Non-residence Pages to claim non-residence or non-domicile treatment for the 1998-99 tax year, or split-year treatment for that year (if you were not resident for part of the year), or

you made such a claim in a previous year, and have included income earned in that year in the Employment Pages, or

you have included income that relates to a later year and you think that you will be claiming non-residence or non-domicile treatment for that later year, or

you received income in a foreign country that you could not bring to the UK because of exchange controls or a shortage of foreign currency in that country.

The Help Sheet will help you work out that part of your income and receipts which is not liable to UK Income Tax in the year ended 5 April 1999.  Liability  may however arise, in earlier or later years, for all or part of this sum.  It is also possible that you may be liable to income tax in another country on all or part of this sum.  See also the notes on Foreign Earnings Deduction.

Expenses you incurred in doing your job

The section explains the rules for claiming:

travelling and related meal and accommodation costs you had to incur in doing your job or that you incurred in travelling to a temporary workplace you had to attend to perform your duties, and

other necessary expenses incurred solely in doing your job.

If your employer has a dispensation for 1998-99 you must not include in your claim any expenses that you have paid if:

you can claim them back from your employer, and

the expenses are covered by a dispensation.  See the section headed ‘Benefits and expenses’.

However, if you have incurred allowable expenditure over and above the amount covered by the dispensation you may claim a deduction for the excess.

If you do not know whether your employer has a dispensation, ask for details.

Travel and subsistence costs

box 1.32  You can claim for the expenses of travelling on business journeys - whether in the UK or abroad - as well as the related costs of accommodation and meals.

Business journeys

There are two kinds of journey that qualify as business journeys:

a journey which involves travel from one place of work to another for the same employment. This includes travelling between a permanent workplace and a temporary workplace.

a journey you make to or from a workplace you have to attend to carry out the duties of your employment - but not if the journey is ordinary commuting or private travel.

Ordinary commuting is travel between your home, or any other place you attend for personal reasons, and a permanent workplace. You are not entitled to a deduction for the cost of ordinary commuting - or for a journey which is for practical purposes substantially ordinary commuting - except in unusual circumstances. If you have not already established a claim for journeys between your home and a permanent workplace you should contact your Tax Office before making a claim here. The notes below explain what is a permanent workplace.

A journey is for practical purposes substantially ordinary commuting if it is broadly in the same direction and broadly the same length as an ordinary commuting journey. If you are in doubt about whether a journey is substantially ordinary commuting, ask your Tax Office or tax adviser.

Private travel is any travel where the purpose is private rather than business. You are not entitled to a deduction for the cost of private travel.

A permanent workplace is a workplace you attend regularly which is not a temporary workplace and includes a place which forms the base from which you perform your duties or at which the daily tasks you carry out are allocated. Some employees do not have a permanent workplace and some may have more than one. Occasional attendance at a second workplace is unlikely to mean that you have two permanent workplaces.

A temporary workplace is a workplace you attend to perform a task of limited duration or for some other temporary purpose. You are entitled to a deduction for the cost of travelling between your home and a temporary workplace you have to attend to carry out your duties.

But a workplace is not a temporary workplace if you attend or expect to attend it to perform a significant part of your duties there:

for more than 24 months, or

for less than 24 months if that is the whole period of your employment.

Travelling may be an integral part of your job. For example, if you are a travelling salesperson without a permanent workplace but you usually visit several places of work in a working day, you will be entitled to a deduction for travelling and related subsistence expenses incurred in doing your job from the time you leave home. But if your duties are defined by reference to a geographical area and you live outside that area, you will not be entitled to a deduction for the cost of travelling between home and the edge of that area. If you are unsure whether this applies to you,  ask your Tax Office or tax adviser.

If you incur business travel expenses when travelling by car, and your employer pays you an allowance, see the note on box 1.15.

If you incur business travel expenses when travelling by car, and your employer does not pay you an allowance, you can claim a deduction for the allowable motoring costs. There are two ways of doing this:

the exact basis

the simpler basis

Motoring costs - the exact basis

The allowable motoring expenses are the cost of fuel used on business journeys plus the business proportion of other motoring costs such as maintenance, insurance and vehicle excise duty (road tax). The business proportion is calculated by reference to the business and total miles travelled in the car in the year.  You will be able to make a claim for capital allowances.

If you want to work out your allowable motoring expenses and capital allowances, ask the Orderline for leaflet IR125 Using your own car for work.

You will need to keep records of all your motoring expenses to support this claim.  You will also need to keep details of your business and private mileage in the car during the year.

Motoring costs - the simpler basis

If you prefer, you can calculate your allowable motoring costs using the following table.

Car engine size	Up to 4,000 business miles	Over 4,000 business miles

(pence per mile)	(pence per mile)

Up to 1,000cc	28	17

1,001 - 1,500cc	35	20

1,501 - 2,000cc	45	25

Over 2,000cc	63	36

Example

You travelled 6,000 business miles.  Your car has a 1,600cc engine.

Your allowable costs are:

4,000 miles at 45 pence	£1,800

2,000 miles at 25 pence	£   500

---------

total	£2,300

You cannot claim capital allowances for your car if you use this method.  This is because the figures in the table already allow for capital depreciation.

If you choose this method, you need only keep a record of your total business mileage in the car in the year, and a note of the car’s engine size.

Claiming relief

There are special rules if you are resident and ordinarily resident in the UK but work wholly or partly abroad, or you are an employee who is domiciled outside the UK coming to work in the UK.  If you need information about these, ask your Tax Office.

If you received travel and subsistence payments as part of a relocation package, see the notes on box 1.22

Once you have identified the expenses you wish to claim, add together:

all the allowable travel costs incurred.  If you have received motor mileage allowance, remember to include only the excess of any allowable expenses over your allowance - ask the Orderline for leaflet IR125 Using your own car for work, which contains a working sheet to work out the excess

the accommodation/meal costs incurred on business journeys

the other business expenses related to business journeys.  These would include for example business telephone calls and fax/photocopying costs etc.  But they do not include the cost of personal items such as telephone calls home, daily newspapers and personal laundry.

Then:

enter the total in box 1.32, and

if box 1.32 includes expenses of travelling between home and a permanent workplace, tick box 1.36.

Remember, as with all expenses claims, you should keep any record of amounts paid and any receipts/vouchers you have in case your Tax Office asks for them.  Do not send them with your Tax Return.

Fixed deductions for expenses

box 1.33  Fixed deductions are amounts of expenses agreed between the Inland Revenue and the relevant trade unions or other bodies to cover the cost of maintaining or replacing tools or special working clothes.  Enter these in box 1.33.  If you do not wish to claim a fixed deduction, you should leave box 1.33 blank and total the amount you have spent on these items and include them as part of your ‘other expenses’ in box 1.35

If your code included an adjustment for expenses of an earlier year please contact the Tax Office.

Professional fees and subscriptions

box 1.34  You may be entitled to a deduction for:

certain fees you must pay to carry on your profession, or

annual subscriptions to professional bodies that are approved by the Inland Revenue and are relevant to your work.

If you are entitled to a deduction, the professional body to which you pay the fee or subscription can tell you how much may be deducted. Enter the amount in box 1.34.

Other expenses and capital allowances

box 1.35  You can claim only the necessary expenses you incur solely in doing your work.  Necessary expenses are those which each and every person doing your job would have to meet.  The expenses have to be incurred in actually carrying out the duties of the job.  So for instance, expenses that put you in a position to do your job, rather than being incurred in the actual performance of it, are not allowable.

If your code included an adjustment for expenses of an earlier year please contact the Tax Office.

Entertaining expenses - special rules for employees of trading concerns

If you work for a trading concern you cannot claim a deduction for business entertaining expenses unless:

your employer has put a tick in the box against 'entertainment' on form P11D (an'X' in the box against 'entertainment' means that you cannot claim a deduction in your self assessment for expenditure on business entertaining), and

the business entertaining expenses that you claim were necessarily incurred in carrying out the duties of your job.

If you need more information about entertaining expenses ask the Orderline for a copy of booklet 480, Expenses and Benefits, A Tax Guide.

Other expenses

Most of the expenses that you can claim have been covered in boxes 1.32 to 1.34.  Exceptionally you may be able to claim for other expenses.  You may have already agreed previous claims with the Inland Revenue on other items in the past.  If so, you should calculate the amount of allowable expenses on the agreed basis.

You may be able to claim relief for expenses paid by you or your employer for:

insuring you against claims relating to actual or alleged wrongfully acts committed by you as an employee, or

uninsured costs arising from such actual or alleged acts.

If you do not know what to claim, as your Tax Office or tax adviser before you fill in box 1.35.

Remember to include:

any expenses for the upkeep of tools and special clothing that are not fixed (that is, not included in box 1.33)

the business proportion of any benefit you have included in full in box 1.22.

Capital allowances

You may be entitled to capital allowances for the cost of equipment or machinery you use in your employment. Ask the Orderline for Help Sheet IR206 Capital allowances for employees and office holders for details.  You can also get capital allowances for a motor car which you use for work. You can do this by:

calculating your allowable motoring expenses using the ‘simpler’ method described in the notes on box 1.32 (this method includes an amount for capital allowances), or

making a claim on the exact basis (see leaflet IR125: Using your own car for work).

You cannot claim capital allowances on your car if you receive motor mileage allowance and the profit has been dealt with under the Fixed Profit Car Scheme (box 1.15). This is because the figures used in the Fixed Profit Car Scheme include an amount for capital allowances.

Travel between your home and a permanent workplace

box 1.36  Tick box 1.36 if box 1.32 includes expenses of travelling between your home and a permanent workplace.

Foreign Earnings Deduction

box 1.37  The Foreign Earnings Deduction was withdrawn as of 17 March 1998 for all employees except seafarers. From that date only seafarers may claim the Deduction. A seafarer is defined as 'someone who performs their employment duties on a ship'. 'Ship' is given its everyday meaning, however, 'offshore installations' used in the offshore oil and gas industry are not regarded as 'ships'. Workers on mobile rigs are not 'seafarers' and may not claim the Deduction.

If you think this applies to you, ask the Orderline for Help Sheet IR205S.

Foreign tax for which tax credit relief not claimed

box 1.38  To claim tax credit relief, as the Orderline for the Foreign Pages, and leave box 1.38 blank.

If you do not want to claim tax credit relief, enter in box 1.38 the amount of any foreign tax you have paid on your employment income.

Filling in your Employment Pages   General rules on taxing employment income  Special rule  Money payments  Details of employer  Income from employment  Money  Benefits and expenses  Assets transferred and payments made for you  Vouchers, credit cards and tokens  Living accommodation  Mileage Allowance  Car and car fuel benefits  Vans  Interest-free and low-interest loans  Mobile telephones  Private medical or dental insurance  Other benefits  Expenses payments received and balancing charges  Lump sums and compensation payments or benefits  Foreign earnings  Expenses you incurred in doing your job  Travel and subsistence costs  Fixed deductions for expenses  Professional fees and subscriptions   Other expenses and capital allowances  Foreign Earnings Deduction  Foreign tax for which tax credit relief not claimed


Event descriptions for all clients

You may describe up to 20 events which will take place during the management of your clients tax affairs. This screen is used to set-up the descriptions for these events and their column headings when printed on reports. Although you have accessed this screen via the Open Client screen the descriptions you enter here will apply to all clients. For each client you may enter a date against each event description to record when the event occurred.

The Mail Merge facility can also automatically update an event date when one of the standard letters is sent to clients and event dates can be used to mail merge clients where events have or have not occurred etc.

As an example, you may decide to use some of the events as follows:

1.	Tax Return information requested

2.	Tax Return information received

3.	First reminder letter sent to client

4.	Further reminder sent to client

5.	Core/Supp Return sent to client for approval

6.	Signed Core/Supp Return received from client

7.	Core/Supp Return sent to Revenue


Exit Button

Exit Button - Click this button to exit the program. The currently opened return is automatically saved and closed.


Filling in boxes 1001 to 1032
Filling in boxes 10.1 to 10.32

First, collect the information you might need. For example:

dividend vouchers

interest statements or tax deduction certificates

trust vouchers. If you are entitled to income of a trust (other than a discretionary trust), the trustee should provide you with a voucher identifying the various sources of income to which you are entitled.

Then use the following notes to help you fill in the boxes. They ask for totals.

Joint savings and investments

If you have savings or investments held in joint names, you must enter only your share of the income.

if you are married, income from savings or investments held jointly with your husband or wife is usually split equally. If you own the savings or investments, and the income from them, in unequal shares, you can elect to have the income treated for tax purposes on that basis. You cannot have the election backdated.

Ask your Tax Office or tax adviser if you would like further information or an election form.

It is not possible to elect to share any 'gain' on a policy of life insurance, life annuity or on a capital redemption policy. Any gain is allocated to the person who owns the rights (or owned them immediately prior to the chargeable event) under the insurance policy or contract, or created the trusts under which the rights are held see boxes 12.3 to 12.9.

Interest

What to do if you have more than one source of interest to go in a particular box

Add together, for example, interest paid (with tax deducted) by both your bank and building society and put total figures in boxes 10.2 to 10.4. Keep details of the separate accounts in case I ask for these later.

Interest from banks, building societies and deposit takers

Boxes 10.1 to 10.14 cover interest from savings with banks, building societies and other deposit takers. You can receive interest without tax deducted (box 10.1) or after tax has been deducted (boxes 10.2 to 10.14).

Interest received without tax deducted

box 10.1 Your bank or building society or deposit taker's statement will show you the interest you have received without tax deducted (gross) Add up all the amounts you received during 1998-99 for all your accounts and enter the total in box 10.1.

If you are a beneficiary of a trust and you are entitled to income as it arises, include in box 10.1 any gross interest you receive direct because the trustee has authorised the payer to pay it to you.

National Savings interest should not be included in box 10.1. Enter it in box 10.8.

Interest received after tax has been deducted

boxes 10.2 to 10.4 Interest is generally paid to you after lower rate tax is deducted. Your bank, building society or deposit taker's statement or pass book will usually show you the amount of interest after tax, the amount of tax deducted and the amount of interest before tax was deducted. (If you do not have all three figures, see this example  which shows you how to work them out.) Add up the amounts for the year for all your accounts. Enter totals in boxes 10.2, 10.3 and 10.4. If you do not have the information, ask your bank etc., in writing, to provide you with a tax deduction certificate.

If you do not pay tax, we will pay you back the tax deducted.

If you pay tax only at lower or basic rate, the tax deducted meets your tax bill on the interest.

If you pay tax at the higher rate, the tax deducted is set against your tax bill.

If you are not liable to pay tax, you can register to have your interest paid without tax deducted. Leaflet IR 110: A guide for people with savings tells you how to register and if you can claim tax back. Ask the Orderline for a copy.

Interest distributions from UK authorised unit trusts and UK open-ended investment companies

boxes 10.5 to 10.7 The information you need to complete these boxes will be shown on your tax voucher. The voucher will show the total interest distribution before the deduction of tax (gross interest), the tax deducted and the amount of the interest distribution paid to you after tax has been deducted (net interest).

You may have accumulation units or shares (where the interest distribution is automatically reinvested in the unit trust or open-ended investment company). If so, you must still show the total interest distribution before the deduction of tax, the tax deducted and the amount of the interest distribution after tax has been deducted.

If you do not have a tax voucher, ask your unit trust or open-ended investment company manager for one.

If you have received an Interest distribution without tax being deducted, you should enter the total interest distribution in box 10.7 and enter '0' in box 10.6.

Do not enter here any amount shown on your tax voucher as 'equalisation'. This amount, if shown, is a repayment of capital paid to you and is not taxable. In calculating your capital gains, the amount of equalisation should be deducted from the cost of the units or shares purchased during the year.

Do not enter dividend distributions or foreign Income dividend distributions from UK authorised unit trusts or open-ended investment companies in boxes 10.5 to 10.7. They go in boxes 10.18 to 10.20 and 10.27 to 10.29.

National Savings

box 10.8 Enter in box 10.8 total interest received from:

Ordinary Account (apart from the first £70 of interest which is exempt from tax)

Investment account

Deposit bonds

Income bonds

Capital bonds (enter the interest added in the year to the capital bonds as shown on your statement)

Pensioners' Guaranteed Income Bonds.

National Savings FIRST Option Bonds

boxes 10.9 to 10.11 This interest is received after deduction of tax. Enter in boxes 10.9 to 10.11:

the total interest received after deduction of tax

the total tax deducted

the total interest received before tax was deducted.

Other income from UK savings and investments (except dividends)

boxes 10.12 to 10.14 Include totals of the following items of income in boxes 10.12 to 10.14. Keep details of income included in the totals in case I ask for further information later.

Interest not included in boxes 10.1 to 10.11

Enter in boxes 10.12 to 10.14 any interest you received not included in boxes 10.1 to 10.11. For example:

from certificates of tax deposit when the certificate is applied in payment of a tax liability

on Government stocks (gilts), including those bought through the National Savings Stock Register

on other loan stocks

on loans to an individual or organisation

from credit unions and friendly societies

interest from Enterprise Zone Trusts (the rents should be included in the Land and Property Pages).

Depending on the nature of the interest, it may be paid without tax deducted (gross), or after tax is deducted (net).

If no tax has been deducted, enter the interest received in box 10.14 only and ‘0’ in boxes 10.12 and 10.13.

If tax has been deducted fill in all the boxes. Make sure the figure in box 10.14 includes the tax deducted.

Relevant discounted securities

Relevant discounted securities' have replaced those types of securities previously termed 'deep discount bonds' and 'deep gain securities'. Broadly, these are securities where the investor's return is mainly made up of a discount or premium payable on redemption of the bond rather than by interest payable over the life of the bond.

The discount or premium must be capable of being more than:

15% of the redemption price, or, if smaller,

0.5% of the redemption price for each year of the bond's life (for example, in the case of a 10 year bond any discount of 5% or more would mean it was a discounted bond)

A security with an uncertain yield, for example, linked to the Retail Prices Index, will normally be a relevant discounted security.

A security linked to the value of assets which would be chargeable assets under the capital gains rules (for example, a security whose yield is linked to the FTSE index) will not normally be a relevant discounted security.

If you had a relevant discounted security, generally you will be taxable only when you dispose of the security or redeem it. You will be taxable on the difference between the amount you paid for the security and the amount you received when you redeemed or sold it. Tax is not deducted from the payment, so the gross amount of the discount should be entered in box 10.14.

Gilt strips

Gilt strips are relevant discounted securities. In contrast to the usual rules there will be a charge on the discount each year even if you do not dispose of the securities during the year. The discount is worked out by comparing the market value of the gilt strips on 5 April with their market value a year earlier or with the price you paid for them if you bought them during the tax year. (This is achieved by deeming you to dispose of your gilt strips on 5 April and to reacquire them on 6 April, both the deemed disposal and deemed acquisition taking place at the market value of the gilt strips on 5 April.) The amount of the discount should be entered in box 10.14. Details of 5 April market values are available from your Tax Office.

Losses

Should the actual disposal of any relevant discounted security result in a loss, that loss may be set against taxable income in the same year. Any losses should be entered in box 15.11 on page 5 of your Tax Return. These losses must be used in the year in which they occur. They cannot be carried forward or back.

Transfer of income from securities

If you sell or transfer the right to receive dividends or interest but do not dispose of the underlying securities, the income from those securities is treated as your taxable income. Enter in box 10.14 the amount of income paid out (even if you have not received it).

Purchased life annuities

Enter in boxes 10.12 to 10.14 annuities received by you except annuities under personal pension schemes, or retirement annuity contracts or trust schemes. These should be entered in boxes 11.10 to 11.12.

If you purchased the annuity, part of each payment may be exempt as a return of your capital and only the balance, the income element, should be entered on the Tax Return. The certificate provided by the payer of the annuity will show whether any part of the annuity is exempt from tax, the amount to be entered as income and the amount of any tax deducted. If you are not sure what to include, ask your Tax Office or tax adviser.

Accrued Income

Accrued income securities include all interest-bearing securities, including permanent interest-bearing shares in a building society (PIBS), government loan stock and company loan stock, but not shares in a company or National Savings certificates.

Calculate charges or reliefs for securities you have bought, sold or transferred if the next interest payment after your purchase or sale fell between 6 April 1998 and 5 April 1999.

No charge arises and no relief is due for 1998-99 if the nominal value of all accrued income securities held at any time in 1998-99 or 1997-98 did not exceed £5,000.

A charge will arise if you purchased securities without accrued interest (ex-dividend) or sold securities with the accrued interest (cum-dividend). The amount of the charge will be the adjustment for the accrued interest not received, that is, the amount by which the purchase price was reduced (purchase ex-dividend) or the sale price was increased (sale cum-dividend).

A relief will be due if you purchased securities with accrued interest (cum-dividend) or sold securities retaining the right to the next interest payment (ex-dividend). The amount of the relief will be the adjustment for the amount of extra interest received, that is, the amount by which the purchase price was increased (purchase cum-dividend) or the sale price was decreased (sale ex-dividend).

For each kind of security, combine the charges and reliefs to produce a net figure. Where the charges exceed the reliefs, include the total net amount in box 10.14. Where the reliefs exceed the charges for a kind of security, deduct the excess from the 'gross' interest received from that kind of security and enter the reduced amount of interest in box 10.14. Do not change the figure in box 10.13.

Dividends

Dividends, dividend distributions and qualifying distributions other than foreign income dividends carry a tax credit:

If you do not pay tax, we will pay you the tax credit

If you pay tax only at the lower or basic rate, the tax credit meets your tax bill on the distribution.

If you pay tax at the higher rate, the tax credit is regarded as tax already paid by you, and is set against your tax bill.

You have to enter scrip dividends and foreign income dividends separately because the notional tax attached to them cannot be repaid to you, even if you do not pay tax:

If you pay tax only at the lower or basic rate, there is no more tax to pay on the dividend.

If you pay tax at the higher rate, an amount of lower rate tax is treated as already paid by you, and is set against your tax bill.

Some dividends and qualifying distributions are treated as foreign income dividends for tax purposes - look at your dividend voucher.

If you are a beneficiary of a trust and you are entitled to income as it arises, include in these boxes any UK dividends, scrip dividends or foreign income dividends from UK companies, authorised unit trusts or open-ended investment companies shown on your trust voucher. If details of scrip and foreign income dividends are not shown separately, enter the totals in boxes 10.21 to 10.23.

Dividends and other qualifying distributions from UK companies

boxes 10.15 to 10.17

Dividends

Your dividend voucher shows the amount of the dividend and the tax credit. Add these together to get 'dividend/distribution plus credit'. (See example if you want to know how to calculate the tax credit.)

Do not include dividend distributions from UK authorised unit trusts and UK open-ended investment companies. Enter these in boxes 10.18 to 10.20.

Do not include foreign income dividends, dividends treated as foreign income dividends, or scrip dividends here. Enter these in boxes 10.21 to 10.26.

Other qualifying distributions

A company makes a distribution when it passes value to a shareholder, for example:

by selling an asset to a shareholder at less than market value, or

by paying interest at more than a commercial rate on a loan from a shareholder

Non-qualifying distributions see definition should be entered in boxes 10.30 to 10.32. Other distributions are 'qualifying'.

Some qualifying distributions are treated as foreign income dividends for tax purposes. If your voucher shows that foreign income dividend treatment applies, include the distribution in boxes 10.24 to 10.26, not 10.15 to 10.17.

Enter the amount in boxes 10.15 to 10.17. Please give details in the 'Additional information' box on page 8 of your Tax Return, explaining the circumstances in which the distribution arose.

Dividend distributions from UK authorised unit trusts and UK open-ended investment companies

boxes 10.18 to 10.20 Your dividend voucher shows the amount of the dividend and the tax credit. Add these together to get 'dividend/distribution plus credit'.

If you have accumulation units or shares In a UK authorised unit trust or UK open-ended investment company, the dividend is automatically reinvested in the unit trust or open-ended investment company. You must still show the amount of the dividend, tax credit and dividend/distribution plus credit

If you do not have a dividend voucher, ask your unit trust or open-ended investment company manager for one.

Do not enter here any amount shown on your tax voucher as ‘equalisation'. This amount, if shown, is a repayment of capital paid to you and is not taxable. In calculating your capital gains, the amount of equalisation should be deducted from the cost of the units or shares purchased during the year.

Scrip dividends from UK companies

boxes 10.21 to 10.23 If you took up an offer of shares in place of a cash dividend, this is a 'scrip' or 'stock' dividend.

Your dividend statement should have 'the appropriate amount in cash' on it - this is the amount you should enter in the dividend box. Ask your company for a statement if you have not already got one. If you have any doubts about what to include, ask your Tax Office or tax adviser.

Enter in box 10.21 the appropriate amount in cash. Enter in box 10.22 the notional tax (this is 25% of the appropriate amount in cash). Add together the figures in boxes 10.21 and 10.22 and enter the total in box 10.23.

Foreign income dividends from UK companies

boxes 10.24 to 10.26 Foreign income dividends are dividends paid by a company under the foreign income dividend scheme, or qualifying distributions which are treated as foreign income dividends. Your dividend voucher should show the dividend and notional tax.

Foreign income dividend distributions from UK authorised unit trusts and open-ended investment companies

boxes 10.27 to 10.29 Your dividend voucher shows the amount of the foreign income dividend distribution and the tax treated as paid (notional tax).

If you have accumulation units or shares, the foreign income dividend distribution is automatically reinvested in the unit trust or open-ended investment company. You must still show the amount of the foreign income dividend distribution and the notional tax.

If you do not have a dividend voucher, ask your unit trust or open-ended investment company manager for one.

Do not enter here any amount shown on your tax voucher as 'equalisation'. This amount, if shown, is a repayment of capital paid to you and is not taxable. In calculating your capital gains, the amount of equalisation should be deducted from the cost of the units or shares purchased during the year.

Non-qualifying distributions or loans written off

boxes 10.30 to 10.32 A non-qualifying distribution is:

a bonus issue by a company of securities or redeemable shares (except a bonus issue giving rise to a qualifying distribution), or

the paying-on of such a bonus issue by a company which has itself received it.

If you receive such a bonus issue of securities or redeemable shares, the amount of the distribution is:

for redeemable shares, their nominal value plus any premium paid

for securities, the amount of the principal secured plus any premium payable

minus any new consideration given for that issue.

If you pay tax only at the lower or basic rate, there is no more tax to pay on the distribution.

If you pay tax at the higher rate, an amount of lower rate tax is treated as already paid by you and is set against your tax bill.

Enter the amount of the distribution in box 10.32. Multiply box 10.32 by 20% to arrive at the lower rate tax which is treated as paid by you. Enter that amount in box 10.31. Leave box 10.30 blank.

The subsequent redemption of the bonus securities or shares is a qualifying distribution and is paid with a tax credit. If you are liable at the higher rate of tax (40%) you will have to pay further tax on this income but you are entitled to an allowance, in terms of tax, for the higher rate tax paid (or payable) on the issue of those bonus securities or shares. This ensures that the income is not taxed twice.

If you are liable to higher rate tax and have included income in box 10.17 that relates to an amount received on the redemption of bonus securities or redeemable shares, enter in the 'Additional information' box on page 8 of your Tax return the higher rate tax paid on the non-qualifying distribution; this will be the figure in box 10.32 x 40% minus the lower rate tax (20%) (or basic rate tax if the distribution was before 1993-94). If you are  your tax copy this figure into box into box W45 (or box G62, L67 or F67 if you are using one of the other Tax Calculation Guides) of the Working Sheet in your Tax Calculation Guide.

A loan or advance made by a company which is subsequently wholly or partly released or written off, may be taxable. If so, the amount released or written off is treated as a net amount of income received after deduction of tax at the lower rate. If the loan or advance was made to a person who has since died, the income is treated as that of the person from whom the debt is due at the time of release or writing off. (If it is due from the person as personal representative, the amount treated as received by them is included in the income of the estate.)

Enter in box 10.30 the amount of the loan released or written off. Multiply this figure by 25% and enter the result in box 10.31. Add together the figures in boxes 10.30 and 10.31 and put the result in box 10.32.

Where a loan made to a participator, or an associate of a participator, who is also an employee (or a relative of an employee) is subsequently written off (wholly or in part) - do not include it in the Employment Pages, enter it in boxes 10.30 to 10.32.

If you do not know what to include, ask your Tax Office or tax adviser.

How to calculate tax deducted from interest and tax credits on dividends


Filling in boxes 1101 to 1102
Filling in boxes 11.1 to 11.12

First, collect the information you need, for example:

details of your State pension for the year

your P60, which the payer of your pension may have given you after the end of the tax year, and any other certificate of pension paid and tax deducted

the details given to you by the Department of Social Security of your total Jobseeker's Allowance and the taxable portion of that amount

if you get Incapacity Benefit, details of your taxable Incapacity Benefit and the tax deducted

details of any other taxable State benefits.

Then, use the following notes to help you fill in the boxes.

State pensions and benefits

Enter the amount of pension or benefit you were entitled to for the year from 6 April 1998 to 5 April 1999, whether or not you actually received that amount in the year. Even if you chose to receive your pension or benefit monthly or quarterly, you should enter the total for the year of your weekly entitlements, rather than the total of the monthly or quarterly payments you received.

State Retirement Pension

box 11.1 Enter the full amount you were entitled to in 1998-99 except for any increase for a dependent child. Include:

the basic (or old age) pension, State earnings related pensions (SERPS)

graduated pension (graduated retirement benefit)

the age addition if you are over 80

any incapacity addition or addition for a dependent adult

any increases paid by the Department of Social Security to uprate a guaranteed minimum pension.

If you receive extra pension either because you deferred retirement beyond normal retirement age, or because you temporarily gave up your pension, the extra pension is taxable.

If you are a married woman, you should enter the pension payable to you, even if it was paid to you as a result of your husband's contributions.

The Christmas bonus is not taxable and nor is the Winter Fuel payment. You should exclude both from the amount you put on your Tax Return.

When you work out the correct amount to include, remember to take account of any changes in the amount of pension you received because of a change in your circumstances, for example, the amount of pension you received might have been reduced because you had a stay in hospital.

You can ask your local Benefit Office for a form which tells you how much pension you received and the weeks for which it was paid. Ask your Benefit Office for form BR735 and tell them you want it to cover the tax year from 6 April 1998 to 5 April 1999.

Widow's Pension

box 11.2

Enter the full amount you were entitled to in 1998 -99 including any earnings related additional pension. You can ask your local Benefit Office for a form which tells you how much pension you received and the weeks for which it was paid. Ask your Benefit Office for form BR735 and tell them you want it to cover the tax year from 6 April 1998 to 5 April 1999.

Widowed Mother's Allowance

box 11.3

Include the flat rate basic allowance and any earnings related increase. Exclude any child dependency increase

Industrial Death Benefit Pension

box 11.4

Enter the annual pension you are entitled to under the Industrial Death Benefit scheme. But do not include Industrial Death Benefit Child Allowance which is not taxable.

Jobseeker’s Allowance

box 11.5 If you were claiming Jobseeker's Allowance on 5 April 1999 the Department of Social Security will give you a form P60U by 31 May 1999 which will tell you the total Jobseeker's Allowance paid to you and the taxable portion of that amount. Enter the taxable amount in box 11.5. If you do not receive a form P60U by 31 May 1999 contact your Benefit Office.

If you have stopped claiming Jobseeker's Allowance before 6 April 1999 you will have received a form P45U (Part 1A) which will tell you the total Jobseeker's Allowance paid to you and the taxable portion of that amount. Enter the taxable amount in box 11.5.

 If you do not receive a form P45U (Part 1A) contact your Tax Office.

Invalid Care Allowance

box 11.6 Enter the amount you were entitled to for the tax year, including any addition for a dependent adult. Exclude any addition for a dependent child, which is not taxable.

Statutory Sick Pay and Statutory Maternity Pay

box 11.7 Usually these will have been paid to you by your employer and included in the figures on your P60 or P45. If so, put these figures in the Employment Pages, not box 11.7.

However, if your employer has not paid these benefits, the Department of Social Security may have paid them to you. If so, enter in box 11.7 the total you received in the tax year.

Maternity Allowance is a different benefit from Statutory Maternity Pay. It is not taxable and you do not need to include it in your Tax Return.

Taxable Incapacity Benefit

boxes 11.8 and 11.9 Incapacity Benefit is not always taxable. It is not taxable when:

it is benefit paid in the first 28 weeks of incapacity, or

it is benefit payable for a period of incapacity which began before 13 April 1995, and for which Invalidity Benefit used to be payable.

The Department of Social Security will give you a form showing whether your Incapacity Benefit is taxable or not. If you were claiming Incapacity Benefit on 5 April 1999 and your benefit is taxable the Department of Social Security will give you a form P60 (IB) by 31 May 1999 which will tell you the amount of taxable Incapacity Benefit paid to you. Enter the taxable amount in box 11.9 and any tax that has been deducted in box 11.8.

If you stopped claiming Incapacity Benefit before 6 April 1999 and your benefit was taxable, you will have received either a form P45 (IB) (Part 1A) or a form P45 (IB) O (Part 1A) which will tell you the amount of taxable Incapacity Benefit paid to you. Enter the taxable amount in box 11.9 and any tax that has been deducted in box 11.8.

Other pensions and retirement annuities

Pensions (other than State pensions) and retirement annuities

boxes 11.10 to 11.12

Enter in these boxes the total of all pension(s) and retirement annuities you received (other than State pensions) where the payer is in the UK and is not paying the pension on behalf of someone outside the UK.

Include here annuity payments from personal pension schemes or, where the annuity has been deferred, any income withdrawals received during the period of deferral, and any annuity payments from a free standing additional voluntary contributions scheme or a retirement contract or trust scheme.

Keep separate records of each pension - I may ask to see them.

Put the total amount of UK tax deducted from the pension(s) received in the year from 6 April 1998 to 5 April 1999 in box 11.11.

You should find the information on the P60, which the payer should have given you by 31 May 1999, or any other certificates of pension paid and tax deducted.

If you started to receive an occupational pension during the year ended 5 April 1999 please enter in box 11.11 the tax deducted or refunded (put any refund in brackets)by the pension payer; use the figure from the 'in this employment' section of your P60.

If you received non-cash benefits in addition to cash from a retirement benefits scheme contact your Tax Office or tax adviser for advice on what to include in box 11.12.

Exemption

If you are a former employee who has been awarded a pension on retirement because you were disabled by injury on duty or by a work-related illness, and that pension is more than you would have been given if you had retired at the same time on ordinary ill-health grounds, then the extra is exempt from Income Tax and should not be included in boxes 11.10 to 11.12.

Pensions relief under a Double Taxation Agreement (DTA)

If you are claiming that a pension is wholly or partially relieved under a Double Taxation Agreement, see the notes and, as appropriate, complete Help Sheet IR302 or IR304, available from the Orderline. No entry should be made in box 11.13 if you make such a claim.

Deduction

+box 11.13 The taxable amount of your pension may be reduced if it qualifies for 'deduction'.

There is a 10% deduction from some UK pensions for service to an overseas government so that only 90% of the pension is liable to UK Income Tax. To qualify for this deduction, these UK pensions have to be paid by or through any public department, officer or agent of the government of the overseas territory and be paid to:

a person who has been employed in the service of the Crown or in service under the government of the territory concerned, or

his widow, child, relative or dependants.

The territories concerned are:

any country forming part of Her Majesty's dominions

any other Commonwealth country (other than the UK)

any territory under Her Majesty's protection.

If this deduction applies to your pension, in box 11.13 enter 10% of the amount in box 11.12.


Filling in boxes 1201 to 1212
Filling in boxes 12.1 to 12.12

Taxable maintenance or alimony received

You may have to pay tax on maintenance or alimony payments received under certain legally binding agreements. These can be:

a court order, or

a Child Support Agency (CSA) assessment, or

a written agreement, or

(in some cases only - see below) a verbal agreement.

Whether you have to pay tax depends on the arrangements and when they were made. The rules changed for agreements made on or after 15 March 1988.

You do not have to pay tax if:

you received maintenance payments under a court order, Child Support Agency (CSA) assessment, or legally binding written agreement, first made on, or after, 15 March 1988, or

you received maintenance payments from your parents and you are over 21, or

you have received a letter from the person making the payments stating that they have made an election for the 'New rules' to apply for any year up to and including 1998-99 (6 April 1998 to 5 April 1999).

box 12.1 You do have to pay tax on maintenance payments under the 'Old rules' only if they are made under:

a court order made before 15 March 1988 (or by 30 June 1988 if the application to the Court was made before16 March 1988), or

a written agreement made before 15 March 1988 and received by the Tax Inspector by 30 June 1988, or

a verbal agreement made before 15 March 1988, written details of which were received by the Tax Inspector by 30 June 1988, or

a court order, CSA assessment or written agreement made on or after 15 March 1988 that replaces, varies or adds to any of the above, but does not change the person entitled to receive the payments.

You have to pay tax on the lower of:

the amount you were due to receive and did receive in 1988-89 (6 April 1988 to 5 April 1989), or

the amount you were due to receive and did receive in 1998-99 (6 April 1998 to 5 April 1999).

Enter in box 12.1 the lower of these two amounts.

If you have received maintenance payments from more than one person under the above arrangements, follow the instruction above but treat the maintenance payments you received from each of them separately. Then, add the amounts together and enter the total in box 12.1.

box 12.2

You do not have to pay tax on the first £1,900 of any amount you have entered in box 12.1 if:

the payments are from your separated or former husband or wife, and

they are for you or for the support of a child aged under 21 of whom you are both the  parents, or whom you have treated as part of your family, and

you have not remarried, and

you did not, during 1998-99, live again with your separated husband or wife who pays the maintenance.

If you satisfied all the above conditions in 1998-99, enter in box 12.2 whichever is the lower of:

the figure in box 12.1, or

£1,900.

box 12.3 Now deduct the figure in box 12.2 from the figure in box 12.1 and enter the result in box 12.3. If there is no figure in box 12.2, simply copy the figure from box 12.1 to box 12.3.

If you want more detailed information, ask the Orderline for leaflet IR 93: Separation, divorce and maintenance payments.

Gains on UK life insurance policies, life annuities or capital redemption policies

Boxes 12.4 to 12.8 are for gains on UK life insurance policies, life annuities or capital redemption policies. Gains from foreign policies, and life annuities go in box 6.8 on the Foreign Pages, available form the Orderline.

The gains arise on chargeable events and are sometimes called 'chargeable event gains'. The chargeable events that may give rise to a gain include:

death, giving rise to the payment of benefits, or

a part surrender giving rise to a partial withdrawal of benefits, or

payment of a cash bonus, or

a sale or gift of part of a policy or life annuity, or

a policy or contract coming to an end, or

an insurance company making a loan to you or, at your direction, to someone else, or

the sale or assignment of a policy or or life annuity.+

Help Sheet IR320: Gains on UK life insurance policies, available from the Orderline, contains more information.

Not all life insurance policies give rise to gains. Most 'qualifying' life insurance policies do not do so. Pension annuities do not give rise to gains.

Insurance companies sell a variety of products labelled 'guaranteed income bonds', 'income bonds' and so on, a feature of which is that they provide regular payments annually, monthly etc. These may comprise one or more policies of life insurance and gains on them should be included in this section. The gains will not equal the amount of the regular payments. There may be no gains in some years in which regular payments are received.

A policy or life annuity which is part of the ‘Overseas Life Insurance Business’ of a UK insurer is a foreign policy. Any gain should be entered in box 6.8 on the Foreign Pages, available from the Orderline. Overseas Life Insurance Business includes most business effected at a foreign branch of a UK insurer and some business sold out of the UK on what is known as a ‘service basis’, to individuals residing outside the UK when the policy is effected.

Gains on certain life annuities and on friendly societies’ tax exempt life insurance policies are not treated as having been taxed at the basic rate. These gains do not have any ‘notional’ tax. Gains on all other life insurance policies and all capital redemption policies are treated as having been taxed at the basic rate. This is notional tax and is never repayable.

Your insurance company should be able to tell you:

if you have a life insurance policy, a qualifying life insurance policy, a guaranteed income bond etc., a life annuity, a pension annuity, a capital redemption policy, or a policy which is part of ‘Overseas Life Insurance Business’,

what the gains are and whether or not they are treated as having been taxed at the basic rate.

If your insurance company knows that something has happened to give rise to a chargeable event (this will generally be the case unless, perhaps, the company has not been told that a policy or contract has been sold), then it will generally have sent a chargeable event certificate' with the relevant details to the Inland Revenue. You may have been sent a copy.

boxes 12.4 to 12.8 Include gains from UK policies and life annuities in boxes 12.4 to 12.8.

The way you fill in these boxes depends on the number and type of gains in the year and whether or not they are treated as having been taxed.

The number of years to be entered in boxes 12.4, 12.6 or in the 'Additional information' box is the number of complete years between when the policy or life annuity was made and the chargeable event, except where the gain is as a result of a second or subsequent chargeable event, as a result of a partial withdrawal, payment of a cash bonus, sale or gift of part of a policy or life annuity or loan. There is a special rule that for each policy or life annuity these transactions give rise to only one chargeable event a year. Help Sheet IR 320: Gains on UK life insurance policies explains when. Enter the number of years since the last preceding chargeable event as a result of a partial withdrawal, payment of a cash bonus, sale or gift of part of a policy or life annuity or loan. Note if partial withdrawals etc. are made every year enter '1'. If the period from when the policy or life annuity was made to when it ended is less than a complete year also enter '1'.

If you made one gain which is not treated as having been taxed, enter the amount of the gain in box 12.5, and the number of complete years in box 12.4.

If you made one gain which is treated as having been taxed, enter the amount of the gain in box 12.8 and the notional tax in box 12.7. This is 23% of the amount in box 12.8. Also put the number of complete years in box 12.6.

Many insurance packages involve a cluster of identical policies of life insurance. If you have gains from more than one policy, and they are all identical gains from identical policies within a cluster, include total gains in box 12.5 or 12.8, as appropriate, and the notional tax in box 12.7 if appropriate (23% of the amount in box 12.8), and the number of complete years in box 12.4 or 12.6 as appropriate.

Otherwise you will need to enter details in the 'Additional information' box on page 8 of your Tax Return. Describe each policy, life annuity or cluster of identical policies and state the amount of the gains, the number of complete years and the amount of any notional tax. Then transfer totals to boxes 12.5, 12.7 and 12.8 but make no entry in boxes 12.4 or 12.6.

If the rights under a policy or life annuity are held on trusts which you created, any gain made on the policy or life annuity is usually treated as your income. If you are the beneficiary of a bare trust any gain is usually treated as your income. If you need more help ask the Orderline for Help Sheet IR320: Gains on UK life insurance policies.

Deficiencies arising from policies of life insurance, life annuities and capital

redemption policies

box 12.9 A relief may be due very occasionally when a policy of life insurance, life annuity contract or capital redemption policy comes to an end. If benefits have been withdrawn during its term, relief may be due but not otherwise. This is not a relief for a 'loss' but a relief to ensure that the total amount treated as investment income is never more than the total gain made under the policy or contract. It is known as 'corresponding deficiency relief'.

If you think this relief applies to you, ask the Orderline for Help Sheet IR320: Gains on UK life insurance policies.

Refunds of surplus funds from additional voluntary contributions

boxes 12.10 to 12.12 Your certificate from your pension scheme provider will show the amount of surplus additional voluntary contributions plus tax refunded to you on leaving pensionable employment or on retirement. Enter the total amount in box 12.12, the amount actually repaid to you in box 12.10 and the tax deducted in box 12.11.

Do not include amounts of any contributions refunded to you because of completion of less than two years qualifying service in your employer's pension scheme.


Filling in boxes 1301 to 1306
Filling in boxes 13.1 to 13.6

The income or losses from transactions relating to an activity which amounts to a trade should be included in the Self-employment Pages, Partnership Pages, or Land and Property Pages (furnished holiday lettings), as appropriate. If this income does not arise in the course of a trade, profession or vocation, it should be entered in boxes 13.1 to 13.6. If you are in any doubt about this, ask your Tax Office or tax adviser.

Other Income

Keep a record of the separate items of income, and any relevant expenses relating to each item see expenses, in case you are asked for details later.

If you only had one type of 'other income' during the year, follow the instructions below.

If you had more than one type of 'other income', Help Sheet IR325: Other income has a Working Sheet you can use to calculate aggregate figures to put in the boxes.

Remember that you can only set losses of the year against certain types of 'other income' - see the note on losses and Help Sheet IR325: Other income if you need it.

box 13.1 Enter the amount of income after any tax deducted, and after any allowable expenses or capital allowances for this tax year. If overall you made a loss for the year, enter '0'. There are notes below about expenses, losses and some types of income.

box 13.2 Enter the amount of any tax deducted from the payments you received.

box 13.3 Enter the amount of income before any tax deducted, but after any allowable expenses or capital allowances for the year (box 13.1 plus box 13.2). If the result is a loss, it can be set against income in a future year - see the notes- and should be entered in box 13.6.

box 13.4 Enter any unused allowable losses brought forward from earlier years.

box 13.5 You cannot set losses against all categories of other income, for example, you cannot set losses against annual payments - see the notes below. Enter in box 13.5 the amount of any loss brought forward which can be set against the income in box 13.3 up to the amount of that income.

box 13.6 Enter the amount of any loss for the year that you are claiming to carry forward to a later year.

Expenses

The amount of taxable income is the gross income you are entitled to (whether or not you received it) in the tax year minus allowable expenses incurred in that year. Allowable expenses are those which:

had to be spent solely to earn the income, and

were not spent for private or personal reasons, and

were not spent to buy something which you intend to keep for a while (such as a computer). But you may be able to claim capital allowances for this expense. Ask your Tax Office or tax adviser for advice.

You cannot set expenses against annual payments.

For guidance on expenses which are allowable in arriving at the taxable amount of receipts

from a discontinued business, or arising from a change in the basis on which business profits

are calculated, please read the notes on 'Post-cessation and similar business receipts'.

Losses

If your allowable expenses are more than your receipts, you made a loss. Some, but not all, losses can be set against some types of income from other transactions in the 'other income' category.

If you have no such income this year, losses can be carried forward and set against similar income in future years.

You cannot set losses against annual payments.

If any receipts from a discontinued business, or arising from a change in the basis on which business profits are calculated and which would not otherwise be taken into account for tax purposes during the life of the business, are exceeded by your allowable expenses, see the note for box 15.11.

(If you are in any doubt about which losses you can claim or how to claim them, ask the Orderline for Help Sheet IR325: Other income, or ask your Tax Office or tax adviser.)

Post cessation and similar business receipts

Include any income you receive from a business in which your involvement has ceased, for example, if you have disposed of it, if it has been discontinued, or, if it was run in partnership, you ceased to be a partner. If the basis on which the profits of a business are calculated is changed, include here any receipts which, as a result of that change, would not otherwise be taken into account for tax purposes during the life of the business. Examples include:

money you have recovered from a bad debt which you had written off in your business accounts

royalties arising after the business ceased from contracts made before it ceased

receipts relating to work completed before you changed the basis on which profits are calculated from a cash to an earnings basis.

There are two ways of dealing with this. Either you enter the total in box 13.3 or, alternatively, you can claim to have the income taxed as income of the year in which the business ceased. If you wish to do this, do not use box 13.3. Instead, tick box 22.5 on page 8 of your Tax Return. Please enter the amount and the year in which the business ceased in the 'Additional information' box.

Where the income relates to a discontinued business, the amount to be included in your Tax Return is after:

losses and expenses, not arising from the discontinuance itself, which would have been allowable had the business continued, and

any unused losses and unused capital allowances of the discontinued business, and

any such expenses brought forward from earlier years which have not previously been relieved against post-cessation receipts.

Where the receipts arise from a change in the basis on which the profits of a business are calculated, the amount to be included is after any expenses not otherwise allowed and which would have been allowed but for the change.

If the allowable expenses you have paid exceed receipts, read the note for box 15.11.

Cashbacks

box 13.3 You may have to pay tax if you have, as an incentive, to take out a mortgage or to purchase an asset (such as a car):

received cash, or

received an asset (such as a car or a holiday), or

had any personal liabilities waived or paid on your behalf.

You may be taxable on the amount or value of what you have received, or had waived or paid on your behalf.

The person from whom you received the incentive may be able to tell you whether there is any tax liability. If not. you should ask your Tax Office or tax adviser.

If the amount is liable to Income Tax (which is likely only where the cashback consists of payments receivable in more than one year), enter it in box 13.3. (If you are not sure whether the amount is liable to Income Tax, enter it in box 13.3 and tick box 22.3 on page 8 of your Tax Return. Please give full details of the cash back in the 'Additional information' box.)

Sickness and unemployment insurance

Benefits for sickness or disability paid by an employer must be included in the Employment Pages.

If you have left employment but continue to receive benetits for sickness or disability under a personal insurance policy because you are covered by your former employer's permanent health insurance scheme, enter the amount received in box 13.3.

However, if you contributed to the premiums paid by your employer or former employer, the benefits received by you that arise from that employer's scheme will be exempt to the extent that they relate to your contributions. Do not include the exempt amount. Check with your Tax Office if you need help in calculating the exempt amount.

Income of a trade or vocation which is received as benefits for sickness or disability must go in the Self-employment Pages, or the Partnership Pages if the business was carried on in partnership.

Do not include in your Tax Return any other benefits for sickness, injury or disability paid under insurance policies. If you are unsure whether or not your sickness or unemployment benefits are taxable, ask the Orderline or your Tax Office for leaflet IR153: Tax exemption for sickness or unemployment insurance payments. Copies of the leaflet may also be available at your library or Citizen's Advice Bureau.

Lump sums from unapproved retirement benefits schemes

An unapproved retirement benefits scheme is a scheme set up by your (ex) employer to provide retirement or death benefits. It does not include a scheme approved by the Inland Revenue. A lump sum from an unapproved scheme is taxable unless you can show that it is:

attributable to either your own contributions to the scheme, or

attributable to contributions by your (ex) employer which have been taxed on you, or

for accidental disablement or death, or

the only such benefit you received and you are not also a member of an approved scheme. If so it may be free of tax - ask your Tax Office about Statement of Practice 13/91.

(No loss may be set against this income)


Filling in boxes 1401 to 1417
Filling in boxes 14.1 to 14.17

Retirement annuities

box 14.1 Enter the gross amount of qualifying retirement annuity payments made in 1998-99.

box 14.2 Enter the amount of your 1998-99 qualifying payments for which you have already claimed relief in an earlier year. See Help Sheet IR330: Pension payments, available from the Orderline

box 14.3 Enter the amount of your 1998-99 qualifying payments you now want to carry back to an earlier year. See Help Sheet lR330 Pension payments, available from the Orderline.

box 14.4 Enter the amount of qualifying payments you have made after 5 April 1999, but before the date you send your Tax Return, for which you want to claim relief now. The relief will give rise to a tax credit which will be set against the tax due or repaid, as appropriate. I will work it out for you, but if you want to do it yourself, the Tax Calculation Guide will tell you what to do. You must remember to enter the payments in box 14.2 of next year's (1999-2000) Tax Return. See Help Sheet lR330: Pension payments, available from the Orderline.

box 14.5 This is the amount of relief you are claiming against your 1998-99 income. You get this figure by subtracting 1998-99 payments you have already used (box 14.2) or are now going to use in an earlier year (box 14.3) from your total 1998-99 qualifying payments (box 14 1).

Personal pensions (self-employed)

box 14.6 Enter the gross amount of qualifying personal pension payments made as a self-employed person in 1998-99.

box 14.7 Enter the gross amount of your 1998-99 qualifying payments for which you have already claimed relief in an earlier year See Help Sheet lR330: Pension payments, available from the Orderline

box 14.8 Enter the gross amount of your 1998-99 qualifying payments you now want to carry back to an earlier year. See Help Sheet IR330 Pension payments, available from the Orderline.

box 14.9 Enter the gross amount of qualifying payments you have made after 5 April 1999, but before the date you send your Tax Return, for which you want to claim relief. The relief will give rise to a tax credit which will be set against the tax due or repaid as appropriate. I will work it out for you, but if you want to do it yourself the Tax Calculation Guide will tell you what to do. You must remember to enter the payments in box 14.7 of next year's (1999-2000) Tax Return. See Help Sheet IR330: Pension payments, available from the Orderline.

box 14.10 This is the amount of relief you are claiming against your 1998-99 income. You get this figure by subtracting 1998-99 qualifying payments you have already used (box 14.7) or are now going to use in an earlier year (box 14.8) from your total 1998-99 qualifying payments (box 14.6).

Personal pensions (employees)

box 14.11 Enter the gross amount of qualifying personal pension payments made as an employee. This is the amount of the payment you made in 1998-99 with the basic rate tax on it added to your plan. Ask your pension administrator for the amounts if they are not shown on your annual statement, or you can work out your gross payment by dividing the amount you paid by 77 and multiplying the answer by 100. So, for example, if you paid £770 you should enter:

770 x 100 = £1000 in box 14.11.

         -----

          77

This is your net payment of £770 plus basic rate tax of £230.

box 14.12 Enter the gross amount of your 1998-99 qualifying payments for which you have already claimed relief in an earlier year. See Help Sheet IR330, available from the Orderline.

box 14.13 Enter the gross amount of your 1998-99 qualifying payments you now want to carry back to an earlier year. See Help Sheet IR330 Pension payments, available from the Orderline.

box 14.14 Enter the gross amount of qualifying payments you have made after 5 April 1999, but before the date you send your Tax Return, for which you want to claim relief now. The relief will give rise to a tax credit which will be set against the tax due or repaid as appropriate. I will work it out for you, but if you want to do it yourself, the Tax Calculation Guide will tell you what to do. You must remember to enter the payments in box 14.12 of next year's (1999-2000) Tax Return. See Help Sheet IR330: Pension payments, available from the Orderline.

box 14.15 This is the amount of relief you are claiming against your 1998-99 income. You get this figure by subtracting 1998-99 qualifying payments you have already used (box 14.12) or are now going to use in an earlier year (box 14.13) from your total 1998-99 qualifying payments (box 14.11).

Employer's retirement benefits schemes

box 14.16 Contributions to your employer's scheme are deducted at source from your pay by your employer, before tax is charged on the remainder of your pay. Do not enter these contributions in box 14.16.

Enter the amount of contributions made to the scheme (within the 15% earnings limit) which exceptionally has not been deducted at source from your pay before tax has been charged. Such payments are exceptional. An example would be additional vouluntary contributions paid by way of a lump sum at or near 5 April 1999.

If you are a medical or dental practitioner whose income from the National Health Service is taxable as self-employed profits, and you want to claim relief for the contributions paid to the National Health Service Superannuation Scheme, enter in box 14.16 the contributions paid for 1998-99. Ask the Orderline for Help Sheet IR231 Doctors' Expenses for more information.

Free-Standing Additional Voluntary Contributions

box 14.17 If you are an employee, you can pay up to 15% of your earnings (up to an earnings limit of £87,600 in some cases) minus what you pay to your employer’s scheme to a Free-Standing Additional Voluntary Contributions (FSAVC) scheme. Ask your scheme administrator for details.

If you are a medical or dental practitioner claiming tax relief on your contributions to the NHS Superannuation Scheme, you may pay contributions to a Free-Standing Additional Voluntary Contributions (FSAVC) scheme. Ask your administrator for details.

Payments to FSAVC schemes are made net of tax at basic rate. You get further relief if you are taxable at the higher rate.

Enter the gross amount of FSAVC payments in box 14.17. This is the amount you actually paid to your FSAVC provider plus the tax relief you deducted from the payment. For example, if you paid £770 enter £1,000 in box 14.17 (see example) Ask your scheme administrator for these amounts if they are not shown on your annual statement.


Filling in boxes 1501 to 1512
Filling in boxes 15.1 to 15.12

Payments you made for vocational training

box 15.1 There is a tax relief for training that counts towards a National or Scottish Vocational Qualification. If you are aged 16, 17 or 18 and not in full time education at a school, or if you are aged 19 or over, you can get relief if you paid for your own training provided:

you are resident in the UK for tax purposes, and

you are not receiving, or entitled to receive, financial assistance (that is, a loan or grant) for a course under a Government Scheme, and

you are not undertaking the training wholly or mainly for recreational or leisure purposes.

Since 6 May 1997 you can get relief for payments for any full time vocational course that lasts at least four weeks but no longer than a year, provided you are aged 30 or over.

You get basic rate relief at source by paying the net amount. You will get additional relief if you are taxable at the higher rate. Enter in box 15.1 the amount paid to your training provider. Do not include the tax relief given at source to your training provider. If you want more information about the scheme, ask the Orderline for leaflet IR 119: Tax Relief for Vocational Training.

Interest eligible for relief on loans to buy your main home

box 15.2 In most cases loans to buy your home are eligible for mortgage interest relief at source (MIRAS). You get relief by paying only the net amount of interest to the lender. If your loan is in MIRAS I do not need any more information and you do not need to complete box 15.2. Your lender will be able to tell you if your loan is in MIRAS.

If you want to claim relief for a home loan not in MIRAS, ask the Orderline for Help Sheet lR34O: Relief on loans not in MIRAS. Work through the Help Sheet and enter the amount you want to claim in box 15.2. All of the interest you pay will not necessarily qualify for relief, so use Help Sheet lR34O to calculate the correct figure.

Whether your loan is in MIRAS or not you may be able to claim some additional relief for any benefit taxable on you, if you receive a low-interest or interest-free loan from your employer (beneficial loan interest). Ask the Orderline for leaflet IR145: Low-interest loans provided by employers-a guide for employers.

If you are not resident and not ordinarily resident in the UK you may not qualify for mortgage interest  relief. Ask your Tax Office or tax adviser for further information if you think you may be affected.

Remember to notify your lender of any changes in your change of circumstances.

Life annuities for the over 65s/ Home income plans

Interest paid on a loan to buy a life annuity may be eligible for relief. The loan must be secured on your only or main home and the borrower, or the person who receives the annuity must be 65 or over when the loan is made. If the loan is in MIRAS, you have already received the full amount of relief due, and I do not need any more information. You should not complete box 15.2. However if the loan is not in MIRAS, ask the Orderline for Help Sheet IR340: Relief on loans not in MIRAS. Work through the Help Sheet and enter the amount you want to claim in box 15.2. All of the interest you pay will not necessarily qualify for relief, so use Help Sheet lR34O to calculate the correct figure.

Interest eligible for relief on other qualifying loans

box 15.3 You may be entitled to claim relief for interest on loans used to buy:

shares in a 'close company' (see below), or

an interest in (or to fund) a partnership, or

plant or machinery for your work.

Information about other qualifying loans is included in Help Sheet IR34O: Relief on loans not in MIRAS. Work through the Help Sheet and enter the amount you want to claim in box 15.3.

You may also be able to claim relief for any benefit taxable on you if you receive a low-interest or interest-free loan from your employer (beneficial loan interest). Ask the Orderline for leaflet IR145: Low-interest loans provided by employers.

A close company is, broadly, one controlled by:

five or fewer 'participators'. or

any number of participators who are directors.

'Participators' are persons who have a share or interest in the income or capital of the company, such as the shareholders and certain loan creditors.

If you are in any doubt about whether you have shares in a close company, ask your Tax Office or tax adviser for help.

Maintenance and alimony payments

boxes 15.4 to 15.6 You are entitled to relief if your payments to maintain your child or former wife or husband are made under certain legally binding arrangements. These can be:

a court order, or

a Child Support Agency (CSA) assessment, or

a written agreement, or

a verbal agreement (in some cases only).

You cannot get tax relief for other payments, such as voluntary payments or payments made to, or for, your children if they are aged 21 or over.

The amount of relief you get depends on when your arrangements were made. The rules changed for agreements made on or after 15 March 1988.

If your maintenance is paid under a Court order, CSA assessment or legally-binding written agreement which is not included in the following list, go directly to the 'New Rules' section below:

a court order made before 15 March 1988 (or by 30 June 1988 if the application to the Court was made before 16 March 1988), or

a written agreement made before 15 March 1988 and received by the Tax Inspector by 30 June 1988, or

a verbal agreement made before 15 March 1988, written details of which were received by the Inspector by 30 June 1988, or

a court order, CSA assessment or legally-binding written agreement made on or after 15 March 1988, which replaces, varies or adds to any of the above arrangements but does not change the person to whom the payments are made.

If your maintenance is paid under one of the arrangements listed above, go to the'Old Rules' section. If you have separate arrangements under New rules and Old rules, read the notes under 'New Rules and Old Rules'.

New rules

box 15.4 You can get relief on your payments if all of the following four conditions are met:

the court order, CSA assessment or written agreement is made under the laws of one of the following countries - United Kingdom, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Spain or Sweden, and

the payments are made to your separated or former husband or wife or, although paid to the DSS (or DHSS in Northern Ireland) are treated as if made to him or her, and

your separated or former husband or wife has not remarried, and

the payments are for his or her own maintenance, or for the maintenance of a child aged under 21 of whom you are both the parents, or who you have treated as part of your family.

You can get tax relief on the payments you make only up to a total of £1,900, even if you pay more. The limit is the same even if you make payments to more than one separated or former husband or wife.

Enter in box 15.4 the lower of:

£1,900, or

the amount you paid in the year ended 5 April 1999.

If your former husband or wife has remarried in 1998-99, you can get relief on the payments you made only up to the date of the marriage. You should enter in box 15.4 the lower of £1,900 or the payments made.

Please enter the dates of the court orders etc. in the 'Additional information' box on page 8 of your Tax Return. Tax relief will be given at 15% of the amount you have entered in box 15.4.

Old rules

boxes 15.5 and 15.6 You can get tax relief for your payments only on the lower of:

the amount on which you got tax relief in 1988-89 (6 April 1988 to 5 April 1999), or

the amount which was due and which you actually paid in 1998-89 (6 April 1988 to 5 April 1989).

If the lower of these two amounts is less than, or equal to, £1,900, enter it in box 15.5. But if it is more than £1,900, enter £1,900 in box 15.5 and the remainder in box 15.6.

If you paid maintenance under more than one Old rules arrangement, you must consider each separately and then add together the lower of the two amounts for each arrangement.

If the total is less than, or equal to, £1,900, enter it in box 15.5. If it is more than £1,900, enter £1,900 in box 15.5 and the remainder in box 15.6.

If the figure in box 15.5 is less than £1,900 and you actually paid more than £1,900, it may be beneficial for you to elect for the New rules to apply. For detailed guidance ask the Orderline for leaflet lR93: Separation, divorce and maintenance payments. If you do make this election, you must follow the New rules guidance above. Do not enter anything in box 15.5.

Please enter in the 'Additional information' box on page 8 of your Tax Return the date of the original court order or agreement, and the dates of any court order, CSA assessment or written agreement which replaced, varied or added to the original court order or agreement.

Tax relief for the amount in box 15.5 is at 15%. Relief for the amount in box 15.6 is given as a deduction from your income.

Separate arrangements under both New rules and Old rules

boxes 15.5 and 15.6 You are entitled to relief for payments under arrangements to which Old rules apply. To work this out, follow the instructions for boxes 15.5 and 15.6 above for payments under your Old rules arrangements.

If the figure in box 15.5 is less than £1,900 you are also entitled to some New rules relief. Subtract the figure in box 15.5 from £1,900 and enter in box 15.4 the lower of:

that figure, or

the amount you paid in 1998-99 (6 April 1998 to 5 April 1999) under your New rules arrangements.

For more details on maintenance and alimony, ask the Orderline for leaflet IR93: Separation, divorce and maintenance payments.

Venture Capital Trust shares

box 15.7 If you have subscribed for shares in Venture Capital Trusts, you may be entitled to claim tax relief on subscriptions up to £100,000. To qualify for tax relief you must have been aged 18 or over when the shares were issued.

The amount of relief you are entitled to is the smaller of:

the amount you subscribed (up to a maximum of £100,000) multiplied by 20%, or

the amount that reduces your tax bill to zero for the year (I will work this out for you, or, if you are calculating your tax, the Tax Calculation Guide explains what to do).

Enter in box 15.7 the amount you subscribed, up to a maximum of £100,000.

Keep certificates provided by Venture Capital Trusts - I might ask to see them later.

For further details ask the Orderline for the leaflet Venture Capital Trusts (VCTs), a brief guide.

Enterprise Investment Scheme (EIS)

box 15.8 You can claim income tax relief under the EIS for any investment in shares issued during the year (or during the following six months-see form EIS3 (1998) for details), provided:

you have received a form EIS3 (1998) from the company you invested in, certifying that the company qualifies for the scheme (or form EIS5 from the fund manager, where the investment was made through an investment fund), and

you are eligible for relief (the conditions for eligibility are set out on forms EIS3 (1998) and EIS5).

Enter in box 15.8 the total subscriptions for which you are claiming relief. Exclude any part for which you are claiming relief for the previous year but include any investment for which you have already received relief in your tax code or by repayment of a payment on account.

Then enter details of each investment in the 'Additional information' box on page 8 of your Tax Return, as instructed on form EIS3 (1998) or EIS5.

Remember, I might ask to see form EIS3 (1998) (or form EIS5) to support your claim, so keep it safe.

If you have made an Investment for which you have not yet received a form EIS3 (1998) or form ElS5, do not put it on the Tax Return. When you eventually receive the form, complete the claim form which it incorporates and send it to your Tax Office.

Charitable covenants or annuities

box 15.9 You can claim higher rate tax relief for:

charitable covenants

annuities and covenants entered into for full value for genuine commercial reasons in connection with the payer's trade or profession.

These payments are treated as made after basic rate tax has been deducted. No further relief will be due unless you are taxable at the higher rate.

Enter the total annuities and charitable covenanted donations you paid in the year ended 5 April 1999. Do not include the tax treated as deducted.

Gift Aid and Millennium Gift Aid

box 15.10 Gift Aid is a tax relief for single cash gifts made by individuals to charities on or after 1 October 1990. The gifts are treated as having had basic rate tax deducted.

The main conditions of Gift Aid are that you must be resident in the UK and each gift must be £250 or more.

Ask the Orderline for leaflet IR113 Gift Aid: A guide for donors and charities, which gives information about the conditions for relief.

Millennium Gift Aid is a tax relief for cash gifts made by individuals to participating charities on or after 31 July 1998 The gifts are treated as having had basic rate tax deducted.

The main conditions of Millennium Gift Aid are that you must be resident in the UK, and that either each single gift must be £100,or more or that a number of successive gifts to the same charity must total £100 or more.

Ask the Orderline for leaflet IR163 Millennium Gift Aid: A guide for donors, which gives information about the conditions for relief.

Enter the total payments made under Gift Aid and Millennium Gift Aid during the year ended 5 April 1999. Do not include the tax treated as deducted.

Millennium Gift Aid is also available for a trader who makes gifts in kind, of stock or plant used in the business, to participating charities. Do not enter the value of any such gifts in box 15.10. Instead you should make a claim by detailing the articles given and the name of the receiving charity in the 'Additional information' box on Page SE4 of the Self-employment Pages.

Post-cessation expenses etc.

box 15.11 You may be able to get relief for expenses you pay after you cease in business if those expenses are closely related to that business.

The payments must be made within seven years of the business ceasing, and must be amounts spent:

in remedying, or as damages for, defective work done, goods supplied, or services rendered in the course of the former business activity, or

for legal or other professional services in connection with any claim that the work, goods or services were defective, or

for insurance against any expenses described above, or

in recovering debts which have been taken into account in calculating the business profits before it ceased.

Additionally, relief is available for debts owed to the business which have been taken into account in calculating the profits or gains of the business before it ceased but which, within seven years of the business ceasing:

are shown to be bad , or

are released under a formal voluntary arrangement.

A claim must be made by 31 January 2001.

Relief is given against income and capital gains of the year in which the expense is paid. Enter the amount of relief you are claiming against 1998-99 income in box 15.11, and the amount of relief you are claiming against 1998-99 capital gains in box 8.5 of the Capital Gains Pages - but see the notes on unpaid expenses below.

Unrelieved expenses can only be set against any post -cessation receipts which may arise in the future and not any other future income or gains (see note)

Unpaid expenses

If:

ae expenses remain unpaid at 5 April 1999, deduction was given against taxable profits of the former business for expenses which had not actually been paid before cessation, and

thos

the amount of the relief you can claim must be reduced by the amount of the unpaid expense. Deduct it to arrive at the figure to enter in box 15.11.

Reimbursements

You must remember to enter in box 13.3:

any insurance proceeds or premium refunds, or other sums received in connection with an insurance policy taken out to cover the expenses listed above, or

expenses recovered from any other person or any recovery of debts for which relief has been allowed.

If you are in any doubt about the correct treatment of post-cessation expenses, ask your Tax Office or tax adviser.

Losses on relevant discounted securities

If you have incurred a loss in the year ended 5 April 1999 on the disposal of any relevant discounted security (see note), you can claim tax relief for that loss by entering it in box 15.11. You cannot set the loss against the income of an earlier or later year.

Industrial Buildings Allowance from investment in Enterprise Zone Trusts

If you invest in an enterprise zone property unit trust you can claim relief against your total income for your share of the trust's industrial buildings allowance for the year. The trustees will notify you of the amount. Use the land and Property pages, available from the Orderline, to claim the relief (and enter your share of any balancing charge).

Payments to a trade union or friendly society for death benefits

box 15.12 You can claim tax relief for:

the part of your trade union subscription that entitles you to superannuation (that is, pension), life assurance or funeral benefits, or

part of any premiums that you pay to a friendly society under a policy that combines sickness and death benefits, where the total premium is no more than £25 per month, and no more than 40% of the premium is charged for the death benefit. This type of policy is now unusual and the great majority of friendly society policies do not meet the conditions for the relief.

The relief is calculated as one half of that part of your subscription or premium which went to provide the superannuation, life assurance, funeral or death benefit. Your union representative or friendly society will be able to tell you how much, if any, of your subscription or premium was for these benefits.

Enter in box 15.12, one half of that part of your union subscriptions or premiums paid under a friendly society sickness and death benefit policy which relates to the superannuation, life assurance, funeral or death benefits.


Filling in boxes 1601 to 1628
Filling in boxes 16.1 to 16.28

boxes 16.1 and 16.2

Blind person's allowance

You can claim the allowance if you were registered blind with a local authority:

enter the date you were registered blind in box 16.1 if this is the first year you are claiming, and

enter the name of the local authority in box 16.2.

If 1999-2000 is the first year you are on the register, you can still get the allowance for the year ended 5 April 1999, if you already had evidence of blindness at that date. This will usually be an ophthalmologist's certificate, upon which the local authority subsequently based your registration.

Also, if you live in Scotland or Northern Ireland, you can claim blind person's allowance if you are not able to perform any work for which eyesight is essential. To claim, write 'Scotland claim' or 'Northern Ireland claim' in box 16.2.

Transitional allowance

box 16.3 Transitional allowance is for some wives with husbands on low income. You can only get it in 1998-99 if:

you are a married woman, and

ou had transitional allowance in the 1997-98 tax year, and

you lived with the same husband in 1998-99 as you were living with for the whole of 1997-98, and

your husband was resident in the UK for 1998-99, and

your husband has written to his Tax Office asking for the allowance to be given to you.

Claim it by ticking box 16.3 and giving your husband's name, address, tax reference, National Insurance number and Tax Office in the 'Additional information' box on page 8 of your Tax Return.

If you are unsure whether you can get this allowance, ask your Tax Office for help

box 16.4  If you are calculating your tax, you will need to fill in box 16.4. If your husband has given you a figure, and you agree with it, enter that. Otherwise, ask your Tax Office for the figure to put in the box.

Married couple's allowance

boxes 16.5 to 16.10 If you are a married woman, leave these boxes blank. Fill in boxes 16.11 to 16.15 instead. If you are a married man, you can only claim married couple's allowance if:

you were married and living with your wife for all or part of the year ended 5 April 1999, or

you were separated from your wife before 6 April 1990. but you were

still married to her on 6 April 1998, and

you have wholly maintained her since separation until at least 6 April 1998, with voluntary payments for which you were not entitled to tax relief.

You and your wife can still be regarded as 'living together' even if you were not living under the same roof, as long as:

you are still married, and

neither of you intends to make the separation permanent.

If you married in the year ended 5 April 1999, read the section 'Special rules if you are a man who married in the year ended 5 April 1999' for details of what to claim. Otherwise claim married couple's allowance by entering:

your wife's full name in box 16.5, and

her date of birth (if before 6 April 1934) in box 16.7.

That is all you have to do unless you and your wife have decided:

to have half the allowance each (if you have done this and your Tax Office has agreed, tick box 16.8), or

that the whole of the allowance should go to her (if you have done this and your Tax Office has agreed, tick box 16.10).

Read the section 'Who gets married couple's allowance - you or your spouse?' below.

boxes 16.11 to 16.15 If you are a married man, leave these boxes blank. Fill in boxes 16.5 to 16.10 instead. If you are a married woman, you can only claim married couple's allowance if you were married and living with your husband for all or part of the year ended 5 April 1999 and you, and your husband, have decided:

to have half the allowance each (if you have done this and your Tax Office has agreed, tick box 16.13), or

that the whole allowance should go to you (if you have done this and your Tax Office has agreed, tick box 16.15).

Read the section 'Who gets married couple's allowance - you or your spouse?' below for further details.

Claim married couple's allowance by entering:

the date of marriage, if after 5 April 1998, in box 16.11 (unless you can continue to get half or all of the married couple's allowance you are entitled to from a previous marriage, in which case, do not enter anything in box 16.11), and

your husband's full name in box 16.12.

Who gets married couple’s allowance - you or your spouse?

The allowance goes automatically to the husband unless:

either spouse has asked for half the allowance to be given to each, or

both spouses have asked for the whole allowance to be given to the wife.

You can only change the way married couple's allowance is given to you if your Tax Office agreed to the change before 6 April 1998 (or 6 April 1999 if you got married after 5 April 1998). Otherwise it is too late to make a change to apply to your 1998-99 Tax Return. Write to your Tax Office as soon as possible if you want to make a change to apply to your 2000-2001 Tax Return (it is already too late for 1999-2000).

If your Tax Office has agreed to your choice for married couple's allowance, remember to tick one of the boxes 16.8, 16.10, 16.13 or 16.15. If you have changed your married couple's allowance arrangement, it stays that way each year until you decide to change again.

A married couple entitled to a higher age-related married couple's allowance can only transfer an amount equal to all or half of the basic (under 65's) married couple's allowance of £1,900.

These rules are separate from those which allow the married couple's allowance to be transferred from one spouse to the other, where the person getting the married couple's allowance does not have enough income to use it. See 'Transferring unused allowances' and 'Using unused allowances' for more details.

If your husband died in 1998-99

If you are a married woman filling in a Tax Return, and your husband died during the year ended 5 April 1999, you can only have that part of the married couple's allowance which cannot be used against your deceased husband's income for that year.

This applies whether or not you had previously agreed to share, or for you to have the whole of, the allowance. Leave boxes 16.13 and 16.15 blank and tick box 16.26 (if appropriate).

If you are filling in a Tax Return for a husband who died in the year ended 5 April 1999, then please note that the married couple's allowance should be used against his income for the year, even if some or all of it had previously been allocated to his wife. Leave boxes 16.8 and 16.10 blank.

Special rules if you are a man who married in the year ended 5 April 1999

You have three choices. You can:

claim 1/12 of the married couple's allowance for each tax month (or part of a tax month) of your marriage (the tax month runs from the 6th of one month to the 5th of the next). If you choose this, enter your date of marriage in box 16.6 and follow the guidance for filling in boxes 16.5 and 16.7 to 16.10,or

continue to get any married couple's allowance you are entitled to for 1998-99 from a previous marriage. If you choose this, do not enter anything in box 16.6. Fill in boxes 16.5 and 16.7 to 16.10 as appropriate, with details of your previous wife, following the guidance above, or

choose to claim additional personal allowance for a child living with you, instead of married couple's allowance. If you choose this, do not enter anything in boxes 16.5 to 16.10. Fill in boxes 16.16 to 16.23, as appropriate, by following the guidance below.

Higher allowance if one spouse was born before 6 April 1934

If you are a husband, you may get a higher amount of married couple's allowance if either you or your wife were born before 6 April 1934 (and even more if born before 6 April 1924). If your wife was born before 6 April 1934, fill in box 16.7.

If your income was over £16,200 in the year ended 5 April 1999, you may not get the higher amount or it may be restricted.

Additional personal allowance

boxes 16.16A to 16.19 If you are a woman, you can claim additional personal allowance if you had a child living with you for at least part of the year ended 5 April 1999, and:

you were a married woman whose husband was unable to look after himself at all for the whole of the year ended 5 April 1999 because of illness or disablement, in which case tick box 16.16A, or

you were single, separated, divorced or widowed at 5 April 1999, or

you got married or reconciled with your husband in the year ended 5 April 1999.

Unless you are claiming under the first of the three headings above the child must live with you for part of the period in the year when you were single, separated, divorced or widowed.

If you are a man, you can claim additional personal allowance if you had a child living with you for at least part of the year ended 5 April 1999, and:

you were single, separated, divorced or widowed throughout the year ended 5 April 1999, or

you separated permanently from your wife in the year ended 5 April 1999, and you are not getting all the married couple's allowance for that year, or

you got married in the year ended 5 April 1999 (when you can claim the allowance instead of married couple's allowance), or

you were a married man whose wife was unable to look after herself at all for the whole of the year ended 5 April 1999 because of illness or disablement (in which case please tick box 16.16A,).

The child can have lived with you for part of the year ended 5 April 1999 only. But if you separated during that year, the child must have lived with you after you separated.

The child must have been either:

your own child, stepchild, or a child you legally adopted before he or she was 18 (there is no age limit for this type of child), or

child under 18 on 6 April 1998 who you look after at your own expense.

But you cannot claim for a child who was 16 or over on 6 April 1998 unless the child was:

receiving full-time education at school, college or university, or

training full-time for at least two years for a trade or profession.

You can only get one allowance even if more than one child lives with you.

To claim, give:

the name of the child you are claiming for (claim for the youngest one unless someone else is claiming for that child) in box 16.16, and

the child's date of birth in box 16.17, and

tick box 16.18 if the child lives with you, and

fill in box 16.19 if you are claiming for a child over 16 years old.

The effect of married couple's allowance on additional personal allowance

If you are a married man and you separated from your wife before 6 April 1990 and you are still entitled to married couple's allowance from that marriage, you cannot get any additional personal allowance.

If you separated during the year ended 5 April 1999, the maximum amount of additional personal allowance you can get is the lower of:

the share of additional personal allowance you are entitled to when the full amount has to be shared with someone else, or

the full amount of the additional personal allowance after deducting any share of the married couple's allowance you may be entitled to. There are two circumstances when you do not deduct any married couple's allowance. These are:

if you are claiming additional personal allowance because your spouse was unable to look after him or herself for the whole of the year ended 5 April 1999 because of illness or disablement, or

you received married couple's allowance from your spouse which was transferred 'unused' allowance (see the note for box 16.26).

Sharing a claim for additional personal allowance

You and someone else may both be entitled to claim additional personal allowance for the same child.

If the two of you are not living together as husband and wife, one of you may be able to claim for a different child instead, in which case you each get the full amount.

If you are claiming for the same child, you are only entitled to one allowance between you. Either:

one of you can give up your claim, or

you can share the allowance.

If you cannot agree how much of the allowance should be shared, it will be split according to how much time the child lived with each of you in 1998-99.

If the two of you are not married but are living together as husband and wife, you can only claim one allowance between you, no matter how many children you have. The allowance will be given for the youngest qualifying child. Either:

one of you can give up your claim, or

you can share the allowance.

If you cannot agree how the allowance should be shared, it will be split according to how much time the youngest child lived with each of you in 1998-99. For example, if you lived together for the whole year, you will have half each.

boxes 16.20 to 16.23 If the allowance is to be shared, fill in boxes 16.20 and 16.21. If you cannot agree how the allowance should be split, fill in boxes 16.22 and 16.23 to show how many days in the year ended 5 April 1999 the child lived with you and the other person.

This information will be used to split the allowance.

Widow's bereavement allowance

box 16.24 Widow's bereavement allowance

You can claim the allowance if:

your husband died in the year ended 5 April 1999, or

he died in the year ended 5 April 1998 (provided you did not remarry in that year).

To claim, enter the date your husband died in box 16.24.

Transferring or using unused allowances

Transferring unused allowances

boxes 16.25 and 16.26 You can transfer any 'unused' amount of married couple's allowance or blind person's allowance.

You are entitled to do this if:

you did not have enough income in the year ended 5 April 1999 to use up the allowance, and

you lived with your spouse for at least part of that year.

Also, if you are a husband whose income does not use all of your personal allowance then, in certain circumstances, your wife can receive a transitional allowance. The main requirement is that your wife got a transitional allowance in 1997-98.

If you want your spouse to have married couples surplus allowance or blind person's surplus allowance or transitional allowance, tick box 16.25. Please give details of your spouse's name, address, tax reference, National Insurance number and Tax Office in the 'Additional information' box on page 8 of your Tax Return.

Using unused allowances

If your spouse did not have enough income in the year ended 5 April 1999 to use any or all of their married couple's allowance or blind person's allowance (if due), you can ask for the surplus to be transferred to you. You can use this surplus to reduce the Income Tax you have to pay.

To claim the unused allowance, tick box 16.26 and please give details of your spouse's name, address, tax reference, National Insurance number and Tax Office in the 'Additional information box on page 8 of your Tax Return.

If you are unsure whether you can get surplus allowances from your spouse, ask your Tax Office or tax adviser for help.

boxes 16.27 and 16.28 You need to complete these boxes if you are calculating your tax. If your spouse has given you a figure and you agree with it, enter that amount.

Enter in box 16.27 the amount of the blind person's surplus allowance you can have.

Enter in box 16.28 the amount of the married couple's surplus allowance you can have.

If you are not sure of the figure you should use, ask your Tax Office or tax adviser.


Filling in your Tax Return

How to fill in the boxes

Questions Q1 to Q9

Supplementary pages

Pages 3 to 8

What is in the rest of your Tax Return


Foreign
Notes on Foreign I

CONTENTS

Filling in your Foreign Pages

Part 1 - reporting your foreign income and claiming tax credit relief  Arising basis  Remittance basis  Joint savings and investments  Unremittable income  Income becoming remittable  Foreign income: change to sterling  Foreign tax paid and tax credit relief  Double Taxation Agreeements  Filling in Pages F1 and F2  Foreign savings  Dividends and distributions from overseas sources  Interest and other income from overseas savings  Overseas pensions and benefits  Overseas pensions  Overseas social security benefits  Income from land and property abroad  Filling in Page F4  Income  Expenses  Tax adjustments  Income received by overseas trusts, companies and other entities  Other overseas income  Disposals of holdings in offshore funds  Income from non-resident trusts  Benefit received from overseas trusts, companies and other entities  Gains on foreign life insurance policies, life annuities and capital redemption policies  Filling in Page F3  Tax credit relief for foreign tax paid on employment, self-employment and other income  Tax credit relief for foreign tax paid on gains

Part2 - calculating tax credit relief  Relief against Income Tax  Relief against Capital Gains Tax  Table of rates of withholding tax

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for these Pages are available from the Orderline.

IR250:  Capital allowances and balancing charges in a rental business

IR260: Overlap

IR261:  Tax credit relief and capital gains

IR262:  Tax credit relief and lump sums

IR263: tax credit relief: capital gains and lump sums

IR301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts

IR302: Dual residents

IR304: Non-residents relief under Double Taxation Agreements

IR310: War widow’s and dependant’s pensions

IR321: Gains on foreign life insurance policies

Filling in your Foreign Pages

Gather together the material you need, such as:

overseas dividend vouchers

bank statements for overseas accounts

overseas pension advice notes

foreign tax assessments

receipts for foreign tax paid

The notes, in Part 1 starting on the next page, tell you how to complete the Foreign Pages.  Fill in Pages F1 to F4 of the Foreign Pages to give details of your foreign income and gains:

Page F1 is for foreign savings (including income from offshore funds), which are taxable at the lower (20%) rate of tax (the notes start here).

Page F2 is for overseas:

pensions

social security benefits

income from land and property

disposals of offshore funds

income received by overseas trusts, companies and other entities

benefit received (directly or indirectly) from overseas trusts, companies and other entities

chargeable event gains

Also use it for your foreign savings if you are taxable on the remittance basis (see the note below).

Complete Page F3 to claim tax credit relief for foreign tax on:

income included in the Employment, Self-employment, or Partnership Pages, or boxes 13.1 to 13.3 on page 4 of your Tax Return (see the notes here)

chargeable gains included in your Capital Gains Pages (see the notes)

Complete a copy of Page F4 for each foreign property  Summarise the income on Page F2 (the notes start here).

Pages F1 to F4 give the information I need to calculate relief for any foreign tax paid on taxable income or gains that are also chargeable to UK tax.  You may be able to set all or part of the foreign tax against your UK tax bill.  This is known as tax credit relief.

If you want to calculate the tax credit relief yourself, or you are calculating your tax bill, also complete the Working sheet in Part 2 of these Notes.

Part 1 - reporting your foreign income and claiming tax credit relief

Arising basis

Unless the remittance basis (see below) applies, your income is taxed as it arises, whether or not it is actually brought to the UK.  You must enter the full amount of income arising from overseas sources on your Foreign Pages.  For overseas rental income, this means your gross income minus allowable expenses.  For all other income, it is just gross income before tax.

Remittance basis

The remittance basis only applies to you if you are claiming to be resident in the UK, but are either:

not domiciled in the UK, or

a citizen of the Commonwealth or of the Republic of Ireland and are not ordinarily resident in the UK

Ask the Orderline for the Non-residence Pages if you think this applies to you.  If you are liable to tax on the remittance basis, enter only the amounts of income received in the UK (include any savings income on Page F2, not Page F1).  Apportion any foreign tax paid as appropriate (see Example 1 below).

Example 1

Rachel received a pension of £1,000 on which she paid foreign tax of £150, but only brought half of the net amount (£850) to the UK in the year ended 5 April 1999.  The calculation is:

Pension received in UK	£425

Add foreign tax	£425 x £150	=	£  75

£850

£500

Enter on the Foreign Pages:

Amount before tax (Column B)	£500

Foreign tax (Column D)	£  75

The remittance basis does not apply to:

gains under a policy of life insurance, life annuity or capital redemption policy.  These gains are always taxable on the arising basis.

Republic of Ireland income from pensions, securities, stocks, shares and rent.  The taxable amount of this income is the full amount arising and is not limited to amounts remitted, even if you are not domiciled or not ordinarily resident in the UK.

Joint savings and investments

If you have savings or investments held in joint names, you should enter only your share of the income.

If you are married, income from savings or investments held jointly with your husband or wife is usually split equally.  If you actually own the savings or investments and the income from them in unequal shares, you can elect to have the income treated for tax purposes on that basis.  The election cannot be back-dated.

Please ask your Tax Office or tax adviser if you would like further information or an election form.

It is not possible to elect to share any ‘gain’ on a policy of life insurance, life annuity or on a capital redemption policy.  Any gain is allocated to the person who actually owns the rights (or owned them immediately prior to the chargeable event ) under the insurance policy or contract, or created the trusts under which the rights are held.

Unremittable income

If you have income arising outside the UK that you were unable to transfer (or remit) to the UK, because of exchange controls or a shortage of foreign currency in the overseas country, then you can claim that the unremittable income should not be taxable in 1998-99.

If you think this applies to you, see page FN3 for guidance on how to give details of the unremittable income on your Foreign Pages.

This does not apply in respect of income/benefit arising as a result of a transfer of assets of the type described here.

Income becoming remittable

Where income was not taxed in an earlier year because it was unremittable, but it can now be remitted to the UK it is treated as arising in 1998-99.  Income may become remittable if, for example, exchange controls are lifted.  Include any income to which this applies whether or not it is actually remitted to the UK.  The amount of the income and any foreign tax charged on it should be translated to sterling using the exchange rate prevailing at the time when the income becomes remittable.

Foreign income: change to sterling

Income taxable on the arising basis should be translated to sterling at the rate of exchange prevailing at the time when the income arose.

Income taxable on the remittance basis should be translated to sterling at the rate of exchange prevailing on the date of receipt in the UK.

Gains on foreign life insurance policies, life annuities or capital redemption policies should be calculated in the currency in which the policy or contract is denominated and the gain translated to sterling at the rate of exchange applicable at the time of the chargeable event.

If you are unsure of the exchange rate to be applied ask your Tax Office or tax adviser.

Foreign tax paid and tax credit relief

Tax credit relief is normally the most beneficial way to obtain relief from double taxation, but if you do not wish to claim it,  you may instead deduct the foreign tax when calculating the amount of income and gains chargeable to UK tax.

Example 2

John received income of £1,000 on which foreign tax of £150 was withheld at source.  If the income is chargeable to UK tax at 23% and he claims tax credit relief, his net liability will be (£230 - 150) = £80.

If he does not claim tax credit relief, his liability will be: (£1,000 - 150) = £850 x 23% = £195.

Tax credit is not always available for the full amount of foreign tax you have paid.  Relief is subject to the following rules:

relief is only due if you are a UK resident (special rules apply in certain circumstances if you are a resident of the Isle of Man or the Channel Islands - ask your Tax Office or tax adviser for help)

the income must arise in the foreign country and be properly chargeable under the foreign country’s law

where a Double Taxation Agreement (see note) exists between the UK and the other country, the amount of foreign tax eligible for relief is restricted to the minimum foreign tax payable under the terms of the Agreement.  If you want to calculate your tax, consult the list of the UK’s Double Taxation Agreements.  It shows the treaty rates of withholding tax, which apply to dividends, interest, royalties and technical fees derived by a UK resident.

Withholding tax is tax deducted by the payer when the income is paid to you.  If you have paid foreign tax at a higher rate than that shown for the particular type of income, tax credit relief is not available for the tax in excess of the agreement rate; you should therefore approach the overseas tax authority for a refund of the tax paid in excess of the agreement rate.  Rates of withholding tax start here.

where no Double Taxation Agreement exists between the UK and the other country, or the Agreement does not cover the particular foreign tax, relief is only available if the tax corresponds to UK Income Tax or Capital Gains Tax.  If you are in any doubt about this, ask your Tax Office or tax adviser

the amount of tax credit relief must not exceed the UK tax chargeable on the same item of income or gains on which the foreign tax was calculated

you cannot claim tax credit relief for any foreign tax paid on a particular item of income or gains if you have claimed all or part of that foreign tax as a deduction in arriving at the amount of income or gains for UK tax.

Tax deducted from dividends received from the countries listed below is not eligible for tax credit relief, either because the relief is specifically prohibited by the Double Taxation Agreement, or because the tax is not a direct tax on the dividend itself because it is effectively a payment on account of tax chargeable on the profits and gains of the company paying the dividend.

The countries are Antigua, Australia (franked dividends only); Belize; Cyprus; The Gambia; Guernsey; Isle of Man; Jersey; Kiribati; Malaysia; Malta; Singapore.

Although the tax is not available for credit relief, it may be deducted in calculating the amount of the dividend which is chargeable to UK tax (see Example 2).

Double Taxation Agreements

A Double Taxation Agreement is an arrangement between two countries.  It consists of a series of detailed provisions designed to eliminate or relieve the taxation of income or gains in more than one country.  It may provide, for example, that a UK resident is exempt from tax, or is liable to a reduced rate of withholding tax, in the foreign country.

Filling in Pages F1 and F2

Give details of overseas:

dividends

interest and other income from savings

pensions

social security benefits

income from land and property

income received by overseas trusts, companies and other entities

benefit received (directly or indirectly) from overseas trusts, companies and other entities

chargeable event gains

(You should enter information on Page F3 about any income or gains included elsewhere in your Tax Return and which have suffered foreign tax for which you want to claim credit relief)

Important each item of income or gains in any particular category (for example, more than one foreign pension, or dividends from more than one overseas company) must be entered separately.  But see below for how to deal with unremittable income.

For each item the illustration below shows you how to make entries:

in column A, enter the name of the country in which the item of income arose.  In the section dealing with dividends, interest and other savings show the nature of the income receipt in brackets as [D], [I] or [O] respectively.

in column B, enter the amount of income before deducting any UK or foreign tax but after deducting unremittable income

in column C, enter the amount of any UK Income Tax, if any, deducted from the income

in column D, enter the amount of foreign tax paid on the income entered in column B. (If the rate of foreign tax you have paid is more than the rate to which, as a UK resident, you were liable under the terms of a Double Taxation Agreement, enter the amount of foreign tax at the Agreement rate and approach the overseas tax authority for a refund of the excess.  This Table sets out maximum rates that apply to some types of income).

In column E, enter the amount of income on which you are chargeable.  The following notes explain how to work this out.

tick the box in column E if you want to claim tax credit relief for the item.

Entering unremittable income

For each item of income not remittable to the UK in the tax year 1998-99:

in column A, enter the country in which the item of income arose

tick the box between columns A and B

in column B, enter the amount of the unremittable income, in its foreign currency (delete the £ sign)

in column D, enter in its foreign currency the amount of the foreign tax, if any, paid on the unremittable income, (delete the £ sign)

leave other columns blank.

Fill in the columns A to E, and tick the box in column E to claim tax credit relief.

Country	Amount	UK tax	Foreign tax	Amount chargeable

tick box if income	tick box to claim

is unremittable	tax credit relief

A	B	C	D	E

Dividends	USA	[D]	£	120	£	  0	£	18	£	120

interest, and	Germany	[D]	£	  60	£	  3	£	  9	£	  60

other savings	Germany	[D]	£	500	£	25	£	75	£	500

income	Belgian	[ I ]	£	120	£	  6	£	18	£	120

- see notes page FN4

Foreign savings

Remember, if you are taxable on the remittance basis, enter your foreign savings on Page F2, not Page F1.

Dividends and distributions from overseas sources

Exclude:

Foreign Income Dividends received from a UK company (these should be entered on page 3 of your Tax Return)

distributions made in the course of the liquidation of a foreign company

distributions that constitute a return of your capital interest in a foreign company

distributions made by a foreign company in the form of its own stocks and shares

stock dividends from foreign companies

bonus shares from a scrip issue made by a foreign company

Where, however, a distribution was not made in the form of shares and you accepted cash from the foreign company under an option given to you to receive cash instead of shares, the cash is taxable and should be entered on Page F1.

If you are not sure whether the distributions you have received fall into any of the above categories, ask your Tax Office or tax adviser for help.

Filling in the columns

column A  Enter the name of the country where your income arose and in which tax has been withheld at source when the dividend was paid to you, and add [D] for dividends, in brackets - see the example

columns B to D  Remember that each share or unit holding in a different company constitutes a separate source for tax purposes. Enter the income from each holding on a separate line.

Dividends received through a UK paying or collecting agent

Enter the amounts of the gross dividend received and the UK tax and foreign tax paid in the year ended 5 April 1999 as shown on the agent’s voucher.

Dividends from overseas unit trusts and other investment funds

The information you need to complete these columns will be shown on your unit trust or fund voucher.  Where the dividend distribution is automatically reinvested in the unit trust or fund, you must still show the dividend distribution and tax deducted.  If you do not have a tax voucher ask your fund administrator for one.

Dividends from other overseas sources

The information you need to complete these columns will be shown either:

on your dividend voucher, or

if the dividends are paid through a paying agent in the UK or collected and paid to you by a banker in the UK, on the certificate of deduction of tax provided by the agent or banker.

If you are in a UK resident receiving dividends from Finland, France, Italy or the Republic of Ireland, you may be eligible, under the terms of the Double Taxation Agreements with those countries, to receive payment of the other country’s tax credit (‘avoir fiscal’ in the case of France) in addition to any dividend to which you are entitled.  For further information or claim forms, contact:

Financial Intermediaries and Claims Office (International)

Fitz Roy House

PO Box 46

Nottingham NG2 1BD

Telephone 0115 974 2000.

The Double Taxation Agreements with the countries mentioned provide for the other country to withhold tax from the aggregate of the dividend and the tax credit.  You should therefore enter the gross amount of the dividend and the tax credit.  You should therefore enter the gross amount of the dividend plus the tax credit in column B and the amount withheld in column D.

Example 3

Dividend from Italy	£10,000

Italian tax credit	£  5,625

£15,625

Italian withholding tax at 1.5%	£  2,344

Net received	£13,281

Enter £15,625 in column B and £2,344 in column D

Other distributions from overseas sources

If you have received a distribution from a foreign company other than in the form of a cash dividend, for example if the company has released some of its assets (such as shares it holds in another company) to its shareholders, enter the sterling value of such assets at the date of distribution, unless the assets are released on liquidation or represent a return of capital. If you are in doubt ask your Tax office or tax adviser for help.

column E  Enter in column E the amount in column B minus, if you are not claiming tax credit relief, any foreign tax included in column D.

If you are claiming tax credit relief, copy the figure in column B to column E without deducting any part of the amount in column D and tick the box in column E.

boxes 6.1 and 6.2  Add up the figures in column C and put the total in box 6.1

Add up the figures in column E and put the total in box 6.2

Interest and other income from overseas savings

Filling in the columns

column A  Enter the name of the country where your income arose and in which tax was withheld when the interest was paid to you, and add [I] or [O] as appropriate, to indicate whether the income was interest or other income (see the example).

columns B to D  Remember to treat each source of interest (including, for example, different accounts with the same bank) separately and enter details of each on a separate line.

Interest from overseas unit trust and other investment funds

The information you need to put in these columns will be shown on your unit trust or fund voucher.  If you do not have a tax voucher, ask your unit trust or fund administrator for one. Where the interest distribution is automatically reinvested in the unit trust or fund, you must still enter the interest distribution and tax deducted.

Interest from other overseas sources

In these columns enter the amounts of interest you received from foreign bank accounts, or from foreign company loan stocks, or from loans to individuals or other organisations outside the UK.  If the payer of the interest has deducted foreign withholding tax and accounted for that tax to be overseas tax authority on your behalf, this will normally be shown on a certificate of tax paid.

Other income from overseas savings

Enter in these columns any other income you received from overseas savings and investments.  Do not enter:

gains on life assurance policies, life annuities and capital redemption policies (see notes)

overseas pensions (see notes below)

income from land and property abroad (see note).

column E  Enter in column E the amount in column B minus, if you are not claiming tax credit relief, any foreign tax included in column D.

If you are claiming tax credit relief, copy the figure in column B to column E, without deducting any part of the amount in column D, and tick the box in column E.

Overseas pensions and benefits

Overseas pensions

You should complete the columns if at any time during the 1998-99 tax year you received a pension or an annuity from overseas (that is, outside the UK).

You should also include pensions or annuities where the payer of the pension or annuity is in the UK but pays it on behalf of someone else who is outside the UK.

If you expect to start receiving pensions or annuities before 6 April 2000, enter the details in the ‘Additional information’ box on Page F3 of the Foreign Pages, and tick box 22.1 on page 8 of your Tax Return.  This will help us to get your tax code right for next year.

Any other pensions should not be entered in these Pages.  Instead they should be entered in Question 11 on page 4 of your Tax Return.

column A  Enter the name of the country where your income arose.

columns B to D  Remember that if you received more than one foreign pension, you should enter details of each on a separate line.

Arrears of foreign pensions

If your foreign pension is taxed on the arising basis (see note) and the amount you received in 1998-99 included arrears which relate to an earlier year of assessment (to 1997-98 and earlier), you may be able to spread the arrears of pension back to the year to which they relate under the terms of Extra Statutory Concession A55.  If you think this might be to your advantage, ask our Tax Office or tax adviser.

For each separate pension or annuity, fill in the columns across the Page.  Enter in column B the amount of pension or annuity arising before tax unless you are liable to tax on the remittance basis.  In that case, you should enter the amount of the pension or annuity which you actually received in the UK or brought to the UK, plus any foreign tax paid (see example 1).

If your overseas pension is paid through an agent  in the UK who has deducted UK Income Tax from it, enter the amount of that tax in column C.

If you pension or annuity has been taxed in the foreign country, enter the appropriate amount of that tax in column D (see above).

The full amount of foreign tax paid should be entered unless you are liable to tax on the remittance basis (see page FN2) and did not bring all your pension into the UK in the year.  In that case, you should enter the amount of foreign tax which relates to the proportion of pension received in the UK.

Exemption

Some foreign pensions are wholly or partly exempted from UK tax.  If you consider that your pension falls within one of the following categories, deduct the exemption in arriving at the figure for column E.

if you are a former employee who has been awarded a foreign pension on retirement because you were disabled by injury on duty or buy a work-related illness, and that pension exceeds what you would have been awarded if you had retired at the same time on ordinary ill-health grounds, then the excess is exempt from Income Tax under Extra Statutory Concession A62

war widows’ pensions and some pensions paid to other dependants of deceased forces and Merchant Navy personnel are not taxable.  Sometimes these are not paid, or are reduced, because you get another pension or benefit such as a pension from overseas.  Where this happens it reduces the taxable amount of the other pension or benefit you receive.  Ask the Orderline for Help Sheet IR310: War widow’s and dependant’s pensions: this tells you how to work out the taxable amount

pensions and annuities payable under special German or Austrian laws to victims of Nazi persecution are wholly exempt from Income Tax

pensions payable under certain German or Austrian social security laws are wholly exempt from Income Tax where the pensioner was prevented by persecution, or flight from persecution, from making normal social security contributions, and has subsequently been given credit under German or Austrian laws for the unpaid contributions, or was allowed to purchase additional years under persecution laws

pensions payable under certain German and Austrian social security laws are wholly exempt from Income Tax where the grant of the pension is dependent upon the exercise of a discretion by the granting authority.

If, in the year ended 5 April 1999, you received for the first time, a pension covered by any of the last three categories above, you should attach a copy of the pension-awarding document (‘Bescheid’) to your Tax Return.

If you are not sure whether the pension you have received is within any of the exempt categories, ask your Tax Office or tax adviser for assistance.

One-tenth deduction where arising basis applies

A one-tenth deduction is available for overseas pensions and annuities funded by an overseas employer or pension fund so that only 90% of such a pension or annuity is chargeable to UK Income Tax.  This deduction is, however, available only for pensions and annuities which are taxable on the arising basis.  If your pension is taxable on the remittance basis (see note) the full amount of the actual sums received in the UK is taxable.

column E  Enter in column E the amount in column B minus:

any amount exempted, including the one-tenth deduction, if appropriate, and

if you are not claiming tax credit relief, any foreign tax entered in column D.  If you are claiming tax credit relief, do not deduct any part of the amount in column D from the figure in column B, before entering a figure in column E.  Tick the box in column E to claim tax credit relief.

Overseas social security benefits

If, during 1998-99, you received benefits under the social security legislation of a foreign government, you should enter the amounts in the appropriate column on the Foreign Pages.  Exclude benefits awarded under foreign social security laws that correspond to the following UK social security benefits (these are not taxable by virtue of Extra Statutory Concession A24):

Incapacity benefit (where the award was made for a period of incapacity which began before 13 April 1996)

Incapacity benefit paid during the first six months of your incapacity

Attendance allowance

Disability living allowance

Severe disablement allowance

Maternity allowance

Widow’s payments

Child’s special allowance

Guardian’s allowance

Child benefit

If you are uncertain about whether a particular foreign social security benefit is covered by ESC A24, ask your Tax Office or tax adviser.

column A  Enter the name of the country where your income arose.

columns B to D  Remember that if you received more than one overseas benefit, you should enter details of each on a separate line.

Enter the amounts of taxable benefits before deducting any UK or foreign tax in column B.  Leave column C blank.  Enter the amount of foreign tax in column D.

column E  Enter the amount in column B minus, if you are not claiming tax credit relief, any foreign tax included in column D.

If you are claiming tax credit relief, do not deduct any part of the amount in column D from the figure in column B before entering a figure in column E.  Tick the box in column E to claim tax credit relief.

Income from land and property abroad

How you fill in Page F4 for overseas land and property depends on whether you are taxable on the remittance basis, or the arising basis.  Read the notes below.

Remittance basis

The remittance basis applies to individuals who, although resident in the UK for tax purposes, are either not domiciled in the UK or who, being Commonwealth or Irish citizens, are not ordinarily resident in the UK.  If you think this applies to you, you should obtain and complete the Non-residence Pages.

The remittance basis does not, however, apply to income from let property situated in the Republic of Ireland, which is always taxable on the arising basis (see note).

If the remittance basis applies to you, you are only taxable on income from overseas let property to the extent that you bring the income to the UK.  You do not need to complete boxes 6.11 to 6.31.  Fill in columns A to E as instructed below.  Remember to complete a separate line for each overseas property you let.

Filling in the columns on Page F2, if the remittance basis applies to you

column A  Enter the name of the country where the property is situated.

column B  Enter in column B the full amount of income from the property you brought to the UK.

column C Leave column C Blank.

column D  Enter the amount of any foreign tax paid that is attributable to the income shown in column B.  If you do not bring all your overseas rental income to the UK, any foreign tax paid on the total letting income should be apportioned accordingly.

Example 4

Richard’s overseas rents are £10,000, on which foreign tax of £2,000 was paid to the overseas tax authority.  If Richard brings £6,000 of the net after tax income (£8,000) to the UK, the foreign tax attributable to that amount is:

£6,000  x £2,000 = £1,500

£8,000

Richard should enter £7,500 (that is £6,000 plus £1,500) in column B and £1,500 in column D

column E  If you wish to claim tax credit relief (see note), copy the figure in column B to column E.  This is the amount on which UK tax is charged.  Tick the box in column E.

If you do not wish to claim tax credit relief, deduct the figure in column D from that in column B and enter the net amount on column E.  Do not tick the box in column E.

Arising basis

If you are not taxable on the remittance basis, the arising basis applies (see note) and you are taxable on the full amount of your overseas rental income for the year ended 5 April 1999 whether or not you bring it to the UK.

Before you fill in columns A to E on Page F2, you must complete a separate Page F4 in respect of each overseas property.  If necessary ask the Orderline for extra copies of the Foreign Pages or photocopy Page F4.  If you use the photocopies, put your name and tax reference next to the property address box.

Filling in Page F4

First, enter the full address of the property.

Income

box 6.11  If you enter into any transaction that proceduces rents or other receipts from any rights or interests you hold in land or property situated abroad, those rents and receipts are taxable.

Enter in box 6.11 the full amount of the receipts from the property in question, but excluding any chargeable premiums.  These go straight onto Page F2.  See the notes below.

Income includes receipts in cash or in kind.  It is taxed when it is earned, even if you do not receive the money or goods until later.

Include any rent your receive (or you will receive) after 5 April 1999, that is payment for the year ended 5 April 1999 (because it is paid in arrears).  Exclude any rent you have received that relates to any period after 5 April 1999 (because it is paid in advance).  For example, if your tenant is require to pay rent in advance , the proportion paid that is related to the period should be excluded.  It must be included in your income for the year to which it relates.

Make sure you do not count money you received in this year if it was included in an earlier year.

Broadly, most income will be rental income from a tenancy, leasing, or licensing agreements over your land or property.  Rental income from furnished, unfurnished, commercial and domestic accommodation, and from any land, should al be included in the overall total.  If your property is let furnished, any sums that a tenant may pay for the use of furniture will be taxable as income of your business.  All this income should be added together and entered in box 6.11.

Receipts other than rents are also taxable.  Examples are rent charges and ground rents, income arising from the grant of sporting rights, and income fro waste tipping.  If you are in doubt about whether a particular sum should be included as income, ask your Tax Office or tax adviser.

Chargeable premiums

Premiums paid for the grant of a lease and certain other lump sum payments and other forms of consideration given in connection with the right to possession of a property abroad are also taxable, but on a special basis.

Briefly, for leases over 50 years the entire premium is treated as a capital receipt and so does not form part of your taxable income.  For leases of less than 50 years, the premium is treated as partly capital and partly rent and only the rent is taxed.

Use the Working Sheet below to calculate the taxable amount.

Working Sheet:  chargeable premiums - leases up to 50 years

Premium	A	£

Number of complete periods

of 12 months in the lease (ignore

the first twelve months of the lease)	B

A multiplied by box	C	£

box C divided by 50	D	£

box Aminus D	E	£

Copy the figure in box E to column B on Page F2

If you have paid foreign tax on the premium, apportion the foreign tax as appropriate and enter the amount attributable to the part of the premium that is taxable in the UK (box E) in column D.

If you wish to claim relief by way of credit for foreign tax paid, copy the figure in column B to column E and tick the box in column E.

If you do not wish to claim tax credit relief, deduct the figure in column D from that in column B and enter the difference in column E.  Do not tick the box in column E.

If you are in doubt about whether any payment which you have received constitutes a premium, ask your Tax Office or tax adviser.

Expenses

If your total property income in the year before expenses is less than £15,000 annually, you do not have to list expenses separately.  Instead put total expenses in box 6.17.

The following guidelines give an indication of the main types of expenses likely to arise in a rental business, and what usually cannot or can be claimed as a deduction.

Non-allowable expenses:

personal expenses (see the notes about box 6.20 )

capital cost, such as expenses relating to the purchase of the land or property you intend to let, for the cost of purchasing machinery, furnishings or furniture

any loss you make on the sale of a property

Allowable expenses:

in general, any costs you incur for the sole purposes of earning business profits

you may be able to claim capital allowances or a renewals deduction on the cost of buying a capital asset, or a wear and tear allowance for furnished lettings.

Remember that the expenses must be allocated to the correct Return period and it may be necessary to apportion certain expenses to arrive at the correct amount.

Rent, rates, insurance, etc.

box 6.12  If you hold a leasehold interest in a property that you let to someone else, any rent you pay under the lease can be deducted in working out your taxable income.  Other similar expenses connected with the property, such as local rates or ground rents, are also allowable.

Include in the figure at box 6.12 any expenses that you are obliged to incur as landlord insuring the let property and its contents.  Insurance against loss of rents is also an allowable cost but you must include in box 6.11 any income you receive as a result of taking out. such insurance.  The cost of insurances not connected with the letting business, such as personal policies or those insuring your private belongings are not, however, allowable expenses.

Repairs, maintenance and renewals

box 6.13

Repairs and maintenance

Expenses that prevent the property from deteriorating can be deducted as a repair. Examples of allowable repairs include exterior and interior painting, stone-cleaning, damp treatment, roof repairs, furniture repairs, and repairs to lifts and other machines which form part of the property.

Where the maintenance and repairs of property are made unnecessary by improvements, additions or alternations, part of the outlay equal to the estimated cost of the maintenance and repairs can be claimed as an expense.  No expense can be claimed, however, where:

the alternations, etc. are so extensive as to amount to the reconstruction of the property, or

there has been a change in the use of the property which would have made the maintenance or repairs unnecessary.

Renewals

A deduction may be allowed for the cost of replacing furniture and machinery supplied with your property where capital allowances (see the notes on page FN9) are not claimed.  It also covers the renewal of small items such as knives and forks.  If you opt for a renewals deduction, you may deduct, the cost of replacing any such equipment but not the cost of the original purchase.  You should deduct from the replacement cost any sum you have received for the item you have scrapped or sold.  Also deduct any part of the replacement cost that represents an improvement or addition to the original item.

Enter in box 6.13 the total of any such expenses on repairs, maintenance and renewals incurred in 1998-99 for the property in question.  if you are in doubt about whether any work undertaken on the property constitutes a repair, or what sum to claim as a renewal, ask your Tax Office or tax adviser.

Finance charges including interest

box 6.14  Enter in box 6.4 any expenses incurred in obtaining a loan to buy the property that you let, together with any interest payable on such a loan for the 1998-99.

If the whole of the property was not let, or if the property was not available for letting for the whole of the year (because, for example, you occupied it yourself for part of the year), apportion the interest payable.  Only the amount which is attributable to the letting of the property should be shown in box 6.14.

Legal and professional costs

box 6.15  Below are some examples of expenses you cannot deduct and those you may.

Non-allowable expenses:

expenses in connection with the first letting or sub-letting or a property for more than one year.  These include, for example, legal expenses (such as the cost of drawing up the lease), agents’ and surveyors’ fees and commission

any proportion of the legal, etc. costs which relate to the payment of a premium on the renewal of a lease

fees incurred in obtaining planning permission or on the registration of title when buying a property.

Allowable expenses:

expenses for the let of a year or less

the normal legal and professional fees you incur on the renewal of a lease.  If the lease is for less than 50 years

professional fees in drawing up accounts

professional fees incurred evicting an unsatisfactory tenant, with a view to re-letting, or those on an appeal against a compulsory purchase order.

If you are unsure whether any legal or professional fee is allowable as a deduction, ask your Tax Office or tax adviser.

Cost of services provided

box 6.16  If, in addition to letting the property, you provide services to your tenant, such as gardening, porterage, or cleaning, you can claim the cost of these services to the extent that they are provided wholly and exclusively for the purposes of the letting.

Enter in box 6.16 the cost of services provided in connection with the letting of the property in question.  If the tenant makes a separate payment for the services over and above the normal rent, ensure that the payments are included as income at box 6.11.

Other expenses

box 6.17  Enter in box 6.17 all expenditure incurred wholly and exclusively for the purposes of the letting which has not already been included at boxes 6.12 to 6.16.  Examples include the cost of rent collection, advertising for tenants, stationery, telephone calls and other miscellaneous expenditure.

Remember that personal expenditure is not allowable.  If you spend money on something only partly used for the purposes of the letting, you must exclude the amount not attributable to the letting or enter the whole amount in box 6.17 and enter at box 6.20 the proportion of the cost which represents your private use.

Tax adjustments

Private use proportions

box 6.20  Personal and private expenditure is not allowable as a deduction.  if you spend money on something which is only partly used for property business and partly for a non-business reason you must either:

enter the amount expended for the purposes of the letting in boxes 6.12 to 6.17, or

enter the full amount of the expenses in those boxes and deduct in box 6.20 the proportion of the cost which represents the private or non-letting element.

For example, where the property was let for only eight months of the year and you used it yourself (or allowed friends or relatives to use it) for the rest of the year, if you enter the full annual costs of insuring the property in box 6.12, you should add back one-third of that amount in box 6.20.

If you are in any doubt about whether a particular expenses needs to be apportioned between business and private use, ask your tax office or tax adviser.

Capital allowances and balancing charges

boxes 6.21 and 6.23  The cost of buying, altering, building, installing or improving fixed assets, or depreciation or losses, which arise when you sell or otherwise dispose of them, are not allowable deductions in calculating rental income.

Instead, you may sometimes claim capital allowances in box 6.23.  These reduce a profit or increased a loss.  An adjustment, known as a ‘balancing charge’, may arise when you sell an item, give it away or simply stop using it in your letting business.  Enter the amount of a balancing charge in box 6.21.  This will increase your profits or reduce your losses.

If, however, the property that you let is a dwelling house (including a flat) let furnished, capital allowances are not available on any plant or machinery or furniture or fittings supplied.

Your tax adviser, if you have one, will tell you how to calculate capital allowances and balancing charges.  If you do not have a tax adviser ask the Orderline for Help Sheet IR250: Capital allowances and balancing charges in a rental business.

10% Wear and tear

box 6.24  If you let a dwelling house (including a flat) as furnished accommodation, capital allowances are not available.  Instead, you may claim a deduction for either:

the net cost of replacing a particular item of furniture, but not the cost of the original purchase (see the notes on page FN8 about ‘ Renewals’), or

an allowance amounting to 10% of the rent received minus charges or services which would normally be borne by a tenant but which are, in fact, borne by you (for example, local rates and water rates).  This allowance, known as wear and tear allowance, is accepted as broadly covering the cost of normal renewals of furniture.

Capital allowances can be claimed if let furnished accommodation other than a dwelling house.  If capital allowances can be claimed, you cannot claim the 10% wear and tear allowance.

boxes 6.26 and 6.27  Enter any net profit in box 6.26.  If there is a net loss, enter ‘0’ in box 6.26 and the amount of the loss in box 6.27 (see below for further guidance on how to use this loss for tax purposes).

boxes 6.28 and 6.29  If there is more than one let property then the profits and losses of all the rented properties must be pooled order to calculate the overall result. Any losses from overseas let property that were unrelieved at 5 April 1998 may be deducted from or added to, the overall profit or loss, respectively. Please provide a summary of the overall result in the ‘Additional information’ box on Page F3 (or on page 8 of your Tax Return if there is insufficient space on Page F3). Further guidance may be found in leaflet IR150: Taxation of rents, A guide to property income, available from the Orderline.

Foreign tax paid on the rental income

box 6.30  If there is only one property and you have paid foreign tax enter the amount of foreign tax paid in box 6.30. Now transfer the entries in boxes 6.29 and 6.30 to columns B and D on Page F2.

If there is more than one property and there are no losses on any of those properties then the foreign tax should be taken to the summary referred to in the note for boxes 6.28 and 6.29.

If however, there are losses on any of the properties and profits on others the amount of the foreign tax paid may not be fully relievable against UK tax on the overall profits. In those circumstances you should contact your Tax Office for further advice.

Losses carried forward

box 6.31  If you have only one property, and you entered ‘0’ in box 6.26 because expenditure on that property exceeded rental income, add the figure in box 6.27 to any losses brought forward in box 6.28 and enter the total in box 6.31.  Make a note of the amount.  You will need this figure when completing next year’s Tax Return.

If you have more than one property and the losses have already been set against profits elsewhere, as indicated to in the notes to boxes 6.28 and 6.29, then there is no loss to be carried forward.

Filling in the columns on page F2

column A   Enter the name of the country where the property is situated.

column B  Enter in column B the amount of profit for the year as shown in box 6.29

column C  leave column C blank

column D  Enter the amount of any foreign tax paid in respect of income chargeable to UK tax as shown in box 6.30.

column E  If you are not claiming tax credit relief enter the amount in column B minus any foreign tax shown in column D. If you are claiming tax credit relief, copy the figure in column B to column E. Tick the box in column E to claim tax credit relief.

Income received by overseas trusts, companies or other entities

If you have transferred, or taken any part in the transfer of, assets as a result of which income has become payable to a trust, company or other entity situated abroad and,

you are ordinarily resident in the UK and you or your husband or wife may at any time enjoy any of that income (in whatever form), or

you or your husband or wife have received or are entitled to receive a capital sum connected in any way with the transfer,

enter that income in columns A to E on Page F2 and include it in the total amounts in boxes 6.3 and 6.4 unless you are ticking box 6.5A (see the note about box 6.5A).

A foreign entity is any legal person established and recognised under the law of a territory in which it is situated or resident, or any body corporate which was incorporated outside the United Kingdom.

box 6.3  Add up the figures in column C and enter the total in box 6.3

box 6.4  Add up the figures in column E and enter the total in box 6.4.

Other overseas income

IDisposals of holdings in offshore funds

box 6.5  An offshore fund is:

a non-resident company, or

a foreign unit trust, or

any other arrangement which takes effect under the law of a foreign company and creates rights in the nature of co-ownership.

In which you hold a ‘material interest’.  Your interest in an offshore fund is material, if at the time you acquired it, you might reasonably expect to be able to realise it (usually by redemption) within the following seven years, at about the market value of the fund’s assets that the interest represents at that time.

The income arising from your offshore fund should be returned on page F1. Box 6.5 should be used for the charge which arises on the disposal in a holding in an offshore fund which has not been granted ‘distributor status (see below).

There are special rules for the taxation of gains arising in offshore funds.  Where an offshore fund qualifies for ‘distributor status’, Capital Gains Tax will usually apply to gains on disposal of an interest in the fund.  If this is relevant to you, ask the Orderline for the Capital Gains Pages of your Tax Return.

‘Distributor status’ is granted to funds which regularly distribute the bulk of their income to investors rather than those which roll up the income in the fund until the investor disposes of the holding.  To find out whether your offshore fund qualifies for distributor status, you should look at the latest annual report and accounts of the fund or ask the fund manager.

If the offshore fund does not qualify for distributor status, the un-indexed gain on disposal of an interest in the fund is subject to Income Tax and the amount of the gain must be entered in box 6.5.

If the offshore fund qualifies for distributor status but operates ‘equalisation arrangements’, part of the gain will be subject to Income Tax.  That amount will normally be shown on the redemption voucher given to you by your fund manager and must be entered in box 6.5.

Income from non-resident trusts

box 6.5  If you have an absolute entitlement to the income from a non-UK resident trust, enter the foreign source income on Pages F1 and F2 and in boxes 6.1 to 6.4 according to the nature of the income. UK source income should be entered in the Trusts etc. Pages in boxes 7.1 to 7.6 (or as directed in the notes for those boxes in the Notes on Trusts etc.)

If you have received a discretionary payment from the non-UK resident trust, enter all of the income in box 6.5. If you wish to make a claim under Extra Statutory Concession B18, you should contact:

Financial Intermediaries and Claims Office (FICO)

St John’s House

Merton Road

Bootle

Merseyside L69 9BB	Telephone 0151 472 6000

Benefit received from overseas trust, companies and other entities

boxes 6.5 and 6.5A If someone else has made the same sort of transfer of assets mentioned in the note ‘Income received by overseas trusts, companies and other entities’, the value of any payment or any other benefit you receive is treated as your income for tax purposes to the extent that the company, trust or other entity has ‘unexpended income’. Unexpended income means income that has not already become that of another individual or that has not otherwise been spent by the company, trust or other entity.  Income which arose before 10 March 1991 is not counted for this purpose. A ‘chargeable event gain’ on a UK or foreign life assurance policy, life annuity or capital redemption policy is treated as income for this purpose if the rights under the policy or life annuity are held:

by a non resident trust and the person who created the trusts is not charged to UK tax on the gain. (If the rights under the policy or life annuity are held on trusts any gain is usually treated as income of the person who created the trusts. But this is not the case if the trusts were created by an individual who is non-resident or dead. Nor is this the case if the trusts were created by a company, trust or other entity if the company, trust or other entity is non-resident, has been dissolved, wound up or has otherwise come to and end. Note, if you are the beneficiary of a bare trust any gain is usually treated as your income. It should be included in the pages of your Tax Return for chargeable event gains boxes 12.4 to 12.8 or 6.6 to 6.8 for foreign policies or life annuities.); or

as security for a debt owned by a non-resident trust; or

by an overseas entity; or

as security for a debt owned by an overseas entity.

A gain is not counted for these purposes if the first or second bullet above would apply but;

the policy or life annuity was made before 17 March 1998 (Budget day); and

the policy or life annuity has not been ‘enhanced’ on or after 17 March 1998 by paying further non contractual premiums or in any other way; and

the trust were created by an individual who died before 17 March 1998.

A gain on a policy or life annuity is not counted as unexpended income if the chargeable event was before 6 April 1998. If you received your payment or other benefit from a United Kingdom trust which either has been non-resident, or which has received assets from a trust which either is or has been non-resident, only count unexpended income that arose whilst the relevant trust has been abroad. Chargeable event gains count if the trust was non-resident immediately before the chargeable event. If you are not sure whether this applies to your circumstances ask the trustees or your tax adviser. ‘Benefits’ include, for example, loans at less than a commercial rate of interest and the occupation or use of property at less than a commercial rental, the value of the benefit being the difference between the commercial rate of interest or rental and any amount actually paid by you.

A trust will be non-resident if all the trustees are themselves resident outside the United Kingdom. A trust may also be non-resident if at least one of its trustees is resident outside the United Kingdom - ask the trustees or your tax adviser if you are not sure whether the trust is treated as non-resident. ‘Indirect’ receipt must also be included, for example, if the capital or benefit came from a company controlled by the trustees or from a United Kingdom resident trust that has been, or has received funds from, an overseas trust.

If you received capital or benefit (other than income) from a trust which either is, or has been non-resident, or which has received assets from a trust which either is, or has been non-resident enter that amount in box 6.5.

Enter in box 6.5 (unless you are ticking box 6.5A for the reason given below), the value of any payment or benefit received directly or indirectly to the extent that it is matched by unexpended income. If the payment or benefit is greater than the unexpended income, enter in box 6.5 the amount of the unexpended income. You may need to ask the overseas company, trust or other entity for this information. Include the value of any payment or benefit received in an earlier year if and to the extent that this was not taxed in earlier years.  If the value of what you have received or benefited from exceeds the unexpended income that the company, trust or other entity has, you may be liable to Capital Gains Tax on the excess. You may need Help Sheet IR301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts as well as the Capital gains pages, both are available from the Orderline. Otherwise, that excess will need to be taken into account when completing your Tax Return next year. Also enter in the ‘Additional information’ box on Page F3 the full name of the trust concerned, or, if no trust is involved, the full name and address of the company or other entity receiving the income.  Where the capital or other benefit has come from a resident trust in the circumstances described above, also give details of the circumstances including the full name of any other trust involved.

Box 6.5A These provisions do not apply if you can show that the purpose of the transfer and any associated operations was not to avoid tax. But if you are omitting income for this reason from columns A to E on Page F2 and boxes 6.4 or 6.5 you must tick box 6.5A.

For more information about gains and chargeable events on policies and life annuities, see the notes to boxes 12.4 to 12.8 of the Tax Return Guide, the notes to boxes 6.6 to 6.8 below, and Help Sheets IR320 and IR321. These Help Sheets also explain how the rules apply to a trust created by more than one person.

If you need further advice on transfers of assets to an overseas trust, you can contact this office or on transfers of assets to an overseas company or other entity you can contact:

Special Compliance Office (Section 739 Group)

The Triad

Stanley Road

Bootle

Merseyside L69 9EJ	Telephone 0151 300 4037

Gains on foreign life insurance policies, life annuities and capital redemption policies

boxes 6.6 to 6.8  The notes below are about gains on foreign life insurance policies, life annuities and capital redemption policies. The gains arise on chargeable events  and are sometimes called ‘chargeable event gains’. The chargeable events include:

death, giving rise to the payment of benefits

a part surrender giving rise to a partial withdrawal of benefits

payment of a cash bonus

a sale or gift of part of a policy or life annuity

a policy or contract coming to an end

an insurance company making a loan to you or, at your direction, to someone else

the sale of assignment of a policy or contract

Help Sheet IR321: gains on Foreign Life Insurance Policies, available from the Orderline, contains more information

Most gains from foreign policies and life annuities are taxable in full  Even if foreign tax has been paid by your insurer, you cannot claim tax credit relief.  However some gains are treated as having been taxed at the basic rate (this is a notional tax).  In some cases you may be able to claim a credit for notional basic rate tax.  Notional tax is never repayable.  Help Sheet IR321: Gains on foreign life insurance policies, available from the Orderline contains further information.

Some gains are reduced for periods of residence outside the UK. Help Sheet IR321: Gains on foreign life insurance policies contains more information.

Some foreign life insurance policies do not give rise to gains.  They may be, for example, ‘qualifying’ life insurance policies.  Some annuity contracts do not give rise to gains.  Help Sheet IR321: Gains on foreign life insurance policies contains more information.

Insurance companies sell a variety of products labelled ‘guaranteed income bonds’, income bonds and so on, a feature of which is that they provide regular payments annually, monthly, etc. These may comprise more than one policies of life insurance and gains on them should be included in this section. The gains will not equal the amount of the regular payments. There may be no gains in some years in which regular payments are received.

Your insurance company should be able to tell you:

If you have a life insurance policy, a qualifying life insurance policy, a life annuity, or a capital redemption policy.

what the gains are and whether or not they are treated as taxed at the basic rate.

The way you fill in boxes 6.6 to 6.8 depends on the number and type of gains in the year and whether or not they are treated as having been taxed.

The number of years to be entered in box 6.6 or in the ‘Additional information’ box on page 8 of your Tax Return is the number of complete years since policy or life annuity was made, except where the insurance is a policy of life insurance taken out on or before 18 November 1983 and not ‘enhanced’ afterwards by paying further non-contractual premiums or in any other way, or a life annuity, or a capital redemption policy taken out on or before 22 February 1984 and the gain is as a result of a second or subsequent chargeable event as a result of a partial withdrawal, payment of a cash bonus, sale or gift of part of a policy or life annuity, or loan. There is a special rule that for each policy or life annuity these transactions give rise to only one chargeable event a year. Help Sheet IR321: Gains on foreign life insurance policies explains when. Enter the number of years since the last preceding chargeable event as a result of a partial withdrawal, payment of a cash bonus, sale or gift of part of a policy or life annuity, or loan. Note, if partial withdrawals etc. are made every year enter ‘1’. If the period from when an insurance was made to when it ends is less than a complete year, also enter ‘1’.

If a gain is reduced because of a period of residence outside the UK, the number of complete years you enter is also reduced, but never below ‘1’.  Help Sheet IR321: Gains on foreign life insurance policies contains more information.

If you made one gain which is not treated as having tax deducted, enter the amount of the gain in box 6.8, and the number of complete years in box 6.6.

If you made one gain which is treated as having tax deducted, enter the amount of the gain in box 6.8 and the notional tax in box 6.7.  This is 23% of the amount in box 6.8.  Also put the number of complete years in box 6.6.

Many insurance packages involve a cluster of identical policies of life insurance.  If you have gains from more than one policy, and they are all identical policies within a cluster, include total gains in box 6.8, the notional tax in box 6.7 if appropriate (23% of the amount in box 6.8) and the number of years in box 6.6.

Otherwise you will need to enter details in the ‘Additional information’ box on page 8 of your Tax Return.  Describe each policy, life annuity or cluster of identical policies and state the amount of the gains, the number of complete years and the amount of any notional tax.  Then transfer totals to boxes 6.7 and 6.8 but make no entry in box 6.6.

If the rights under a policy or life annuity are held on trusts which you have created any gain made on the policy or life annuity is usually treated as your income. If you are the beneficiary of  a bare trust, any gain is usually treated as your income. Help Sheet IR321: Gains on foreign life insurance policies contains more information.

Deficiencies arising from policies of life insurance, life annuities and capital redemption policies

A relief may be due very occasionally when a policy of life insurance, life annuity or capital redemption policy comes to an end.  If the benefits have been withdrawn during its term, relief may be due but not otherwise.  This is not a relief for a ‘loss’ but a relief to ensure that the total amount treated as investment income is never more than the total gain made under the policy or life annuity.  It is know as ’corresponding deficiency relief’ and should be entered in box 12.9 in your Tax Return.

If you think this relief applies to you, ask the Orderline for Help Sheet IR321: Gains on foreign life insurance policies.

Filling in Page F3

Fill in Page F3 if you are claiming tax credit relief on income or gains reported elsewhere in your Tax Return.

Fill in Page F3 if you have completed the Pages for:

Employment, or

Self-employment, or

Partnerships, or

Capital gains, or

boxes 13.1 to 13.3 on page 4 of your Tax Return - Other income,

and you have paid foreign tax on that income or those gains

and you want to claim tax credit relief for the foreign tax.

Remember, you cannot claim tax credit relief for any foreign tax you have deducted in calculating the taxable amount of any of your income (or gains).

Tax credit relief for foreign tax paid on employment, self-employment and other income

For income from membership of Lloyd’s, please refer to the Notes on Lloyd’s Underwriters for guidance on completing this part of the Foreign Pages.

column A  Enter the name of the country where your income arose and whose tax has been deducted from that income.

column D  Enter in sterling the amount of foreign tax paid.

column E  Enter in column E the gross amount of income you have reported elsewhere and on which foreign tax has been paid.

If you carried on a trade, profession or vocation in the UK and the gross receipts of the business include income on which you have paid foreign tax, you need to calculate the amount of the overall profits attributable to the overseas receipts.  Do this by attributing the profit in proportion to geographical turnover, or by a more precise allocation of business expenses against the foreign receipts.

If the source of income is the overseas branch of a UK business, enter in column E the gross profits earned by the branch.  You might be asked later for a copy of the branch accounts.

Trades, professions and vocations set-up - overlap profits and tax credit relief

If you earned profits from a trade, profession or vocation in 1998-99 and your basis period overlaps with the basis period for 1997-98, you may be able to claim tax credit relief in 1998-99 for any foreign tax paid on the profits of the overlap period, even though relief for the same tax may already have been allowed in working out your tax liability for 1997-98.

Example 5

Mike’s business started on 1.10.97.  His first account is for the 12 months to 30.9.98.  His basis periods are:

1997-98	1.10.97 to 5.4.98

1998-99	1.10.97 to 30.0.98

The period of overlap is 1.10.97 to 5.4.98 (six months).  So if the profit of the 12 months to 30.9.98 is £12,000, the ‘overlap profit’ is (6/12 x 12,000) = £6,000 (over six months).  This is the same as the assessable amount for 1997-98.

Suppose Mike’s profits for the 12 months to 30.9.98 include overseas profits of £4,000 on which he has paid foreign tax of £1,500.  The total foreign tax available for tax credit relief in the two years 1997-98 and 1998-99 will be:

12 months to 30.9.98	£1,500

+ overlap period (6/12 x £1,500)	£   750

£2,250

The amount eligible for tax credit relief in 1998-99 is £2,250 less the amount of tax credit relief allowed for the overlap profit in 1997-98.  So, if £1,000 relief was allowed in 1997-98, £1,250 will be available for relief in 1998-99.

If your basis periods for 1997-98 and 1998-99 overlap in this way ask the Orderline for Help Sheet IR260 Overlap to work out the amount of foreign tax to be entered in column D on Page F3.

Overlap relief and tax credit relief

Overlap profits which arose in an earlier year can be deducted as ‘overlap relief’ in working out taxable business profits for 1998-99 if either:

you sold or closed down your business in 1998-99, or

following a change of accounting date, your basis period for 1998-99 is more than 12 months long

If you are claiming overlap relief for 1998-99 and the overlap profits available include profits for which tax credit relief for foreign tax paid was allowed in an earlier year, all or part of that tax credit relief is recoverable in 1998-99.

The amount to be recovered is the amount of additional tax credit relief which was allowed in earlier years in respect of the overlap profits deducted as overlap relief in 1998-99.

Example 6

Liz has available overlap profits of £5,000 that had suffered foreign tax of £1,300.

In the two years when the overlap profits were taxable, a total of £1,960 tax credit relief (that is, additional tax credit relief of £1,960 minus £1,300 = £650) was allowed for that foreign tax.

If £2,500 (that is, half) of the overlap profits are deducted as ‘overlap relief’ in 1998-99, half of the additional tax credit relief (£650/2 = £325) is recoverable in 1998-99.

Ask your Tax Office for Help Sheet IR260: Overlap if:

you have entered a figure for overlap relief in box 3.76 of the Self-employment Pages, and

relief by way of credit for foreign tax was previously allowed for the overlap profits now deducted, and

you want to calculate your tax

The Help sheet will give you a figure for tax credit relief which needs to be recovered. Copy it to box 18.4 of your Tax Return.

If you do not want to calculate your tax enter details, in the ‘Additional information’ box on Page F3, of the tax credit relief allowed in an earlier year for those overlap profits.

Calculating your tax credit relief

box 6.9  If you calculate your tax credit relief on your income, enter the total in box 6.9.  The notes below explain how to do this.

Tax credit relief for foreign tax paid on gains

Enter the following details for each event that has given rise to a chargeable gain in the five columns of Page F3 of your Foreign Pages:

the amount in sterling of the chargeable gain worked out following UK rules (see Capital Gains Pages)

the period of ownership over which that gain accrued

the amount in sterling of the gains chargeable under foreign tax rules

the period over which the foreign gain accrued

the amount in sterling of foreign tax paid.

box 6.10  If you have calculated tax credit relief on your gains, enter the total in box 6.10. Use Help Sheet IR261: Tax credit relief and capital gains from the Orderline.

Part 1 - reporting your foreign income and claiming tax credit relief  Arising basis  Remittance basis  Joint savings and investments  Unremittable income  Income becoming remittable  Foreign income: change to sterling  Foreign tax paid and tax credit relief  Double Taxation Agreeements  Filling in Pages F1 and F2  Foreign savings  Dividends and distributions from overseas sources  Interest and other income from overseas savings  Overseas pensions and benefits  Overseas pensions  Overseas social security benefits  Income from land and property abroad  Filling in Page F4  Income  Expenses  Tax adjustments  Income received by overseas trusts, companies and other entities  Other overseas income  Disposals of holdings in offshore funds  Income from non-resident trusts  Benefit received from overseas trusts, companies and other entities  Gains on foreign life insurance policies, life annuities and capital redemption policies  Filling in Page F3  Tax credit relief for foreign tax paid on employment, self-employment and other income  Tax credit relief for foreign tax paid on gains


Foreign II
Notes on Foreign II

Part 2 - calculating tax credit relief  Relief against Income Tax  Relief against Capital Gains Tax  Filling in the Tax Credit Relief Working Sheet  Table of rates of withholding tax

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for these Pages are available from the Orderline.

IR250:  Capital allowances and balancing charges in a rental business

IR260: Overlap

IR261:  Tax credit relief and capital gains

IR262:  Tax credit relief and lump sums

IR263: tax credit relief: capital gains and lump sums

IR301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts

IR302: Dual residents

IR304: Non-residents relief under Double Taxation Agreements

IR310: War widow’s and dependant’s pensions

IR321: Gains on foreign life insurance policies

Part 2 - calculating tax credit relief

You only need to read Part 2 if you want to calculate your tax. Otherwise ignore what follows and finish filling in your Tax Return.

Relief against Income Tax

If you have paid foreign tax on an item of income that is also chargeable to UK tax, you can claim tax credit relief for all or part of the foreign tax up to the amount of the UK tax chargeable on the same item of income.

Relief must therefore strictly be calculated separately for each item of your overseas income. This may mean that you cannot get relief for all the foreign tax you pay.

If you are claiming relief as credit for foreign tax against the UK tax due on more than one item of income, you will need to

complete a separate Tax Credit Relief Working Sheet for each item of income. Please make however many photocopies you need

of the Tax Credit Relief Working Sheet before you start to fill it in.

You must complete the Calculation Working Sheet in your Tax Calculation Guide up to and including box W44 before you begin

to complete the Tax Credit Relief Working Sheet (the references are to the standard Tax Calculation Guide sent to you with your

Tax Return - there are different Calculation Guides to help you calculate your tax if you have capital gains, or chargeable event

gains or lump sums).

However, the whole of the foreign tax for which you are claiming relief will be allowable as credit, if

you have completed box W35 in the Tax Calculation Guide and the figure in box W35 exceeds the total of overseas income for which credit relief for foreign tax is claimed, and none of your foreign income has been subjected to foreign tax at a rate of more than 40%, or

you have not completed box W35, but have completed boxes W30 to W32, and the figure in box W31 exceeds the total of overseas income for which credit relief for foreign tax is claimed, and none of your foreign income has been subjected to foreign tax at a rate of more than 23%, or

you have not completed boxes W28 to W38, and the figure in box W26 exceeds the amount of foreign income for which credit relief for foreign tax is claimed, and none of your foreign income has been subjected to foreign tax at a rate of more than 20%.

Enter in box 6.9 the amount of foreign tax you are claiming relief for - there is no need to complete the Tax Credit Relief Working Sheet on page FN15. Otherwise you must complete the Tax Credit Relief Working Sheet to arrive at the figure to enter in box 6.9.

Method

To ensure that the amount of credit relief allowed for foreign tax on any particular item of income does not exceed the UK tax chargeable on that income, it is first necessary to work out the UK tax chargeable on that income. This figure is then compared with the foreign tax eligible for credit relief.

If the foreign tax eligible for credit relief is less than the amount of UK tax chargeable on the same item of income, the whole of the foreign tax is allowed as tax credit relief.

But if the foreign tax eligible for credit relief exceeds the amount of UK tax chargeable on the same item of income, credit relief is limited to the amount of UK tax, and the excess foreign tax cannot be repaid or deducted in arriving at the amount of income chargeable to UK tax.

If you have more than one item of foreign income (including, for example, dividends from more than one overseas company), you should work out separately the UK tax chargeable on each item in turn, beginning with the item that has been charged at the highest rate of foreign tax and repeating the calculation for each successive item. As each successive item is dealt with, it is excluded from the next calculation, so that eventually the item that has been subjected to the lowest rate of foreign tax is reached. In this way the amount of the relief is maximised.

box 6.9 If you have calculated tax credit relief on your income, enter the amount you are claiming in box 6.9.

Relief against Capital Gains Tax

If you are calculating your tax and wish to claim relief for foreign tax by way of credit against your UK Capital Gains Tax liability, ask the Orderline for Help Sheet IR261: Tax credit relief: capital gains unless you have lump sum or compensation payments, or chargeable event gains (see below)

Foreign tax eligible for relief against UK Capital Gains Tax includes any foreign tax, not necessarily foreign capital gains tax, paid on gains which are chargeable to UK tax. For example, some countries do not have a separate capital gains tax: instead individuals pay income tax on their gains. This income tax will nevertheless usually qualify for credit relief against UK Capital Gains Tax.

box 6.10 If you have calculated tax credit relief on your gains, enter the amount you are claiming in box 6.10.

Filling in the Tax Credit Relief Working Sheet (TCRWS)

These instructions tell you how to fill in the Tax Credit Relief Working Sheet on page FN15. References in the following notes are to the Working Sheet in the standard Tax Calculation Guide sent to you with your Tax Return.

If you have chargeable gains, ask the Orderline for Help Sheet IR261: Tax credit relief: capital gains, to work out tax credit relief on your income and gains.

If you have lump sum or compensation payments, or chargeable event gains, ask the Orderline for Help Sheet IR262: Tax credit relief: lump sums.

If you have both, ask the Orderline for Help Sheet IR263: Tax credit relief: capital gains and lump sums. If you are not sure what to do, ask your Tax Office or tax adviser.

You only need to complete the TCRWS if you want to work out your tax.

Complete a separate TCRWS for each item of foreign income for which you have paid foreign tax and want to claim relief by way of credit. Please take photocopies of the Working Sheet on page FN15 if you need to fill in more than one TCRWS.

You only need to read part 2 if you want to calculate your tax. Otherwise ignore what follows and finish filling in your Tax Return.

Relief against Capital Gains Tax

If you are calculating your tax and wish to claim relief for foreign tax by way of credit against your UK Capital Gains Tax liability, ask the Orderline for Help Sheet IR 261: Tax credit relief and capital gains unless you have lump sum or compensation payments, or chargeable event gains (see below).

Foreign tax eligible for relief against UK Capital Gains Tax includes any foreign tax, not necessarily foreign capital gains tax, paid on gains which are chargeable to UK tax.  For example, some countries do not have a separate capital gains tax: instead individuals pay income tax on their gains.  This income tax will nevertheless usually qualify for credit against UK Capital Gains Tax.

  if you have calculated tax credit relief on your gains, enter the amount you are claiming in box 6.10.

Filling in the Tax Credit Relief Working Sheet (TCRWS)

These instructions tell how to fill in the Tax Credit Relief Working Sheet on page FN14.  References in the following notes are to the Working Sheet in the standard Tax Calculation Guide sent to you with your Tax Return.

If you have chargeable gains, ask the Orderline for Help Sheet IR261: Tax credit relief and capital gains, to work out tax credit relief on your income and gains.

If you have lump sum or compensation payments, or chargeable event gains, ask the Orderline for Help Sheet IR262: Tax credit relief and lump sums.

If you have both, ask the Orderline for Help Sheet IR263: Tax credit relief: capital gains and lump sums.

If you are not sure what to do, ask your Tax Office or tax adviser.

You only need to complete the TCRWS if you want to work out your tax.

Complete a separate TCRWS for each item of foreign income for which you have paid foreign tax and want to claim relief by way of credit.  Please take photocopies of the Working Sheet on page FN14 if you need to fill in more than one TCRWS.

box 1 If you are completing your first TCRWS, enter in box 1 the figure in box W22 of the Calculation Working Sheet on page 6 of your Tax Calculation Guide. Otherwise, copy the figure from box 5 of the last TCRWS that you completed.

box 2 From your Foreign Pages, select the item of income showing the highest rate of foreign tax suffered, and for which you have yet to calculate tax credit relief. For that item, enter in box 2 the amount of income chargeable to UK tax, as shown in column E.

box 4 Look at boxes W13 to W19 in the Working Sheet in your Tax Calculation Guide. If any of the deductions from income that you have claimed there relate specifically to, and depend upon the amount of, the item of income shown in box 2 above, enter in box 4 the amount of the deductions which are attributable to that item of income.

Example 7

Neil is aged 34 and his business profits of £12,000 include £4,000 which has suffered foreign tax, and he has paid personal pension contributions of £1,800. On the income of £12,000, relief as a deduction is due for the whole £1,800. If, however the £4,000 foreign profits are excluded, the personal pension contributions deduction is limited to £1,400 (being 17.5% of the remaining 'net relevant earnings' of £8,000). So the amount of the deduction attributable to the foreign profits is £1,800 minus £1,400 = £400. This is the figure Neil should enter in box 4 on page FN15.

box 6 Copy the figure from box W23 in the Working Sheet in your Tax Calculation Guide.

box 8 If you were born on or after 6 April 1934, copy the figure in box W25 of the Working Sheet in your Tax Calculation Guide to box 8.

If you (or your wife, if you are married) were born on or before 5 April 1934, you need to work out the personal allowances which would be due if your income was the amount shown in box 5, rather than that shown in box W22 in the Tax Calculation Guide. The Tax Calculation Guide explains how to recalculate personal allowances due, based on the figure in box 5 in the TCRWS. Enter the result in box 8.

box 11 Enter the total of any savings income in box W28 in your Tax Calculation Guide, excluding the total of any figures in box 2 of this or previous TCRWS.

box 18 See the note after box 16 on the TCRWS. If the figure in box 16 exceeds £27,100, enter in box 18 the figure in box 16 minus the figure in box 17.

box 22 Enter the total of the figures in boxes 10, 15, 19 and 21. This is the amount of tax due on the income shown in box 3.

box 23 Enter the total of the amounts in boxes W41, W43 and W44 in the Working Sheet in your Tax Calculation Guide.

box 24 Deduct the figure in box 23 from the figure in box 22 and enter the result in box 24. If the figure in box 23 exceeds the figure in box 22 enter '0' in box 24.

box 25 If you are completing your first TCRWS, enter in box 25 the figure in box W39 in the Working Sheet in your Tax Calculation Guide minus the figure in box 23.

Otherwise, enter the figure in box 24 of the last Tax Credit Relief Working Sheet you completed.

This is the Income Tax (before tax credit relief) on the income shown in box 1.

box 26 Subtract the figure in box 24 from the figure in box 25 and enter the result in box 26.

This is the amount of Income Tax at your marginal rate on the item of income shown in box 2 above.

box 27 Enter the amount of foreign tax paid on the item of income shown in box 2.

box 28 Enter the lower of the figures in boxes 26 and 27.

Now complete another TCRWS for your next item of income. Otherwise, add up figures in box 28 in each TCRWS and put the total in box 6.9 in your Foreign Pages.

Countries with Double Taxation Agreements with the UK - rates of withholding tax

This Table shows the maximum rates of tax those countries with a Double Taxation Agreement with the UK can charge a UK resident on payments of dividends, interest, royalties and management/technical fees.  The table only includes agreements which are at present in force.

Abbreviations:  NA = No Article.  The foreign country can therefore tax the income in accordance with its own domestic law.

S = There is a ‘subject to tax’ condition.

Country	Dividends paid To portfolio investors	Interest	Royalties	Management/ technical fees	Notes
Antigua	Zero (S)	NA	Zero (S)	NA
Argentina	15%	12%	15%             (Note 1)	NA	1. 3% on news. 5% on copyright royalties       other than for films and telvision. 10% on          payments for the use of industrial or        scientific equipment
Australia	15%                       (Note 1)	10%	10%	NA	1.  Only unfranked dividends carry      withholding tax
Austria	15%	Zero	Zero	NA
Azerbaijan	15%	10%	10%         (Note 1)	NA	1.  5% on copyright royalties
Bangladesh	15%	10%	10%	NA
Barbados	Zero (S)	15%(S)	Zero (S) (Note 1)	NA	1. 15% on cinematograph and television     royalties
Belgium	10%	15%        (Note 1)	Zero	NA	1. With effect from 1 January 1998        (previously 13.39%)
Belarus *	Zero	Zero	Zero	NA
Belize	Zero (S)	NA	Zero (S)	NA
Bolivia	15%	15%	15%	NA
Botswana	15%	15%	15%	NA
Brunei	Zero (S)	NA	Zero (S)	NA
Bulgaria	10%	Zero	Zero	NA
Burma	Zero (S)	NA	Zero (S)	NA
Canada	15%	10%        (Note 1)	10%  (Note 2)	NA	1. Zero if loan guaranteed by UK ECGD     or Canadian EDC or if Canadian          government or local authority bond.  2. Zero if copyright royalties(excluding     films and television).
China	10%	10%    (Note 1)	10%    (Note 2)	10%                       (Note 3)	1.  Exempt in certain circumstances (Art      11(3)).  2.  Payments for the use of, or right to         use, any industrial, commercial or       scientific equipment 10% of 70%       of the gross amount of the royalty. 3.  On 70% of gross fees
Croatia +	15%	10%	10%	NA
Cyprus	Zero	10%	Zero    (Note 1)	NA	1.  5% on film and television royalties.
Czech Republic	15%	Zero	10%    (Note 1)	NA	1. Zero on copyright royalties
Denmark	15%	Zero	Zero	NA
					* UK/Soviet Union agreement applies
					+ UK/Yugoslavia agreement applies
Egypt	20%	15%    (Note 1)	15%	NA	1. Exempt if loan guaranteed by UK      ECGD
Estonia	15%	10% (Note 1)	10% (note 2)	NA	1.  Exempt in certain circumstances      (see Art 11(3)) 2. 5% on royalties for the use of     industrial, commercial or scientific      equipment (Art12(2)(6)
Falkland Islands	(Note 1)	Nil (Note 2)	Zero	15%	1. Ask to see the Double Taxation           Manual  at your Tax Office. 2. Exempt if loan guaranteed by UK      ECGD.
Faroe Islands	15%	Zero	Zero	NA
Fiji	15%	10%	15% (Note 1)	15%	1. zero if copyright royalties (excluding     films and television).
Finland	5%	Zero	Zero	NA
France	15% (Note 1)	Zero	Zero	NA	1. Ask to see the Double Taxation      Manual DT7259, at your Tax Office      for application of subject to tax        condition to payment of‘ avoir fiscal’
Gambia	Zero (S)	15% (S)	12.5% (S)	15% (S)
Germany	15% (S)	Zero (S)	Zero (S)	NA
Ghana	15% (S)	12.5% (S)	Zero (S)	NA
Greece	NA	Zero (S)	Zero (S)	NA
Grenada	Zero (S)	NA	Zero (S)	NA
Guernsey	NA	NA	NA	NA
Guyana	15%	15% (S) (Note 1)	10%	10% (Note 2)	1. Exempt if loan guaranteed by UK      ECGD. 2. A smaller percentage where Guyana     Minister of Finance applies Section     39(10) of the Income Tax Act, Chapter     81:01.
Hungary	15%	Zero	Zero	NA
Iceland	15%	Zero	Zero	NA
India	15%	15%	20% (Note 1)	NA (Note 1)	1. Article includes fees for technical       services.  For first five years of          Convention, 15% where payer is        Government. 15% for all royalties,         etc after the five years. Some forms        of royalty, 10% throughout.
Indonesia	15%	10% (S)	15% (Note 1)	NA	1.  10% on payments for the use of         industrial commercial or scientific       equipment      (Art 12 (2)(6)).
Irish Republic	15% (Note 1)	Zero	Zero	NA	1. Exempt where paid to a charity,        superannuation fund or insurance     companies in respect of pension fund     business.
Isle of Man	NA	NA	NA	NA
Israel	15% (S)	15% (S)	15% (S)	NA
Italy	15% (S)	10%	8%	NA
Ivory Coast	15% (Note 1)	15%	10%	10%	1. 18% where paid by an Ivory Coast     company exempt from tax or paying     at less than normal rates on profits.
Jamaica	15%	12.5% (Note 1)	10%	12.5%	1. Exempt if loan guaranteed by UK      ECGD.
Japan	15%	10%	10%	NA
Jersey	NA	NA	NA	NA
Kazakstan	15%	10% (Note 1)	10% (Note 2)	NA	1. Exempt if loan guaranteed by UK      ECGD. 2.  Unless election is made for non profit        basis
Kenya	15% (S)	15% (S)	15% (S)	12.5%
Kiribati	Zero (S)	NA	Zero (S)	NA
Korea	15%	5% (Note 1)	10% (Note 2)	NA	1.  Exempt where loan is guaranteed by           UK ECGD 2. 2% on equipment leasing payments.
Latvia	15%	10% (Note 1)	10%	NA	1. Exempt if loan guaranteed by UK      ECGD or Bank of England
Lesotho	Zero (S)	NA	Zero (S)	NA
Luxembourg	15%	Zero	5%	NA
Macedonia*	15%	10%	10%	NA
Malawi	Zero (S)	Zero (S)	Zero (S)	NA
Malaysia	Zero (S)	15% (S) (Note 1)	15% (Note 2)	10%	1.  Exempt if an approved loan (Art X (2)) 2.  Exempt if an approved industrial       royalty (Art X (2)).
Malta	(Note 1)	10% (S)	10% (S)	NA	1. Tax not to exceed that chargeable on      the profits out of which the dividends     are paid.
Mauritius	15%	No limitation (Note 1)	15% (S)	NA	1.  Exempt when paid to UK banks.
Mexico	Zero	15% (Note 1)	10%	NA	1. A lower rate of exemption will apply in    certain circumstances(see Art 11 (2)).
Mongolia	15%	10%	5%	NA
Montserrat	Zero (S)	NA	Zero (S)	NA
Morocco	25%	10%	10%	NA
Myanmar (formerly Burma)	Zero (S)	NA	Zero (S)	NA
Namibia	15%	20%	Exempt (S)  (Note 1)	NA	1. Copyright royalties only.  Other      royalties: the lesser of 5% and one       half of tax that would otherwise be      charged.
Netherlands	15%	Zero	Zero	NA
New Zealand	15%	10%	10%	NA
Nigeria	15% (S)	12.5% (S)	12.5% (S)	NA
Norway	15%	Zero	Zero	NA
Pakistan	20% (Note 1)	15%	12 .5%	12 .5%	1. Ask to see the Double Taxation      Manual DT14966 and Art 10, at your      Tax Office
Papua New Guinea	17%	10%	10%	10%
Philippines	25%	15% (Note 1)	25% (Note 2)	NA	1. 10% where paid by a public issue      bond etc.  Exempt where loan is      guaranteed by a UK government      agency.  2. 15% on royalties for films, television or radio
Poland	15%	Zero	10%	NA
Portugal	15%	10% (S)	5% (S)	NA
Romania	15%	10%	15% (Note 1)	12.5% (Note 2)	1. 10% on copyright royalties 2. Rate applies to commissions. Ask to see the Double Taxation Manual, DT16054 at your Tax Office.
Russia*	10%	Zero	Zero	NA
St Christopher - Nevis (St Kitts)	Zero (S)	NA	Zero (S)	NA
Sierra Leone	Zero (S)	NA	Zero (S)	NA
Singapore	Zero (S)	15% (S) (Note 1)	15% (S) (Note 2)	NA	1. Exempt if an approved loan (Art 7A 2)) 2. Exempt if an approved royalty (Art 8(2))
Slovak Republic	15%	Zero	10% (Note 1)	NA	1. Zero on copyright royalties (see Art              12(3)(6)
Solomon Islands	Zero (S)	NA	Zero (S)	NA
South Africa	15%	10% (S)	Zero (S)	NA
Soviet Union	Zero	Zero	Zero	NA
Spain	15%	12%	10%	NA
Sri Lanka	No Limitation	10% (Note 1)	10% (Note 2)	NA	1.   Only reduced to this rate where paid on loan, etc made after 21 June 1989 2.   Only reduced to this rate where rights are granted after 21 June1989.
Sudan	15% (Note 1)	15% (S)	10% (S)	NA	Exempt if the dividends are exempt under Sudan law when paid to non-residents.
Swaziland	15%	NA	Exempt	NA
Sweden	5% (Note 1)	Zero	Zero	NA	1. Also taxable in Sweden if the recipient     is a Swedish national but a resident of      the UK.
Switzerland	15%	Zero	Zero	NA
					· UK/Soviet Union agreement applies
Thailand	20% (Note 1)	25% (Note 2)	5% (Note 3)	NA	1. Rate only applies to a dividend from a company carrying on an industrial undertaking. 2. 10% if paid to a financial institution 3.   15% on patent royalties
Trinidad and Tobago	20%	10%	10% (Note 1)	10%	1. Copyright royalties are exempt
Tunisia	20%	12%	15%	NA
Turkey	20%	15%	10%	NA
Tuvalu	Zero (S)	NA	Zero (S)	NA
Uganda	15%	15%	Zero (S)	NA
Ukraine	10% (S)	Zero (S)	Zero	NA
United States of America	15%	Zero	Zero	NA
Uzbekistan	10%	5%	5%	NA
Venezuela	10%	5% (Note 1)	7%	NA
Vietnam	15%	10% (S)	10% (S)	NA
Yugoslavia	15%	10%	10%	NA
Zambia	15% (S)	10% (S)	10% (S)	NA
Zimbabwe	20% (S)	10% (S) (Note 1)	10% (S)	10% (S)	1. Exempt if paid on a loan guaranteed      by UK ECGD.

Part 2 - calculating tax credit relief  Relief against Income Tax  Relief against Capital Gains Tax  Filling in the Tax Credit Relief Working Sheet  Table of rates of withholding tax


Foreign Q6

Fill In the Foreign Pages if you received in1998-99:

any overseas pensions or benefits, or

income from foreign companies, or savings institutions, or

income from offshore funds or trusts abroad, or

income from land and property abroad, or

foreign life insurance policy, life annuity, or capital redemption policy or gains, or

any royalty income from overseas, or

if you want to claim relief for foreign tax on this or other foreign income or gains.

If there was no purpose to avoid tax in effecting the transfer of assets answer 'Yes' to Question 6, but tick box 6.5A on the Foreign Pages - see Notes on Foreign for guidance.

Answer 'Yes' to Question 6, if you received a benefit from a United Kingdom trust that either has been, or has received income from, an overseas trust.

Fill in boxes 6.3, 6.4 or 6.5 if you received or could have received,income or a benefit, from a foreign entity as a result of a transfer of assets which was made in this or previous years and which caused income to be payable to that foreign entity. Before doing so, read the Notes on income received by overseas trusts, companies or other entities, or benefit received from them.

Income may include a gain on a life insurance policy, life annuity or capital redemption policy.

A foreign entity is any legal person established and recognised under the law of a territory in which it is situated or resident, or any body corporate which was incorporated outside the United Kingdom.


Help Button

Help Button - Click this button to access the Help system. You may also press the F1 key at any time for context sensitive help relating to the current requested information. Where appropriate, the Inland Revenue Note is displayed.


How to calculate tax deducted from interest and tax credits on dividends

This example can be used to calculate tax credits on dividends as well as tax deducted from interest.

For most of the income covered by boxes 10.2 to 10.14 you must enter:

•	the amount of interest after tax deducted (net), and

•	the amount of tax deducted, and

•	the amount of interest before tax deducted (gross).

Usually your interest statement will show all three figures. But if it does not, you can work them out as follows.

Either like this;

•	statement shows interest of £80 after tax

Tax deducted  =  amount after tax  x  25%.

£80  x  25%  =  £20

or like this:

•	statement shows interest of £100 before tax

Tax deducted  =  amount before tax x  20%.

£100x20%  £20

Remember, the amount of your gross interest is the same as the amount of your net interest with the tax added back on


How to complain

If you have a complaint that the Officer in Charge of your Tax Office cannot settle, you should contact the Inland Revenue Regional Director responsible for the area dealing with your tax affairs. Leaflet IR12O: You and the Inland Revenue tells you how to do that. It is available from the Orderline or any Tax Enquiry Centre or Tax Office.

If the Regional Director does not settle your complaint to your satisfaction, you can ask the Adjudicator to look into it and recommend appropriate action.

The Adjudicator, whose services are free and who is an impartial referee whose recommendations are independent, can be contacted at:

Adjudicator’s Office

Haymarket House

28 Haymarket

London SW1Y 4SP

Telephone 0l71 930 2292

At any time you can ask a Member of Parliament to refer a complaint to the Independent Parliamentary Ombudsman(officially the Parliamentary Commissioner for Administration). Further details can be obtained from the Ombudsman's office at:

Church House

Great Smith Street

London SW1P 3BW

Telephone 0l71 276 2130/3000

The Adjudicator will not look at complaints which have been taken up by the Ombudsman, but the Ombudsman can look at complaints that the Adjudicator has investigated.


How to fill in pages 3 to 8 of your Tax Return

Q10 Did you receive any Income from UK savings and Investments ?  Filling in boxes 10.1 to 10.32

Q11 Did you receive a UK pension, retirement annuity or Social Security benefit?  Filling in boxes 11.1 to 11.12

Q12 Did you receive taxable maintenance or alimony, gains on UK life Insurance policies, life annuities or capital redemption polices or refunds of surplus additional voluntary contributions?  Filling in boxes 12.1 to 12.12

Q13 Did you receive any other income which you have not already entered elsewhere on your Tax Return?  Filling in boxes 13.1 to 13.6

Q14 Do you want to claim relief for pension contributions made from your income?  Filling in boxes 14.1 to 14.17

Q15 Do you want to claim any other reliefs?  Filling in boxes 15.1 to 15.12

Q16 Do you want to claim any allowances?  Filling in boxes 16.1 to 16.28

Q17 Have you had any 1998-99 tax refunded directly by your Tax Office or DSS Benefits Agency?

Q18 Do you want to calculate your tax?

Q19 Do you want to claim a repayment if you have paid too much tax?

Q 20 Are your details on the front of the Tax Return wrong?

Q 21 Please give other personal details

Q 22 Tick boxes and give additional information as appropriate

Q 23 Declaration


How to fill in the boxes

Answer all the questions. If you tick 'No', go to the next question. If you tick 'Yes', fill In the Pages and boxes that apply to you.

Write clearly using blue or black ink and only in the spaces provided

Use numbers only, when you are asked for amounts.

Please do not include pence - round down your income and gains, to the nearest pound, and round up your tax credits and tax deductions - for example, if your National Savings interest is £3,500.87, enter £3,500 in box 10.8.

Do not delay sending your Tax Return just because you do not have all the information you need - see the notes on box 22.3.

If you need help, look up the question or box number in the Notes. The first part of each number shows which Question it relates to, for example, box 10.8 is the eighth box of Question 10.

You may find that in some parts of the Tax Return you are asked to put a loss in brackets. Remember that when you are asked to add a number to a loss, you should deduct one from the other (for example 60 + (40) = 20).

You can ask for a free software package to help you complete your Tax Return if all your income is covered by pages 3 to 8 of the Tax Return and the Employment Pages. It will not work if you have other income or gains.

The package will help you complete the Tax Return in electronic form and print the completed Return ready to sign and send to me. I cannot accept your Tax Return on disk.

The package will include notes to help you use the software. It will also calculate your tax bill if you wish.

Telephone 0645 000 404 if you would like me to send you the free software. You can also order by fax on 0645 000 604, or by e-mail (saorderline.ir@gtnet.gov.uk), or in writing to P0 Box 37, St Austell, PL25 5YN.

To use the software you will need an IBM compatible 386 or higher PC which is running on Windows 3 1, or later, and with:

4Mb of RAM

a 3.5  inch disk drive

5Mb of free space

a printer


How to fill in your Tax Return

Inland Revenue

Tax Return Guide

for the year ended 5 April 1999

How to fill in your Tax Return

What you have received  What you should do first  What next  What the Inland Revenue does  Key dates and summary

This Guide has step by step instructions to help you fill in your Tax Return.

The notes are numbered to match the boxes in your Tax Return.

Most of your questions will be answered here. If you need more help, please telephone your Tax Office - or (evenings and weekends) the Helpline.

Contact the Orderline for any supplementary Pages, leaflets or Help Sheets mentioned in this Guide


Importing accounts data into the self employment page
Importing accounts data into the Self Employment Pages

Import Accounts Data

A number of accounting programs output accounts data in the Self-Employment Supplementary Pages SE2, SE3 and SE4 format.

Import Accounts Button - is found in the lower part of the form SE1 immediately below the heading 'Income and expenses - annual turnover below £15,000'

Depressing this button produces a screen from which you select Import from a File or Import from the Clipboard.

Import from a File

Accounting packages, including those, produced by Compac, Hartley and Sage  currently output to proprietary files. In order to import data from these programs click on the Import from a File button to make your selection.

Click on the down arrow in the List files of type box to select the accounting package in use. Identify the location of the file(s) for the client on whose Return you are working using the standard Windows search features and complete the import process by selecting the required file(s) and hitting the OK button.

You are warned should the program be unable to import data from the selected files. In these circumstances you should check that the file(s) you are attempting to import are valid before repeating the above process.

Import from the Clipboard

Accounting packages produced by Apex, Caseware, Eureka, Hartley, Viztopia, and VT use the standard Windows Clipboard to export data to TaxReturn.

Use the feature incorporated in your accounting program to copy data into the Windows Clipboard, then within TaxReturn click on the Import from the Clipboard button. The program asks for confirmation that the correct client has been selected. On clicking OK the data is instantly copied onto the SE pages, no further action is required. These screens confirm a successful operation or the lack of data in the Clipboard.


Key Dates and Summary

1998

You must, by law, have kept all records.

Failure to do so could give rise to penalties

April 1999

You receive your Tax Return:

check to see you have all the right Pages

find your records

fill in your Return

30 September 1999

Send back your completed Tax Return if you want me to:

calculate your tax in time for the 31 January 2000 payment, or

collect tax due of less than £1,000 through your tax code.

31 January 2000

This date is important for three reasons. This is the date by which you must:

let me have your completed Tax Return

pay the balance of any tax you owe (unless it is to be collected through your tax code)

pay your first payment on account for the 1999-2000 tax year, if appropriate.

You must send me your Tax Return and pay what you owe by this date to avoid automatic penalties and interest.

Read "Paying your tax" if your Tax Return was issued after 31 July 1999.


Land and Property
Notes on Land and Property

CONTENTS

Filling in the Land and Property Pages

Return period

Rent a Room

Furnished holiday lettings in the UK

Expenses

Tax adjustments

Losses

Other property income

Income

Expenses

Tax adjustments

Losses

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for land and property are available from the Orderline.

IR87: Letting and your home. Including the 'Rent a Room' scheme and letting your previous home when you live elsewhere

IR140: Non-resident landlords, their agents and tenants

IR150: Taxation of rents. A guide to property income

IR223: Rent a Room for traders

IR250: Capital allowances and balancing charges in a rental business

IR251: Agricultural land and 'land managed as one estate'

Filling in the Land and Property Pages

The Land and Property Pages apply both to rental businesses with numerous properties, and to individuals who may simply have one property to rent or take a lodger in their own home. Complete them if you have:

rental income and other receipts from land and property in the UK, or

chargeable premiums arising from leases of land in the UK, or

furnished holiday lettings in the UK.

If you received income from property as part of your income from a partnership, do not include it in the Land and Property Pages. Instead, enter your share in the Partnership Pages (Full), available from the Orderline.

Do not include income from land or property overseas. Use the Foreign Pages, available from the Orderline, instead.

There are certain receipts that arise out of the use of land that should not be included in the Land and Property Pages. If you run one of the following types of business, you must fill in the  Self-employment Pages:

canals, inland navigations and docks

mines and quarries, including sand pits, gravel pits and brickfields

rights of markets and fairs, tolls, bridges and ferries.

This list is not comprehensive. If you do not know whether to include a particular sum, ask your Tax Office or tax adviser.

Gather together:

records of rent received

records of expenses.

If you take lodgers into your own home, see the guidance about the Rent a Room scheme.

If you let property other than your own home as a furnished holiday letting, follow the guidance.

If you let property separate from your own home other than  urnished holiday letting, you should follow the guidance about other income from land and property in the UK.

Everyone who fills in the Land and Property Pages should read the general guidance below. If you are in any doubt about

whether income from land and property is taxable, or whether you can claim relief for expenses, ask the Orderline for leaflet IR150:

Taxation of rents. A guide to property income.

Return period

Include in the Land and Property Pages all profits arising in the year from 6 April 1998 to 5 April 1999 from any land or property you held in the UK.

You must allocate income and expenses to the correct Return period.

If you have accounts for your property income for the period to 5 April 1999, you should transfer the figures in those accounts

to the Land and Property Pages.

If you have accounts for your property income for a period ending on any other date, you should apportion figures in the

sets of accounts that between them cover the year from 6 April 1998 to 5 April 1999, before putting figures on the Land and Property Pages.

Accounts are prepared for a variety of reasons and in a variety of ways. It may not be immediately obvious where you should enter some of your figures. The notes that follow are designed to give guidance in the most difficult areas but they are not intended to be hard and fast rules.

In some instances you may need to combine or apportion your figures to fit the Tax Return. If you include an expense under one heading where another may be equally appropriate, you should try to be consistent from one year to the next.

Make sure that you transfer all the entries in your accounts and that you include them once only.

If you do not have accounts, you should fill in the Land and Property Pages bearing in mind that your taxable profit should be worked out using generally accepted accountancy principles. If you need help, ask your Tax Office or tax adviser.

Rent a Room

Rent a Room can apply to you if you let furnished accommodation in your only or main home.

Sometimes the provision of furnished accommodation in your only or main home can amount to a trade, for example, if you run a guest house or a bed and breakfast business. Do not include this sort of income in the Land and Property Pages. Instead include it in the Self-employment Pages, available from the Orderline. Also ask for Help Sheet IR223: Rent a Room for traders.

The Rent a Room scheme does not apply to rooms let as office accommodation. However it may apply to genuine lodgers who are provided with study facilities.

Rent a Room relief cannot ordinarily be claimed when you go abroad and let your home in your absence, or where you occupy

job-related accommodation and let your former home.

The exemption

Under the Rent a Room scheme, you will not be taxed on your first £4,250 of gross income (that is, income including any sums you may receive for providing services - for example, cleaning - but before expenses) from letting furnished accommodation in your only or main home. But if someone else also received income during the year from letting accommodation in the same property,

you are each entitled to an exemption of £2,125.

If you share a home, you may be able to arrange your affairs in such a way that the rental income is wholly one person's, or is divided between you and the person with whom you are sharing a home. If you share the income, the exemption will be £2,125 for each of you.

Rents not exceeding £4,250 (or £2,125)

In general, if total income from this sort of letting does not exceed £4,250 (or £2,125) in the year to 5 April 1999, you will be exempt from tax under the Rent a Room scheme. All you need to do is tick the 'Yes' box on Page L1 if this applies to you.

You can opt out of the Rent a Room exemption if, for example, you made losses. To do this, tick the 'No' box and follow the instructions for 'Other property income'.

Rents exceeding £4,250 (or £2,125)

If your total receipts from letting furnished accommodation in your only or main home exceeded £4,250 (or £2,125) for the year to

5 April 1999, you will be able to choose between:

paying tax on the amount by which your gross rents exceed £4,250 (or £2,125) without any separate tax relief for allowable expenses. To do this, tick the 'No' box on Page L1 and enter the gross rents in box 5.20, and the amount of the Rent a Room exemption in box 5.35, or

calculating your profit from letting (gross rents minus allowable expenses) in the normal way. To do this, tick the 'No' box and follow the instructions for 'Other property income'. If you need more information, ask the Orderline for leaflet IR87: Letting and your home.

Furnished holiday lettings in the UK

Properties that are let as 'furnished holiday lettings' are treated differently from other properties for tax purposes. There are special rules that allow you to set off any loss arising from holiday lettings against all your other income, and not just against other income from property. You need to calculate the profit or loss arising from such properties separately from your other rental business income

and expenses to see whether you can take advantage of these special rules.

If you have furnished holiday lettings, start by filling in Page L1 of the Land and Property Pages. Then fill in Page L2. Details of other rental and business income and expenses go on Page L2 (see notes under the 'Other property income' heading).

What is a furnished holiday letting?

A letting is normally regarded as a furnished holiday letting if it is a UK property that is:

furnished, and

available for holiday letting to the public on a commercial basis for 140 days or more during the year, and

actually let commercially as holiday accommodation for 70 days or more during the year, and

not occupied continuously for more than 31 days by the same person for at least seven months of the year.

The year to consider is:

the year ended 5 April 1999, or

if you first started letting in that year, the twelve months from the date of the first letting, or

if you finished letting in that year, the twelve months up to and including the date of the last letting.

If you have more than one unit of accommodation let for holiday purposes, the 70 day rule can be satisfied even if your units were not each let for 70 days, just as long as all of them satisfy the 140 day and 7 month rules. Ask your Tax Office or tax adviser for further details.

Income from furnished holiday lettings

box 5.1 Enter in box 5.1 the gross income arising from properties that qualify as holiday lettings in the UK. This includes all the rents that relate to the year ended 5 April 1999 and any monies you obtained from the provision of any services to your tenants.

Joint holiday lettings

If you own and let holiday property jointly with one or more other people, include only your share of the income in box 5.1, and your share of the expenses in boxes 5.2 to 5.7.

If you receive notice of your share after expenses have been deducted, enter your share of any profit in box 5.1 (leaving boxes 5.2 to 5.7 blank) or any loss in box 5.7. Tick box 5.47 to show that the Land and Property Pages include details of shared property, and enter the name and address of the person nominated to keep records in the 'Additional information' box on page 8 of your Tax Return.

Expenses

If your furnished holiday letting income in the year before expenses is less than £15,000 annually, you do not have to list expenses separately. Instead, put total expenses in box 5.7.

The following guidelines give an indication of the main types of expenses likely to arise from holiday lettings, and what usually can, or cannot, be claimed as a deduction.

Non-allowable expenses:

personal expenses (see the notes for box 5.10)

capital costs, such as expenses relating to the purchase of the  land or property you intend to let; or the cost of purchasing machinery, furnishings or furniture

any loss you make on the sale of a property.

Allowable expenses:

in general, any costs you incur for the sole purpose of earning business profits

you may be able to claim capital allowances or a renewals deduction on the cost of buying a capital asset.

Remember that the expenses must be allocated to the correct Return period and it may be necessary to apportion certain expenses to arrive at the correct amount.

If you include any expenses in boxes 5.2 to 5.7, make sure that you do not include them again in boxes 5.24 to 5.29 on

Page L2.

Rent, rates, insurance, ground rents etc.

box 5.2  Any rent you pay under a lease of a property which you let to someone else as a furnished holiday letting can be deducted

in working out your business profits.

Other expenses connected with the property such as business rates, Council Tax, water rates, ground rents or feu duties are also allowable. Enter in box 5.2 the total of these expenses incurred in the period for all properties in your business.

Also include in box 5.2 any expenses you must incur as landlord to insure the furnished holiday letting and its contents.

Insurance against loss of rents is also an allowable cost but you must include in box 5.1 any income you receive as a result of taking out such an insurance. Insurances that extend beyond your rental business, such as personal policies or those insuring your private belongings, are not allowable costs.

Repairs, maintenance and renewals

box 5.3

Repairs and maintenance

Expenses that prevent the property from deteriorating can be

deducted as a repair. Examples include exterior and interior

painting, stone-cleaning, damp treatment, roof repairs, furniture

repairs and repairs to lifts and other machines that form part of the

property.

Where maintenance and repairs of property are made unnecessary

by improvements, additions or alterations to the property, part of

the outlay equal to the estimated cost of the maintenance and

repairs can be claimed as an expense. No expense can be claimed,

however, where:

the alterations etc., are so extensive they amount to the reconstruction of the property, or

there has been a change in the use of the property that made the maintenance or repairs unnecessary.

If you are in doubt whether any work undertaken on the property constitutes a repair or maintenance, ask your Tax Office or tax adviser.

Renewals

You can claim as an expense the cost of replacing furniture, furnishings and machinery supplied with your property where capital allowances are not claimed. You can include the renewal of small items such as knives and forks. If you opt for a renewals deduction you may deduct the cost of replacing any such equipment, but not the cost of the original purchase. Deduct from the replacement cost any sum received for the item you have scrapped or sold. Also deduct any part of the replacement cost that represents an improvement or addition to the original item.

Enter in box 5.3 the total of any such expenses on renewals (and repairs and maintenance) incurred in the period for all the properties in your business. If you are in doubt about what sum to claim as a renewal, ask your Tax Office or tax adviser.

Finance charges, including interest

box 5.4  Include in box 5.4 expenses that relate to the financial side of your rental business. Costs incurred in obtaining a loan to buy a property that you let are allowable as a deduction. So is any interest incurred on the loan. If you are unsure whether any financial cost is allowable as a deduction, ask your Tax Office or tax adviser.

Legal and professional costs

box 5.5   Below are some examples of expenses you cannot deduct, and those you may.

Non-allowable expenses:

expenses in connection with the first letting or sub-letting of a property for more than one year. These include, for example, legal expenses (such as the cost of drawing up the lease), agents' and surveyors' fees and commission

any proportion of the legal etc. costs that relates to the payment of a premium on the renewal of a lease

fees incurred in obtaining planning permission, or on the registration of title when buying a property.

Allowable expenses:

expenses for the let of a year or less

management fees relating to the on-going costs of letting (for example, rent collection etc.)

the normal legal and professional fees you incur on the renewal of a lease, if the lease is for less than 50 years

professional fees incurred evicting an unsatisfactory tenant, with a view to re-letting, or those on an appeal against a compulsory purchase order

professional fees in drawing up accounts.

If you are unsure whether any legal or professional fee is allowable as a deduction, ask your Tax Office or tax adviser.

Costs of services provided, including wages

box 5.6  If, in addition to letting a property, you provide any service to your tenant (such as gardening, porterage, cleaning or even something like communal hot water) that requires a degree of maintenance and thus expense, you can claim the cost of these services to the extent that they are provided wholly and exclusively for the purposes of the letting.

You should enter in box 5.6 the total of any expenses for all properties and their associated services. If you receive any income for any service you provide, this should be included in box 5.1.

Other expenses

box 5.7  Enter in box 5.7 all expenses incurred wholly and exclusively for the purpose of your rental business that are not already included in boxes 5.2 to 5.6. Examples include the costs of rent collection, advertising for tenants, travelling solely for business purposes, stationery, telephone calls and other miscellaneous expenses.

Remember though that personal expenses are not allowable. If you spend money on something only partly used for your property, you must only enter the amount expended for business purposes in box 5.7. Alternatively, enter the whole amount in box 5.7, and in box 5.10 enter the proportion of the cost that represents your personal use.

Lease premium relief

Where you (or an earlier tenant) paid a premium to your landlord when your lease was granted, and you are sub-letting the property in your property business, you may be able to claim a deduction for part of the premium paid. The relief for premiums paid is only due on amounts taxable on your landlord as income (or would be if your landlord were liable to tax). If you think you are entitled to a deduction for a premium you have paid, ask your Tax Office or tax adviser. The amount of the allowable deduction should be entered in box 5.7. The notes for box 5.22 explain how to calculate the part of the premium which is taxable on your

landlord as income.

Tax adjustments

To arrive at your taxable income (or the loss allowable for tax purposes), you need to make certain adjustments to the net profit or loss arising in the year.

Private use

box 5.10  Private and personal expenses are not allowable. If you spend money on something used only partly for your rental business and partly for a non-business reason you must either:

enter the amount expended for business purposes in boxes 5.2 to 5.7, or

enter the whole expenses in those boxes and enter in box 5.10 the proportion of the cost that represents your personal use or the non-business element.

For example, if you let out a property for only eight months in a year and use it yourself for the other four months, you can put the full annual cost of insuring the property in box 5.2. If you do, you should add back one-third of that cost in box 5.10.

If you are in any doubt whether a particular expense needs to be apportioned between business and private use, ask your Tax Office or tax adviser.

Capital allowances and balancing charges

boxes 5.11 and 5.13  In working out your profit from furnished holiday lettings you must not deduct:

the cost of buying, altering, building, or installing or improving fixed assets (for example, property and machinery), or

depreciation or any losses that arise when you sell them.

Instead you may be able to claim capital allowances in box 5.13. These reduce a profit or increase a loss. An adjustment, known as a balancing charge, may arise when you sell, give away or stop using an item in your business. Enter the amount of balancing charges in box 5.11. These increase your profits or reduce your loss.

Your tax adviser, if you have one, will be able to tell you how to calculate capital allowances and balancing charges.

If you do not have a tax adviser, or want to check your calculation, ask the Orderline for Help Sheet IR250: Capital allowances and

balancing charges in a rental business.

Losses

You can use any loss shown in box 5.15 to reduce the amount of tax you pay on other income or gains in this or earlier years. This is because any loss on your Furnished Holiday Lettings is treated as though it arose in a business that you carry on.

Help Sheet IR227: Losses explains the different ways that you can claim to set losses incurred in a business against your other income. The same rules apply to any loss on your Furnished Holiday Lettings.

Loss offset against 1998-99 total income

box 5.16  Enter in box 5.16 the amount you want to claim against other income of this year. To set it against gains include it in box 8.5 of the Capital Gains Pages.

Loss carried back

box 5.17  Enter in box 5.17 the amount of the loss you are claiming against other income and gains for an earlier year. Even if you have already claimed to offset this loss, you should still include it in box 5.17 (and make a note of the amount in the 'Additional information' box on page 8 of your Tax Return).

Loss offset against other income from property

box 5.18   Any part of the total shown in box 5.15 not used in boxes 5.16 or 5.17, or 8.5 of the Capital Gains Pages, can be set against other income from land and property in the year ended 5 April 1999. Do this by entering in box 5.18 the figure in box 5.15 minus any figure in boxes 5.16 and 5.17. Copy the result to box 5.38.

Other property income

If you own land or property in the UK and enter into any transaction which produces rents or other receipts from that land or property, you are treated as operating a rental business. You are taxable on the profits of that business.

The concept of a rental business is broad. The rental profit or loss takes account of all rental and similar income, and related expenses, resulting from the exploitation of land or property in the UK. All activities by which you derive income from land and property in the same capacity are treated as activities of the one business (rental income you receive as a trustee, personal representative or partner is not in the same capacity). It does not matter whether you have a single property or numerous properties. All form a single business.

The guidance below tells you what income and what expenses should be included in the profits or losses of your rental business.

Income

Furnished holiday lettings profits

box 5.19  To fill in this box you will need to have filled in boxes 5.1 to 5.18 first. Follow the guidance on furnished holiday lettings .

Rents and other income from land and property

box 5.20  Enter in box 5.20 the total of all income arising to your business from any land and property you have in the UK, except income arising from furnished holiday lettings and chargeable premiums (see notes on box 5.22 ). Income includes receipts in cash or in kind. It is taxable when it is earned, even if you do not receive the money or goods until later. Include in box 5.20 any rent you receive (or you will receive) after 5 April 1999 which is payment for the year ended 5 April 1999 (because it is paid in arrears). Exclude from box 5.20 any rent you have received which relates to any period after 5 April 1999 (because it is paid in advance). It must be included in your income for the year to which it relates. Make sure you do not count money you received in this year if it was included in an earlier year.

If you receive income from wayleaves and you also receive rents from some or all of the land to which the wayleaves relate, include the wayleaves at box 5.20. If you are carrying on a trade and the land to which the wayleaves relate is used in that trade, include the wayleaves as part of your trading income in the Self-employment Pages. Otherwise, the wayleaves should be included in boxes 13.1 and 13.3 on page 4 of your Tax Return.

Generally, most income will be rental income from a tenancy, or from leasing or licensing agreements over your land or property. Rental income from furnished, unfurnished, commercial and domestic accommodation, and from any land, should all be included in the overall total. If your property is let furnished, any sums that a tenant may pay for the use of furniture will be taxable as income of your business. All this income should be added together and entered in box 5.20.

Property let jointly

If you own and let property jointly with one or more other persons, include only your share of the income in box 5.20 and your share of the expenses in boxes 5.24 to 5.29.

If you receive notice of your share after expenses have been deducted, enter your share of any profit in box 5.20 (leaving boxes 5.24 to 5.29 blank) or of any loss in box 5.29. Tick box 5.47 to show that the Land and Property Pages include details of shared property, and enter the name and address of the person nominated to keep records in the 'Additional information' box on page 8 of your Tax Return.

Receipts other than rent

Receipts other than rents are also taxable. Some of the main categories are:

rent charges, ground rents and feu duties

the annual value of properties not let at a commercial rent where a one-estate election is in force - see the notes for box 5.46

income arising from the grant of sporting rights

income arising from letting others tip waste on your land

income from letting someone use your land when no lease or licence is created; for example, receipts from a film crew who pay to film on your land

grants received from local authorities towards the cost of repairs of a property - see the notes for box 5.25 for guidance on claiming relief for expenses on repairs

income from land and property from any Enterprise Zone Trusts (include interest from Enterprise Zone Trusts in boxes 10.12 to 10.14 on page 3 of your Tax Return).

This list is not comprehensive. If you do not know whether to include a particular sum, ask your Tax Office or tax adviser. If you are not resident in the UK and your agent or a tenant has accounted for tax on your property income, you should enter the

gross income before deduction of tax in box 5.20. Put the tax in box 5.21.

Tax deducted

box 5.21  Certain income from property is received after tax has been deducted and accounted to the Inland Revenue. The main type of income from which tax may be deducted is rental income received by a landlord whose usual place of abode is outside the UK.

If the income in box 5.20 includes payments to you from which tax has been deducted, you should enter the amount of tax deducted in box 5.21.

You should ensure that the amount of income entered in your Tax Return is the total payment before tax has been deducted. In other words it should be the total amount you received plus the tax that has been deducted. It should not be just the amount you received after the tax has been deducted.

Non-residents

If you are not resident in the UK you should complete the Non-residence Pages available from the Orderline.

Your UK letting agent (or tenant, if you have no agent) should account for basic rate tax on your rental income unless they have

written authority from the Inland Revenue to pay it to you gross.

If they have accounted for tax, they must give you a certificate showing the amount of tax. Enter this figure in box 5.21.

You can apply to receive this income gross. Ask the Orderline for leaflet IR140: Non-resident landlords, their agents and tenants.

Chargeable premiums

box 5.22  The income of your rental business may include premiums paid for the grant of a lease and certain other lump sum payments and other forms of consideration, given in connection with the right to possession of a property. These are taxable on a special basis.

Broadly, for leases over 50 years the entire premium is treated as a capital receipt and so does not form part of your business's income. For leases of up to 50 years the premium is treated as partly capital and partly rent; only the rent is taxable. Use the Working Sheet below to arrive at the taxable amount.

Working Sheet for chargeable premiums -leases up to 50 years

Premium	A	£

Number of complete periods of

12 months in the lease (ignore the first

12 months of the lease)	B

A multiplied by B	C	£

C divided by 50	D	£

A minus D	E	£

Copy the figure in box E to box 5.22.

If you are in doubt about whether any payment you have received constitutes a premium, ask your Tax Office or your tax adviser. There can be a premium charge where you have assigned a lease but not required the payment of a premium. If you have assigned a lease and are not sure of the consequences of that assignment, ask your Tax Office or tax adviser.

Expenses

If your total property income in the year before expenses is less than £15,000 annually, you do not have to list expenses separately. Instead, put total expenses in box 5.29.

The following guidelines give an indication of the main types of expenses that are likely to arise in a rental business and what

usually can, or cannot, be claimed as a deduction.

Non-allowable expenses:

personal expenses (see the notes for box 5.32)

capital costs, such as expenses relating to the purchase of the land or property you intend to let, or the cost of purchasing machinery, furnishings or furniture

any loss you make on the sale of a property.

Allowable expenses:

in general, any costs you incur for the sole purpose of earning business profits

you may be able to claim capital allowances or a renewals deduction on the cost of buying a capital asset, or a wear and tear allowance for furnished lettings.

Remember that the expenses must be allocated to the correct Return period and it may be necessary to apportion certain expenses to arrive at the correct amount.

Make sure you do not put in boxes 5.24 to 5.29 any expenses you have already included in boxes 5.2 to 5.7.

Rent, rates, insurance, ground rents etc.

box 5.24  Any rent you pay under a lease of a property that you let to someone else can be deducted in working out your business

profits.

Other expenses connected with the property such as business rates, Council Tax, water rates, ground rents or feu duties are also allowable. Enter in box 5.24 the total of any such expenses incurred in the period for all properties in your business.

Include in box 5.24 any expenses you must incur as landlord to insure any let property and its contents. Insurance against loss of rents is also an allowable cost but you must include in box 5.20 any income you receive as a result of taking out such an insurance.

Insurances that extend beyond your rental business, such as personal policies or those insuring your private belongings, are not allowable costs.

Repairs, maintenance and renewals

box 5.25

Repairs and maintenance

Expenses that prevent the property from deteriorating can be deducted as a repair. Examples include exterior and interior painting, stone-cleaning, damp treatment, roof repairs, furniture repairs and repairs to lifts and other machines that form part of the property.

Where maintenance and repairs of property are made unnecessary by improvements, additions or alterations to the property, part of

the outlay equal to the estimated cost of the maintenance and repairs can be claimed as an expense. No expense can be claimed, however, where:

the alterations etc., are so extensive as to amount to the reconstruction of the property, or

there is a change in the use of the property which would have made the maintenance or repairs unnecessary.

If you are in any doubt whether any work undertaken on the property constitutes a repair or maintenance, ask your Tax Office or tax adviser.

Renewals

If you have not claimed capital allowances or 'wear and tear' allowances (see the notes for box 5.37) for furniture, furnishings or machinery supplied with your property, you can claim the costs as an expense. You can include the renewal of small items such as knives and forks. If you opt for a renewals deduction you may deduct the cost of replacing any such equipment, but not the cost of the original purchase. Deduct from the replacement cost any sum received for the item you have scrapped or sold. Also deduct any part of the replacement cost that represents an improvement or addition to the original item.

Enter in box 5.25 the total of any such expenses on renewals (and repairs and maintenance) incurred in the period for all the properties in your business. If you are in doubt about what sum to claim as a renewal, ask your Tax Office or tax adviser.

Finance charges, including interest

box 5.26  Include in box 5.26 expenses that relate to the financial side of your rental business. Costs incurred in obtaining a loan to buy a property that you let are allowable as a deduction. So is any interest incurred on the loan. If you are unsure whether costs are allowable as a deduction, ask your Tax Office or tax adviser.

Legal and professional costs

box 5.27  Below are some examples of expenses you cannot

deduct and those you may.

Non-allowable expenses:

expenses in connection with the first letting or sub-letting of a property for more than one year. These include, for example, legal expenses (such as the cost of drawing up the lease), agents' and surveyors' fees and commission

any proportion of the legal etc. costs that relates to the payment of a premium on the renewal of a lease

fees incurred in obtaining planning permission, or on the registration of title when buying a property.

Allowable expenses:

expenses for the let of a year or less

management fees relating to the on-going costs of letting (for example, rent collection etc.)

the normal legal and professional fees you incur on the renewal of a lease, if the lease is for less than 50 years

professional fees incurred evicting an unsatisfactory tenant, with a view to re-letting, or those on an appeal against a compulsory

purchase order

professional fees in drawing up accounts.

If you are unsure whether any legal or professional fee is allowable as a deduction, ask your Tax Office or tax adviser.

Costs of services provided, including wages

box 5.28  If, in addition to letting a property, you provide any service to your tenant (such as gardening, porterage, cleaning or even something like communal hot water), that requires a degree of maintenance and thus expense, you can claim the cost of these services to the extent that they are provided wholly and exclusively for the purposes of the letting.

You should include in box 5.28 the total of any expenses for all properties and their associated services. If you receive any income for any service you provide, this should be included in box 5.20.

Other expenses

box 5.29  Enter in box 5.29 all expenses incurred wholly and exclusively for the purpose of your rental business that are not already included in boxes 5.24 to 5.28. Examples include the costs of rent collection, advertising for tenants, travelling solely for business purposes, stationery, telephone calls and other miscellaneous expenses.

Remember though that personal expenses are not allowable. If you spend money on something only partly used for your property, you must only enter the amount expended for business purposes in box 5.29. Alternatively, enter the whole amount in box 5.29, and in box 5.32 enter the proportion of the cost that represents your personal use.

Lease premium relief

Where you (or an earlier tenant) paid a premium to your landlord when your lease was granted, and you are sub-letting the property in your property business, you may be able to claim a deduction for part of the premium paid. The relief for premiums paid is only due on amounts which are chargeable on your landlord as income (or would be, if your landlord was liable to tax). If you think you are entitled to a deduction for a premium you have paid, ask your Tax Office or tax adviser. The amount of the allowable deduction should be entered in box 5.29. The notes for box 5.22 explain how to calculate the part of the premium which is taxable on your landlord as income.

Tax adjustments

To arrive at your taxable income (or the loss allowable for tax purposes) you need to make certain adjustments to the net profit or loss arising in the year in box 5.31. The main adjustments are listed below. There are also more unusual situations which require different calculations - see the notes for box 5.46 .

Private use

box 5.32  Private and personal expenses are not allowable. If you spend money on something used only partly for your rental

business and partly for a non-business reason you must either:

enter the amount expended for business purposes in boxes 5.24 to 5.29, or

enter the whole expenses in those boxes and in box 5.32 the proportion of the cost that represents your personal use or the non-business element.

For example, if you let out a property for only eight months in a year and use it yourself for the other four months, you can put the full annual cost of insuring the property in box 5.24. If you do, you should add back one-third of that cost in box 5.32.

If you are in any doubt whether a particular expense needs to be apportioned between business and private use, ask your Tax Office or tax adviser.

Capital allowances and balancing charges

boxes 5.33 and 5.36  In working out your rental business profits you must not deduct:

the cost of buying, altering, building, installing or improving fixed assets, or

depreciation or any losses that arise when you sell them.

Instead you may be able to claim capital allowances in box 5.36. These reduce a profit or increase a loss. An adjustment, known as a balancing charge, may arise when you sell an item, give it away or stop using it in your business. Enter the amount of balancing charges in box 5.33. These increase your profits or reduce your loss.

Include any capital allowances or balancing charges from any investments you may have in Enterprise Zone Trusts.

If you let a dwelling house, including a flat, as furnished accommodation in the UK (other than as furnished holiday accommodation), capital allowances are not available on any machines, furniture or furnishings supplied. However, see the notes on box 5.37 (10% wear and tear) in the next column.

Your tax adviser, if you have one, will tell you how to calculate capital allowances and balancing charges.

If you do not have a tax adviser, or want to check your calculation ask the Orderline for Help Sheet IR250: Capital allowances and balancing charges in a rental business.

Rent a Room exempt amount

box 5.35  Enter in box 5.35 the Rent a Room exempt amount if you are claiming Rent a Room exemption or relief. See the notes.

10% wear and tear

box 5.37  If you let a dwelling house, including a flat, as furnished accommodation in the UK (other than as furnished holiday accommodation), capital allowances are not available. Instead, you may claim a deduction for either:

the net cost of replacing a particular item of furniture or furnishings, but not the cost of the original purchase (see the notes about renewals), or

an allowance amounting to 10% of the rent received after deducting charges or services that would normally be borne by a tenant but which are, in fact, borne by you (for example, Council Tax). This allowance, which is known as wear and tear allowance, is accepted as broadly covering the cost of normal renewals of furniture.

Capital allowances can be claimed if you let furnished accommodation other than a dwelling house. If capital allowances can be claimed, you cannot claim the 10% wear and tear allowance.

Furnished holiday lettings losses

box 5.38  Copy into box 5.38 the figure you have entered in box 5.18 on Page L1 of your Land and Property Pages. If box 5.18 is zero or blank, leave box 5.38 blank.

Losses

The way tax relief is given for any losses depends on your individual circumstances. The following guidance deals with the more common types of loss relief and assumes that you do not own either an agricultural estate or 'land managed as one estate' -see the notes for box 5.46.

In general, any rental business loss you make is available to be carried forward and set against your future rental business profits. Read the notes on box 5.45 on page LN8. However, you can get sideways relief against your general income for that part of a loss made up of capital allowances.

Loss brought forward from last year

box 5.42  Enter the total loss brought forward from the year ended 5 April 1998, relating to all properties in your property business. Exclude from this figure any losses brought forward from 1997-98 that you are now setting against total income in 1998-99. Include them in box 5.44 and read the note for box 5.44.

box 5.43  If you entered a figure of profit in box 5.40, you should deduct any figure in box 5.42 to arrive at your total taxable profit for the year. If any losses brought forward in box 5.42 are greater than the profits in box 5.40, enter '0' in box 5.43 and put the balance of the losses, after subtracting the profits, in box 5.45.

If your losses brought forward do not exceed the profits, subtract the figure in box 5.42 from the figure in box 5.40, and enter the difference in box 5.43.

Loss offset against total income

box 5.44  If you let a dwelling house, including a flat, as furnished accommodation in the UK (other than as furnished holiday accomodation), losses incurred cannot be set against your other income for the year. Enter any of these losses in box 5.45.

If you have not claimed capital allowances this year, and you had rental business profits last year, you should ignore box 5.44 and go to box 5.45. Sideways relief (against your other income for 1998-99) is limited to whichever is the lowest of the following three figures:

the amount of capital allowances in box 5.36, and after deduction of any balancing charges in box 5.33, or

the amount of the loss in box 5.41, or

the amount of your other income.

So, if your capital allowances do not exceed the balancing charges entered in box 5.33, no sideways relief is available even though

you have made a loss in box 5.41.

But, for example, if you have capital allowances of £3,000 and a balancing charge of £1,000, you can claim sideways relief up to £2,000, depending on the amount of loss you have made (in box 5.41) and the total general income against which it can be set.

If you want to set the loss against your other income of the same year, that is, the year ended 5 April 1999, enter the amount of the relief in box 5.44 together with any loss brought forward from last year (see the notes for box 5.42 ).

You can deduct the loss entered in box 5.41 from your other income for the year ended 5 April 2000 if it derives from an excess of capital allowances over balancing charges and you have not already used that excess against 1998-99 income as detailed

above. Remember to include the loss in your 1999-2000 Tax Return.

Loss to carry forward to following year

box 5.45  You can carry forward any unused losses and set them against future profits from your rental business. To arrive at the total remaining losses you have to carry forward to the year ended 5 April 2000:

if you made a profit in box 5.40 and have unused losses brought forward from an earlier year, enter in box 5.45 the balance of losses after subtracting the profits in box 5.40

if you made a loss in box 5.41, subtract from this figure any part of the loss used against general income in box 5.44, and add the result to the figure of earlier losses brought forward inbox 5.42. Enter the total in box 5.45.

Pooled expenses from 'one-estate election' carried forward

box 5.46.  If you own an agricultural estate or an estate over which there exists a valid one-estate election, ask the Orderline for Help Sheet IR251: Agricultural land and 'land managed as one estate' to see whether any entry is needed in box 5.46. Not many landowners are affected by the special rules applying to these types of property, but if you do own such an estate Help Sheet IR251 will show you how to include this type of rental business income and expenses. It also explains the special rules about any losses arising.

Any excess expenses in box 5.46 should be carried forward as an estate expense for 1999-2000.

Property let jointly

box 5.47  Tick box 5.47 if you have included in boxes 5.1 or 5.20 any income from joint furnished holiday lettings or from any other property let jointly (see these notes and these notes.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Filling in the Land and Property pages  Return period  Rent a Room  Furnished holiday lettings in the UK  Expenses  Tax adjustments  Losses  Other property income  Income  Expenses  Tax adjustments  Losses


Land and Property Q5

Fill In the Land and Property Pages If you received Income from UK land and property including:

furnished holiday lettings

furnished accommodation in your only or main home, unless you provided services such as meals, and your activities amount to a trade, in which case fill in the Self-employment Pages instead.


Lloyd's Underwriters
Notes on Lloyd's Underwriters

Contents

Filling in the Lloyd’s Underwriters Pages    Who should complete these Pages?    Structure of Pages

Income from ancillary or personal funds at Lloyd’s    UK Interest    Interest from UK banks, building societies and deposit takers paid gross/net of tax    National Savings    Interest distributions from UK authorised unit trusts and open-ended investment companies    Other income from UK savings and investments    Relevant discounted securities    Total UK interest before accrued income share    Accrued Income Scheme and losses on relevant discounted securities

UK dividends and other distributions    Total dividends/distributions plus credit

Stock dividends and foreign income dividends    Stock (or scrip) dividends  Foreign income dividends from UK  companies    Foreign income dividends/distributions from UK authorised unit trusts and OEICs    Non-qualifying distributions and loans written off    Total dividends plus notional income tax

Foreign source income from assets in personal funds at Lloyd’s    Non UK interest    Dividends from overseas sources    Other foreign source income    Total UK and foreign tax deducted    Total non-UK income before tax    Total income from personal funds at Lloyd’s

Other Lloyd’s receipts    Receipts    Receipts from Lloyd’s Central Fund    Compensation receipts      Other Lloyd’s non-syndicate income    Late notified stop loss recoveries    Aggregate tax adjusted syndicate results    Syndicate foreign tax    Withdrawals from New Style Special Reserve Fund    Stop loss recoveries    Repayments of foreign tax previously allowed by deduction    Total other Lloyd’s receipts    Total Lloyd’s incomings

Outgoings and syndicate losses    Non syndicate expenditure and syndicate losses    Stop loss premiums    Bank guarantees/letter of credit bfees    Aggregate syndicate losses    Lloyd’s members association expenses   Repayments to Central Fund    Personal quota share premiums    Estate protection plan premiums    Interest on loans to fund underwriting    Net transfer to NSRF    Members’ agent profit commission and salaries    Accountancy fees    Other Lloyd’s expenses    Total Lloyd's outgoings

Lloyds foreign tax    Foreign tax on personal fund income    US federal income tax    Canadian Federal income tax    Syndicate foreign income tax    Additional payments for foreign tax    Refunds of foreign tax for which tax credit relief was given

Summary of net trading profits/allowable losses    1997-98 Loss    1997-98 Profit

Class 4 National Insurance Contributions

Other information    Personal pension relief (PPR) and retirement annuity relief (RAR)    Carry bank of pension payments    Earned income  Non-working Names : 6 April 1993 and after

Personal stop loss (PSL)    Stop loss insurance    Stop loss recoveries    Late notified stop loss recoveries    Stop loss repayments    Failed stop loss insurers

Foreign tax    Refunds of US tax

Cessation

New style Special Reserve Funds (NSRF)    Withdrawals from NSRF on cessation

Losses   Cessation    Loss reliefs on cessation    Post-cessation income and expenses

Death

Completing the Lloyd’s pages

To complete the Lloyd’s pages of the 1997-98 Tax Return; you will need form CTA 1(1994) (syndicate results for the 1994 account) and form CTA 2(1997) (the non-syndicate MSU Taxation Advice for 1997-98).

These pages ask for details of the income, expenditure and losses connected with membership of Lloyd’s that together make up the trading profits or losses of 1997-98.

Capital gains

Capital gains arising on disposal of syndicate capacity and sale of assets in personal funds do not form part of your Lloyd's trading profits so are not asked for in the Lloyd's Pages of the return.  Gains arising from sales in the 1997 Capacity Auction should be included on the Capital Gains Pages of the 1997-98 Tax Return, following the general guidance notes that go with those pages.

Who should complete these Pages

You should fill in these pages if you are or were an underwriting member of Lloyd's (or Name) and your deposit was not repaid by 31 December 1997.

No deposit

If you are a former underwriting member and for whatever reason, there is no deposit to repay, please contact LUU for advice on whether you need to complete the Lloyd's Pages of this return.

Structure of Pages

The Lloyd's Pages are divided into a number of parts

Income from personal funds at Lloyd's

This asks for details of income from the various assets that are held in your personal (or ancillary) funds at Lloyd's.  These include your deposit at Lloyd's and any other fund required or authorised by the rules of Lloyd's, or required by the members’ agent but do not include syndicate Premiums Trust Funds and New Style Special Reserve Funds.

Other Lloyd's receipts

This covers income, other than personal fund income, that arises to you from membership of Lloyd's, including aggregate syndicate profits.

Outgoings and losses

This asks for details of Lloyd's expenditure paid out by you personally, excluding any recharged through syndicates (such as annual contributions aggregated to the Central Fund) and syndicate losses.

Lloyd's foreign tax

This asks for details of all the foreign tax paid on your Lloyd's income for which double tax relief may be due.

Summary of net trading profits/allowable losses

This section brings together the elements that make up trading profits/losses from membership of Lloyd's to work out the taxable profit or allowable loss from this source for 1997-98 Class 4 National Insurance Contributions.

Income from ancillary or personal funds at Lloyd's

As a result of changes in the 1993 Finance Act, income from personal funds at Lloyd's forms part of the trading profits from membership of Lloyd's.  It should be entered on the Lloyd's Pages and not included anywhere else in your Tax Return.

In general, the income is included in Lloyd's profits of the tax year corresponding (1) with the calendar year you receive it.  So the income from funds at Lloyd's received in 1997 is included in your Lloyd's profits for 1997-98.

(1) A tax year corresponds with the calendar year which ends in it, that is, tax year 1997-98 corresponds with the calendar (or underwriting) year 1997.

The information asked for in the Lloyd's Underwriters Pages relates only to income arising on assets held as part of your personal funds at Lloyd's.  Please note that income from your Lloyd's Deposit and Reserve income is not included on your MSU non-syndicate taxation advice.  Income arising on assets that are held by you personally should be shown on the pages of your Tax Return that deal with the type of income concerned.

UK interest

boxes 3L.1 to 3L.5

Interest from UK banks, building societies and deposit takers paid gross/net of tax

National savings

This can be paid before tax has been deducted, ‘gross’, or with tax deducted, ‘net’.  Your bank, building society, deposit taker or members’ agent can give you a detailed statement.  If the interest was paid gross, you do not need to complete the ‘Amount after tax deducted’ and ‘Tax deducted’ columns.

Include the totals in boxes 3L.1 to 3L.5.

boxes 3L.6 to 3L.11

Interest distributions from UK authorised unit trusts and other open-ended investment companies.

Other income from UK savings and investments

This includes interest distributions from companies and UK authorised unit trusts and OEICs, interest on government stocks (gilts), interest on other loan stocks and loans to companies.  The information needed to complete the boxes on the returns should be shown on your tax vouchers - ask the unit trust manager, company or your members’ agent if you do not have any.

Enter the totals for the year ended 31 December 1997 in boxes 3L.6 to 3L.11.

Do not enter here any amount shown on your tax voucher as ‘equalisation.’  This amount, if shown, is not subject to tax.  In calculating your capital gains, the amount of equalisation is a repayment of capital paid to you and should be deducted from the cost of the units or shares purchased during the year.

Do not include dividend distributions, foreign income dividend distributions or annual payments from UK trusts in these boxes.  Dividends and foreign income dividend distributions should be shown in boxes 3L.26 to 3L.37.

Non residents and FOTRA securities

There is no exemption from tax on the interest arising on FOTRA (free of tax to residents abroad) gifts that are held as part of a non-resident Name’s personal funds at Lloyd’s.  This is because the income arising on gifts is included in your trading results.

Relevant discounted securities

box 3L.11  From 6 April 1996, relevant discounted securities replace those types of securities previously termed deep discount bonds and deep gain securities.  Broadly these are securities where the investor’s return is mainly made up of a discount or premium payable on redemption of the bond rather than by interest payable over the life of the bond.  The discount or premium must be capable of being more than:

15% of the redemption price, or if smaller

½% of the redemption price for each year of the bond’s life (for example, in the case of a ten year bond any discount of 5% or more would mean that it is a relevant discounted bond).

A security with an uncertain yield (for example, linked to the Retail Prices Index) will normally be a relevant discounted security.  A security linked to the value of assets which would be chargeable assets under the Capital Gains Tax rules (for example, a security whose yield is linked to the FTSE index) will not normally be a relevant discounted security.  If you hold a relevant discounted security you will generally be chargeable to tax only when you dispose of the security in any way or it is redeemed.  At that time, the difference between the amount you paid for the security and the amount you received when you sold or redeemed it will be included in your Lloyd’s trading results.  Income Tax is not deducted from the payment, so the gross amount received between 6 April and 31 December 1997 should be included in box 3L.11 with nothing included in box 3L.10.

Losses on disposal of relevant discounted securities

Should the actual disposal of any relevant discounted security result in a loss, that loss should be included in box 3L.15 along with any negative Accrued Income Scheme amounts.

Gilt strips

If any of your funds at Lloyd’s have been invested in gilt strips , consult your Tax Office or LUU for advice on how this may affect your Tax Return.

Building society mergers and conversions

If any of your funds at Lloyd’s are held in a building society that has been involved in a merger, conversion  into a limited company or take-over by a limited company, you or Lloyd’s as trustees may have received cash and/or shares, and there may be a liability to either Income Tax or Capital Gains Tax.  The building society may be able to tell you whether there is any tax liability.  If not, you should ask your Tax Office or tax adviser.

Cash payments

Payments which are liable to Capital Gains Tax (2) should be added to your other chargeable gains for the year.  If the total gains exceed £6,500, or the total proceeds exceed £13,000, fill in the Capital Gains Pages available from the Orderline.

(2) Cash payments liable to Capital Gains Tax are generally those received following take over of a building society, or conversion to a limited company.

To the extent that cash payments relate to deposits held as part of your funds at Lloyd’s, those payments that are liable to Income Tax (3) should be included in boxes 3L.2 to 3L.4.

(3) Cash payments liable to Income Tax are generally those received following a building society merger.

Shares

If you have received shares following a building society take-over or conversion, you may need to supply details when you dispose of the shares.  Ask your Tax Office for details.

Total UK interest before accrued income share

boxes 3L.12 and 3L.13  Add the figures in boxes 3L.3, 3L.6 and 3L.10 and put the result in box 3L.12.

Add the figures in boxes 3L.1, 3L.4, 3L.7, 3L.8 and 3L.11 and put the result in box 3L.13.

Accrued Income Scheme

boxes 3L.14 to 3L.16

Nominal value less than £5,000

Under the Accrued Income Scheme, no charge arises and no allowance is due for 1997-98 if the total nominal value of all accrued income securities held at any time in 1997-98 or 1996-97 did not exceed £5,000.  If the aggregate of the nominal values of all such securities held by you both as part of your personal and premiums trust funds at Lloyd’s and as part of your personal non-Lloyd’s and as part of your personal non-Lloyd’s investments, is less than £5,000 in the relevant periods, then no charge arises and no allowance is due and no entry is needed in box 3L.16 of the Lloyd’s Pages.

‘Accrued income securities’ includes all interest bearing securities, including shares in a building society, but does not include shares in a company, national savings certificates and war certificates.

For purchases and sales of such securities, held as part of personal funds at Lloyd’s, include in boxes 3L.14 and 3L.15 the amount that would be computed, either as an allowance or a charge, for those securities under the rules of the Accrued Income Scheme for the appropriate period.  This period is the calendar year to 31 December 1997.

Non UK residents

Please note that although the computational rules of the Accrued Income Scheme are used to work out the amounts of income or expense that arise when you purchase or sell such securities, the resulting amount is included in trading results for resident and non-resident Names alike- the only exceptions for non-residents are for non-UK securities and FOTRAs.

Calculation of allowance or charge

If, following purchase or sale of such a security between 6 April and 31 December 1997, the next payment of interest following the date of transfer of that security would fall between 1 January and 31 December 1997 inclusive,a charge would arise if that security  was purchased ex-dividend or sold cum-dividend.  In these circumstances your entry should be in box 3L.14 (positive).  If that security was purchased cum-dividend or sold ex-dividend, then an allowance would be due, and the entry should be in box 3L.15 (negative).

If you hold such securities both as part of your personal funds at Lloyd’s and as part of your personal non-Lloyd’s investments, you need not take into account the amount entered in boxes 3L.14 and 3L.15 in returning the charge or allowance for 1997-98 on the main part of your 1998 Tax Return.

UK dividends and other distributions

boxes 3L.18 and 3L.25  The Lloyd's Pages ask only for the total figures.  Add up all the dividends from UK companies whose shares are held as part of your personal funds at Lloyd's.  Remember to include dividends received in calendar year 1997.  The figures can be found on the vouchers sent by companies and UK authorised unit trusts. Do not send the vouchers with your Tax Return but do keep them and other records of the dividends and distributions you receive in the year in case they are asked for later.

Dividends

Your dividend voucher shows the amount of the dividend and the tax credit.  Add these together to work out the ‘dividend/distribution plus tax credit’.

If you do not pay tax we will pay you the tax credit.

If you pay tax at the lower, basic or higher rate the tax credit is regarded as tax already paid by you, and is set against your tax bill.

Do not include foreign income dividends or stock dividends here - enter these in boxes 3L.2 6 to 3L.34.

Other qualifying distributions

A company makes a distribution when it passes value to a shareholder, for example:

by selling an asset to a shareholder at under value, or

by paying interest at more than a commercial rate on a loan from a shareholder.

Non-qualifying distributions are defined on the next page and should be included in the totals in boxes 3L.35 to 3L.37.  Other distributions are ‘qualifying’.

Qualifying distributions carry a tax credit.

If you do not pay tax we will pay you the tax credit.

If you pay tax at the lower, basic or higher rate the tax credit is regarded as tax already paid by you, and is set against your tax bill.

Include the amounts in the totals in boxes 3L.18 to 3L.20.  Please give details in the ‘Additional information’ box on Page LU3 explaining the circumstances in which the distribution arose.

Dividend distribution from UK authorised unit trusts and OEICs

Your dividend voucher shows the amount of the dividend and tax credit.  Add these together to work out the ‘dividend/distribution plus tax credit’.

If you do not have a dividend voucher, ask your unit trust manager or open-ended investment company manager or members agent for one.

If you have accumulation units or shares the dividend is automatically reinvested in the unit trust or open-ended investment company.  You must still show the amount of the dividend, tax credit and dividend/distribution plus tax credit.

Do not enter here any amount shown on your tax voucher as ‘equalisation’.  This amount, if shown, is not subject to tax.  In calculating your capital gains the amount of equalisation is a repayment to you of the capital paid and should be deducted from the cost of the units or shares purchased during the year.

Total dividends/distributions plus credit

boxes 3L.24 and 3L.25  Add the figures in boxes 3L.19 and 3L.22 and enter the result in box 3L.24.

Add the figures in boxes 3L.20 and 3L.23 and enter the result in box 3L.25.

Stock dividends and foreign income dividends

The details of stock dividends and foreign income dividends have to be shown separately because the notional income tax attached to them cannot be repaid to you, even if you do not pay tax.  If you pay tax at the lower, basic or higher rate, the notional tax is regarded as tax already paid by you and is set against your tax bill.

Stock dividends and foreign income dividend distributions should be included in boxes 3L.26 and 3L.31.

Self calculation

You must not use the Tax Calculation Guide included with the Tax Return if you have any personal fund income with notional tax credits (that is, there is an entry at box 3L.39 of the Lloyd's Pages).  This is because that guide applies only where income with notional tax credits is ‘savings income’ on which tax is due at the reduced rate of 20%. But income from personal funds at Lloyd's is included in trading profits, and the 20% rate does not apply: you should ask LUU for one of the special guides for use in such circumstances.

Stock (or scrip) dividends

boxes 3L.26 to 3L.28  If you took up an offer of shares in place of a cash dividend in 1997, this is a ‘stock’ or ‘scrip’ dividend. Your dividend voucher should have ‘the appropriate amount in cash’ on it - this is the amount you should enter in the dividend box.  If the company did not give you this information, please ask LUU for advice.

Foreign income dividends from UK companies

boxes 3L.29 to 3L.31  Foreign income dividends are dividends paid by a company under the foreign income dividend scheme.

Your dividend voucher should have the dividend and notional tax credit on it.

Remember to include dividends received in the calendar year 1997.

Foreign income dividends/distributions from UK authorised unit trusts and OEICs

boxes 3L.32 to 3L.34  Your dividend voucher should have the dividend and the Income Tax treated as paid on it.

If you do not have a dividend voucher, ask your unit trust manager for one.

If you have accumulation units the dividend is automatically reinvested in the unit trust or open-ended investment company. You must still show the amount of the dividend and notional tax.

Do not enter here any amount shown on your tax voucher as ‘equalisation’.  This amount if shown is not subject to tax.  In calculating your capital gains the amount of equalisation is a repayment to you of capital paid and should be deducted from the cost of the unit purchased during the year.

Remember to include dividends received in the calendar year 1997.

Non-qualifying distribution and loans written off

boxes 3L.35 to 3L.37

Non-qualifying distributions

A non-qualifying distribution is:

a bonus issue by a company of securities or redeemable shares (except a bonus issue giving rise to a non-qualifying distribution), or

the paying on of such a bonus issue by a company which has itself received it.

If you receive such a bonus issue of securities or redeemable shares, the amount of the distribution is:

 for redeemable shares, the nominal value plus any premium paid

for securities the principal secured plus any premium payable

minus any new consideration given for that issue

If you pay tax a lower, basic or higher rate an amount of lower rate tax is treated as already paid by you and is set against your tax bill.

Include the amount of the distribution in box 3L.37.  Divide that amount by 5 to arrive at the lower rate tax which is treated as paid by you and enter that amount in box 3L.36.  Do not include any amount in respect of this type of distribution in box 3L.35.

Total dividends plus notional income tax

boxes 3L.38 and 3L.39  Add the figures in boxes 3L.27, 3L.30, 3L.33 and 3L.36 and enter the result in box 3L.38.

Add the figures in boxes 3L.28, 3L.31, 3L.34 and 3L.37 and enter the result in box 3L.39.

Gains on life assurance policies, life annuities and capital redemption policies

These types of policies may be held as part of your funds at Lloyd's but the tax treatment of any gain on these policies depends on how the policy is used to back your underwriting.  If the life company has provided a guarantee to Lloyd's secured on your life policy, the gains do not form part of your Lloyd's trading income.  They should be entered on the chargeable event section of the Tax Return (for example, boxes 12.4 to 12.8).  If, however, the Trust Deed governing your Lloyd's deposit includes the policy itself, please contact LUU for advice.

Foreign source income from assets in  personal funds at Lloyd's

boxes 3L.40 to 3L.54  Include here any interest or other income received in 1997 from non-UK assets in your personal funds at Lloyd's.  Depending on the nature of the income, it may be paid without foreign tax being withheld (gross), or after foreign tax has been withheld (net).  Fill in all the relevant boxes if foreign and/or UK tax has been withheld or deducted from the income.  If you are claiming relief for foreign tax by way of credit against UK tax on your Lloyd's income, please read the paragraphs on Foreign Tax  on how to complete the Foreign Pages of the Tax Return.

Non UK interest

boxes 3L.40 to 3L.43  In these boxes enter the amount of interest you receive from foreign bank accounts or loans to other organisations outside the UK.  If the payer has deducted foreign withholding tax and accounted for that tax to the overseas authority on you behalf, this will normally be shown on a certificate of tax paid.

Enter in box 3L.43 the total of the amounts shown at boxes 3L.40 to 3L.42.

Dividends from overseas sources

boxes 3L.44 to 3L.47  Do not include, for example, distributions in the course of liquidation, return of capital, stock dividend or bonus shares on scrip issues.  The information needed to complete these boxes will be shown either on your dividend voucher, or, if the dividends are paid through a paying agent in the UK, on the certificate of deduction of tax which the agent or banker provides.

Enter in box 3L.47 the total of the amounts shown at boxes 3L.44 to 3L.46.

Other foreign source income

boxes 3L.48 to 3L.51  Enter in these boxes any income that you received from other investments or other income from assets that form part of your personal funds at Lloyd's.

Total UK and foreign tax deducted

boxes 3L.52 and 3L.53  Add the figures in boxes 3L.41, 3L.45 and 3L.49 and put the total in box 3L.52. Copy this amount to box 3L.73 in the foreign tax section.

Add the figures in boxes 3L.42, 3L.46 and 3L.50 and put the total in box 3L.53.

Total non-UK income before tax

box 3L.54  Add the figures in boxes 3L.43, 3L.47 and 3L.51 and put the total in box 3L.54

Total income from personal funds at Lloyd's

box 3L.55  Use the Working Sheet below to add up figures in boxes 3L.17, 3L.25, 3L.39 and 3L.54.  Copy the total to box 3L.55.

Remember, for 1997-98, the income to return is that received in the calendar year to 31 December 1997.

Working Sheet
Total UK interest	3L.17	£
+
total dividend/distribution plus tax credit	3L.25	£
+
total dividends plus notional tax	3L.39	£
+
total non-UK income before tax	3L.54	£
=
total income from personal funds at Lloyd's	3L.55	£

Other Lloyd's receipts

Non syndicate income is, in general, included in your Lloyd's profits or losses for the tax year that corresponds with the calendar year in which you receive it.  Thus your 1997-98 Lloyd's taxable profit includes non syndicate income received in calendar year 1997.  In boxes 3L.56 to 3L.58 enter any other income received personally during 1997 as a result of membership of Lloyd's irrespective of the Lloyd's account that gave rise to the income.  Include here details of any compensation received as a result of any legal action arising out of your membership of Lloyd's (other than recoveries under stop loss policies - see section headed Personal Stop Loss).

Boxes 3L.58A to 3L.58D ask for details of income arising directly from participation in syndicates that declared results in 1997, associated syndicate foreign tax and withdrawals from NSRFs.  Under the declaration year basis, the syndicate results covered by this return are the syndicate results for Account 1994 and run offs to 31 December 1996.

Receipts

Receipts from Lloyd's Central Fund

Lloyd's Central Fund has been treated like a trade protection association (TPA) for tax purposes.  Members are taxed on drawdowns (payments to them from the Central Fund) and are allowed a deduction for repayments to Central Fund.

box 3L.56  Enter here any sums received from Lloyd's Central Fund in the year to 31 December 1997.  This can be found on your CTA2(1997) syndicate MSU taxation advices, described as ‘Central Fund drawdowns’.

Should you choose not to be taxed under the TPA type arrangements outlined above, there will be no tax charge on the drawdowns, but there will be no deduction for the repayments to Central Fund (including Settlement credits used to repay Central Fund indebtedness), unless the drawdowns repaid have, under the TPA arrangement, been included in your trading profit or loss for any year up to 1996-97.

Hardship agreements

The treatment of Central Fund payments described above applies in general to payments made under hardship agreements.  Lloyd's have written to each Name with a hardship agreement to explain any differences there may be as a result of individual circumstances.

Compensation receipts

box 3L.57  Compensation arising from membership of Lloyd's is trading income of the tax year corresponding to the calendar year in which it was received: for example, compensation payments received in 1997 are taxable income of 1997-98. Compensation covers amounts awarded as damages as a result of Court action, recoveries of legal costs arising from litigation in connection with membership of Lloyd's and any sums paid in out of Court settlements.

Outhwaite and Wardlow compensation

Although compensation was actually paid over to Names after 5 April 1993, the award pre-dated FA93 and the pre-FA93 rules were applied to determine when the amounts were taxable.  Please contact LUU if you need to confirm for which year such compensation is taxable.

Other Lloyd's non-syndicate income

box 3L.58  Enter here the total of any other Lloyd's non-syndicate income not already shown in boxes 3L.56 and 3L.57.  Describe the amounts shown in the ‘Additional information’ box on page LU3.

Late notified stop loss recoveries

If you have received any stop loss recoveries for Account 1992 and run offs to 31 December 1994 or prior years and have not yet notified LUU that they are due, please include the amounts received in ‘other income’ (box 3L.58) and give details of the years, recoveries and losses involved in the  ‘Additional information’ box on page LU3.

Aggregate tax adjusted syndicate results

boxes 3L.58A and 3L.63  If the entry at line 14 of CTA 1(1994) (described as toral Case I profit or loss) is:

profit: - enter the amount shown in box 3L.58A and '0' in box 3L.63

loss: - enter '0' in box 3L.58A and enter the amount shown on the CTA 1 in box 3L.63.

For years up to and including 1993-94, syndicate profits or losses were taxable by reference to the year in which the business was  written, for example, Account 1993 results were taxable 1993-94 (arising basis).  Changes in FA 1994 mean that as from the 1994 Account ,syndicate results are taxable by reference to the year the results are declared, for example, Account 1994 results are taxable in 1997-98 (declaration year basis). As part of the move from the arising basis to the declaration year basis, no syndicate results were taxable in 1994-95 through to 1996-97, although non-syndicate income and expenses and Personal Fund income were assessable in those years.

Syndicate foreign tax

box 3L.58B Enter in box 3L.58B the amount of syndicate foreign tax (shown at line 26 on CTA1(1994).  Copy this figure to box 3L.76.

Withdrawals from New Style Special Reserve Fund

box 3L.58C  Enter in box 3L.58C net withdrawals from an NSRF (line 17 on CTA1(1994).  Enter net transfers to an NSRF at box 3L.68A. If 1997-98 is your final year for tax purposes, any balance paid over to you on cessation should also be included in this entry.

Stop loss recoveries

box 3L.59D  Enter in box 3L.59D the total of all personal stop loss (PSL) recoveries due in respect of losses of Account 1994 and run offs to 31 December 1996.

Repayments of foreign tax previously allowed by deduction

box 3L.59E  Include here the sterling value of any repayments of foreign tax received in 1997 for which relief has been allowed in an earlier year by deduction from Lloyd's profits or losses.  For US and Canadian federal tax this is shown at lines 27 and 31 of CTA1(1994).  The exchange rate to use is the same rate that was used to calculate the amount of double tax relief given for the foreign tax in the earlier year, which may differ from the sterling amount actually received in the later year.

For foreign tax repayments where relief was given as tax credit relief, see box 3L.79.

Total other Lloyd's receipts

box 3L.59  Add the figures in boxes 3L.56 , 3L.57, 3L.58, 3L.58A, 3L.58B, 3L.58C, 3L.58D and 3L.58E and put the total in box 3L.59.

Total Lloyd's incomings

box 3L.60  Add the figures in boxes 3L.55 and 3L.59 and put the total in box 3L.60.

Outgoings and syndicate losses

Non-syndicate expenditure and syndicate losses

Non-syndicate expenditure is, in general, included in your Lloyd's profits or losses for the tax year that corresponds with the calendar year in which it is paid.  Thus your 1997-98 Lloyd's taxable profit includes non syndicate expenditure paid in calendar year 1997.  Please note that personal expenses met on your behalf by syndicate managing agents (such as annual contributions to the Central Fund) are treated as syndicate expenses for tax purposes.  Your tax adjusted syndicate results have already taken into account this type of expenditure and it should not be shown separately here.

Stop loss premiums

box 3L.61  Enter the sums paid in the calendar year at box 3L.61, regardless of the account or accounts covered by the policy for which the premium is paid.

Bank guarantees/letter of credit fees

box 3L.62  Enter in box 3L.62 the amount of annual renewal fees paid in 1997.

The initial cost of setting up these arrangements is not allowed as a trading deduction, because it is a capital expense, regardless of the underwriting account to which the deposit relates.

Aggregate syndicate losses

box 3L.63  If the amount shown as total Case 1 profit or loss at line 14 of CTA 1(1994) is a loss enter it at box 3L.63.  If it is a profit, enter at box 3L.58A and '0' in box 3L.63. Under the declaration year basis that applies for Account 1994 and later years, the results included in this return are those declared in 1997, syndicate results for Account 1994 and run off results to 31 December 1996.

Lloyd's members association expenses

box 3L.64  Subscriptions to certain associations of Lloyd's members, such as the Association of Lloyd's Members, are allowed as deductions.  LUU or the organiser of any association to which you belong can tell you to what extent, if any, your subscription and related expenses are allowable.

Enter in box 3L.64 amounts paid in 1997.

Repayments to Central Fund

box 3L.65

Please read  Receipts from Central Fund (box 3L.56) in conjunction with this paragraph.  To the extent that your Central Fund drawdowns have been included in your Lloyd's profit  or loss for earlier years, you may under the TPA type arrangements described in the earlier paragraph, claim a deduction for any subsequent repayments made to the Central Fund.

Enter repayment in box 3L.65 (amounts paid in 1997 as shown on your CTA 2(1997)).

Levies and subscriptions (annual and Special) paid to the Central Fund are met on your behalf by your syndicate managing agents and for tax purposes are allowed as an expense against syndicate profits.  Do not enter them here.

Personal Quota Share premiums

box 3L.66  Provided the quota share (4) contract is in accordance with the rules and practices of Lloyd's, any sum paid in the relevant period is an allowable expense.

(4) A quota share contract is where you make arrangements for another person to take over some or all of your rights or liabilities for any syndicate of which you are a member.  This contract may be part of a scheme to convert from underwriting as an individual to participating by way of owning shares in corporate Name - in which case the Conversion Prospectus should show you any amounts that are payable under a quota share contract as part of the scheme.

Enter in box 3L.66 amounts paid in 1997.

Estate Protection Plan (5) premiums

(5) Estate Protection Plans are special kind of insurance which aims to provide immediate unlimited cover against underwriting losses arising after death, to enable the Lloyd's deposit to be released at any early date and allow the estate to be distributed on the basis that no further underwriting cash calls would need to be met.  For tax purposes, Estate Protection Plans fall within the general rules for stop loss policies and any premiums are allowed as deductions by reference to the year in which they are paid rather than the year which the Plan protects.

box 3L.67  Enter in box 3L.67 amounts paid in 1997.  EPP premiums paid are shown at line 9 on your CTA2(1997)

Interest on loans to fund underwriting

box 3L.68  If you have taken out loans to fund underwriting losses, Lloyd's deposits and reserves, stop loss premiums or other Lloyd's personal expenses, any interest arising on the loans will in general be an allowable expense so long as you receive taxable income from membership of Lloyd's.  The same is true for interest on loans used to meeting Finality bills.

Enter in box 3L.68 the amounts paid in 1997.

If you have an interest certificate from the lender for interest paid on loans to fund underwriting losses etc. please retain it in case it is asked for at a later date.

Interest on unfunded losses that is recharged to you by syndicate managing agents is allowed as a deduction from syndicate results and should not be shown on these pages.

Net transfer to NSRF

box 3L.68A  Enter in box 3L.68A net transfers to an NSRF (line 17 on CTA 2(1997).  Enter in box 3L.58C net withdrawals from an NSRF.

Members’ agent profit commission and salaries

box 3L.69  Profit commissions are charged and paid at the distribution date following the close of an account.  For instance any profit commission for the 1994 Account (as shown at line 8 of the CTA 2 (1997))  will have been paid in June 1997 and should be entered at box 3L.69 as an allowable deduction against 1997-98 Lloyd's profit.

Managing agents’ salaries relating to an account are dealt with as part of the syndicate results so should not be entered separately on this Return.

Accountancy fees

box 3L.70  Any fee paid for work done in relation to working out your taxable Lloyd's profits is an allowable deduction but any fee for other work, such as Inheritance Tax planning or in relation to other business interests, cannot be claimed as a deduction from your Lloyd's profits.

Enter in box 3L.70 amounts paid in 1997, irrespective of the year of Account to which the fees relate.

Scale fee deduction

The last year for which deductions for accountancy fees were allowed by reference to a scale fee was 1993-94.

Other Lloyd's expenses

box 3L.71  Enter here the total of any additional items of personal non-syndicate expenses not claimed in boxes 3L.61 to 3L.70.  Describe the amounts claimed in the ‘Additional information’ box on page LU3.

'Exempt amounts'

This applies only to not ordinarily resident, non UK domiciled Names. For these Names, gains and losses on certain types of gilts (FOTRAs) held in syndicate premiums trust funds are not within the charge to UK tax. The gains or losses are shown on the CTA 1(1994) at line 20 as 'income exempt to non UK resident/non UK domicile'. Positive amounts are allowed as deductions and should be entered in box 3L.71 as 'other expenses'. Negative amounts should be added to profits for the year by including them in box 3L.58. Also include details in the 'Additional information' box on page LU3.

Litigation expenses

Litigation expenses that relate to legal action connected with or arising from membership of Lloyd’s are allowable deductions.  Enter in box 3L.71 (other Lloyd's expenses) amounts paid in 1997.

Refunds of litigation expenses recovered in 1997 as part of the Reconstruction and Renewal Settlement should be included in box 3L.58 with a description of the amounts in the 'Additional information' box on page LU3

Total Lloyd's outgoings

box 3L.72  Enter the total of boxes 3L.61 to 3L.71 in box 3L.72.

Lloyd's foreign tax

This section brings together all the foreign tax details to work out your pool of Lloyd's foreign tax for 1997-98.  For Lloyd's foreign tax, a pooling system operates whereby profits from membership of Lloyd's is regarded as a single item of foreign income and all foreign tax paid on that income is treated as foreign tax on that single item of foreign income.

Foreign tax on personal fund income

box 3L.73  Copy the total amount (if any) of foreign tax on personal fund income from box 3L.52.

US federal income tax

box 3L.74  Enter the total amount of US federal tax shown in sterling at line 27 on your CTA2 (1997).

Canadian federal income tax

box 3L.75  Enter the total amount of Canadian federal tax shown in sterling at line 31 on your CTA2 (1997).

Syndicate foreign tax

box 3L.76  Copy the amount of syndicate foreign tax from box 3L.58B.

Additional payments of foreign tax

box 3L.77  In some circumstances, there may have been additional payments of foreign tax that relate to an earlier tax year, for instance, tax arising from any audit adjustments to an earlier years overseas return of Lloyd's profits.  Enter in box 3L.77 any such amounts paid in 1997.

Refunds of foreign tax for which tax credit relief was given

box 3L.79  You may have received refunds of foreign tax in 1997: for instance, from the carry back of the US of losses against profits of earlier years (Net Operating Losses or NOLs) which are shown at line 28,029 and 30 on your CTA2 (1997).  The treatment of these foreign tax refunds depends on how relief was originally given for the foreign tax now being refunded.

Tax credit relief

For refunds of foreign tax where relief was given against UK tax on earlier years Lloyd's profits, the refund is treated as additional tax chargeable on Lloyd's profits of the tax year corresponding to the calendar year of receipt. Enter any amounts received in 1997 in box 3L.79.  The exchange rate to use is the same rate that was used to calculate the amount of tax credit relief given for the foreign tax in the earlier year, which may differ from the sterling amount actually received in the later year. Where the refunds are US tax, the amount is shown in sterling at the correct exchange rate on the CTA 1(1994).

If you are calculating your tax for 1997-98 copy the figure in box 3L.79 to box W57 in the Working sheets in your Tax Calculation Guide.  Include this amount in box 18.4 on page 7 of your Tax Return.

Relief by deduction

Where relief was originally given by deduction from Lloyd's profits or losses, any refunds are added to the Lloyd's income of the year of receipt.  Enter at box 3L.58E any such refunds received in 1997.

Relief against UK tax on Lloyd's profits

For Lloyd's foreign tax, a pooling system operates whereby profits from membership of Lloyd's is regarded as a single item of foreign income and all foreign tax paid on that income is treated as foreign tax on that single item of foreign income.

UK resident underwriters : if your net result is a loss, foreign tax paid should be claimed as a deduction.

If the net result for a year is a profit and the amount of tax on your Lloyd's results for that year exceeds the amount of foreign tax you have paid, you may choose either:

to claim relief by deduction for the foreign tax paid, or

to claim tax credit relief for the foreign tax paid on your Lloyd's income

(but not part by deduction and part by tax credit relief).

If the net result for a year is a profit but the amount of tax on your Lloyd's results for that year is less than the amount of foreign tax you have paid, foreign tax paid may be deducted or you may claim tax credit relief but not part by deduction and part by relief.  If you choose to claim tax credit relief, to the extent the foreign tax exceeds the UK tax on your Lloyd's income, any relief for foreign tax will be lost.

Non-resident underwriters: you may claim relief for foreign tax by deduction from your Lloyd's trading result, as explained below.

For residents of the Isle of Man and the Channel Islands, there are special rules allowing tax credit relief to be claimed against UK tax in much the same way as for UK residents.  Please contact FICO (International) at Bootle for assistance.

Relief by deduction

Where relief for foreign tax is claimed by deduction, the amount of foreign tax paid on Lloyd's income is claimed as a deduction either to reduce the profits from the same source, or to increase the Lloyd's losses.  If foreign tax paid is to be deducted follow the instructions below.

Relief against UK tax on Lloyd's profits

UK residents underwriters: where you have a choice over claiming relief, you may find it helpful first of all to work out how much UK tax you would have available for tax credit relief.  Use the figures of profits after losses brought forward box 3L.90; you do not need to apportion between foreign and UK profits. The amount of foreign tax to include is the total foreign tax box 3L.78, with no apportionment between syndicate foreign tax and foreign tax on personal fund income. Then follow the instructions for the Working Sheet in the Foreign Pages available from the Orderline; LUU can help you complete them.

Where relief for foreign tax is claimed as tax credit relief, once you have entered the totals in boxes 3L.29 to 3L.31 and boxes 3L.40 to 3L.51, enter ‘0’ in boxes 3L.83 and 3L.90 and complete the Foreign Pages (available from the Orderline).  But the instructions on page FN11 of the Notes to the Foreign Pages for completing Columns A, D and E at the top of Page F3 do not apply to claiming tax credit relief for the foreign tax paid on your Lloyd's profits.  See the paragraph on ‘Foreign tax’ on page LUN11 in the ‘Other information’ section for instructions for completing the Foreign Pages.

Summary of net trading profits/allowable losses

If the figure in box 3L.72 exceeds the figure in box 3L.60 enter the difference in box 3L.82 and ‘0’ in box 3L.88 in the column headed ‘Profit’ and ignore the rest of the right hand column and the section about Profit.

If the figure in box 3L.72 is less than the figure in box 3L.60 enter the difference in box 3L.88 in the column headed ‘Profit’ and ‘0’ in box 3L.82 and ignore the rest of the left hand column and the section about Loss.

If you have made a loss for 1997-98, you may be able to claim tax relief for it.  Please see the section on ‘Losses’ in ‘Other information’.  Do not use Help Sheet IR227 Losses.

Time limits  Some claims for relief for 1997-98 losses have to be made by 31 January 2000.  You should ensure that your claim is made within the time limit prescribed.  Late claims cannot normally be accepted.

1997-98 Loss

boxes 3L.82 and 3L.87  If your total Lloyd's outgoings exceed total incomings, subtract the figure in box 3L.60 from the figure in box 3L.72 and put the result in box 3L.82.

(if incomings exceed outgoings ignore boxes 3L.82 to 3L.87.)

Add the figures in boxes 3L.82 and 3L.83 and put the result in box box 3L.84.  This is your total loss relating to the 1997-98 tax year.

If you wish to claim relief by offsetting your loss against other income of this year, put the amount of the loss you want to claim in box 3L.85.  This will be the whole or part of the figure in box 3L.84.

If you want to offset this loss against income of an earlier year enter the amount of the loss in box 3L.86.  If you have already claimed to offset this loss you should still include it in box 3L.86 and provide details in the 'Additional information' box on page LU3.

If you wish to claim relief for your loss by carry forwarded against future profits fill in box 3L.87.

1997-98 Profit

boxes 3L.88 to 3L.91  If your total Lloyd's incomings exceed total outgoings fill in boxes 3L.88 to 3L.91.  Leave boxes 3L.82 to 3L.87 blank.

You may deduct from this amount of profit any losses sustained in the same business for 1996-97 or earlier years which you claimed to carry forward against later profits.  The maximum amount you can enter in box 3L.89 is the figure in box 3L.88.

Subtract the figure in box 3L.72 from the figure in box 3L.60 and put the result in box 3L.88.

If you have paid foreign tax and want to claim this as a deduction against your profits (rather than claim tax credit relief) enter in box 3L.90 the total from box 3L.78.

Subtract the total of boxes 3L.89 and 3L.90 from box 3L.88.  Put the result in box 3L.91.

Chargeable gains

Chargeable gains that arise on disposal of assets that were part of your funds at Lloyd's are not included in your Lloyd's trading results.  For disposals in 1997-98, any capital gains arising on disposal of assets from personal funds at Lloyd's should be shown in the Capital Gains Pages.

Syndicate capacity

Starting from 1995, Lloyd's have held capacity auctions at which it is possible to sell and purchase participation in Lloyd's syndicates.  In general, gains on disposals of syndicate capacity are not included in your Lloyd's trading results.  Any gains in the 1997 auctions should be shown in the Capital Gains Pages.  Full details of how these gains are calculated can be found in the Lloyd's Market Bulletin ‘Capacity Auctions’ issued in March 1996. Please note that syndicate capacity is not regarded as goodwill so no roll over relief is available if the proceeds of sale are used to buy new trading assets.

Class 4 National Insurance Contributions

Class 4 National Insurance Contributions must be paid by all Names on income from membership of Lloyd's, unless you are excepted.

External Names - chargeability to Class 4 NIC

For external (or non-working) Names the Department of Social Security has recently changed its view of the chargeability of their income from Lloyd's to Class 4 NIC.  The DSS view is now that these profits are and always have been chargeable to Class 4 NIC. In general, no action will be taken to recover NIC for years not assessed prior to the announcement of this change of view (that is, 1996-97 and earlier).  This means that external Names will, for the first time, be charged to Class 4 NIC for any Lloyd's profits arising in 1997-98 and subsequent years.

The contributions are a percentage of taxable profits for the tax year between lower and upper profit limits.

You are excepted from paying Class 4 Contributions if you are:

a man aged over 65 or a woman aged over 60 at the start of the tax year, or

not resident in the UK for tax purposes during the tax year (contact Leeds Underwriters Unit or your tax adviser if you do no know whether this applies to you.)

Sometimes, where both Class 2 and Class 4 contributions could be due, Class 4 contributions may not be payable.  In such circumstances the Contributions Agency may agree that your Class 4 contributions may be ‘deferred’ until such time as your overall contributions can be determined.  Only the Contributions Agency can agree to deferment and the Contributions Agency leaflet NP18 gives further details.

If you are excepted from Class 4 NIC or the Contributions Agency has agreed to defer contributions:

tick box 3L.92

enter ‘0’ in boxes 3L.93 and 3L.94

explain in the ‘Additional information’ box on Page LU3 that you are excepted or deferred, and give the reason.

If you have no other business apart from membership of Lloyd's use the Working Sheets below to arrive at figures to go in boxes 3L.93 and 3L.94.

Working Sheet for NICs (no other business apart from membership of Lloyd's)
		from box 3L.91
Taxable profit for 1997- 98	A	£
Adjustments to profits chargeable to NICs (see notes below on trading losses)
Copy to box 3L.93	B	£
		box A minus box B
Profit for National Insurance Contributions	C	£
Exempt threshold	D	£ 7,010
Amount chargeable		box C minus box D
(Maximum £17,170 in box E)	E	£
Class 4 NIC due		box E x 6%
(Maximum £1,030.20 in box F)	F
Copy the figure to box 3L.94

If you do not want to calculate your tax, you do not have to complete box F or copy the figure to box 3L.94.

Trading losses brought forward

Working Names  For working Names, Lloyd's losses from 1996-97 and earlier years, which have not yet been set against profits chargeable to Class 4 NIC, must be brought forward and set against the Class 4 profits for 1997-98.  This is because losses which are allowable for tax are also treated as looses arising for the purposes of Class 4 NIC.  They are allowed for Class 4 in the same ways as losses are allowed for tax.

External Names  Lloyd's losses from 1996-97 and earlier years must be brought forward and set against the Class 4 profits for 1997-98, even through Class 4 NIC is being collected for the first time on Lloyd's profits of 1997-98

If you have another business apart from membership of Lloyd's : do not use the Working Sheets.  Instead, ask the Orderline for Help Sheet IR220: More than one business, but enter box 3L.91 in place of box 3.89 in boxes D, E and F.  The note above on trading losses brought forward also applies to deductions in boxes G, H and I.  Since interest incurred for the purposes of Lloyd's business is deducted in arriving at trading profits no separate claims against Class 4 NIC profits are possible.

Other information

Personal pension relief (PPR) and retirement annuity relief (RAR)

Help Sheet IR330: Pension payments, available from the Orderline contains most of the information you will need to complete Question 14 of your Tax Return, but there are a few points specific to Lloyd's that are covered below.

Carry bank of pension payments

Time limits for making elections

For payments made in 1997-98, elections to carry back pension payments to the previous year must be made by 31 January 1999.  There are no extensions to this time limit for members of Lloyd's.

For pension contributions made in 1997-98 and onwards, the election that members of Lloyd's used to be able to make, to carry back contributions for two additional years, is no longer available.

Earned income

Relief for pension contributions is based on the total of your earned income for the year less certain deductions.  If you are a working Name, your Lloyd's income has always been treated as earned and the consequences of the changes that took effect from 6 April 1993, explained below, do not affect you.

Non-working Names: 6 April 1993 and after

Up to 5 April 1993, your Lloyd's income was regarded as unearned and was not used to work out your net relevant earnings on which relief for pension contributions is based.

From 6 April 1993 (1993-94 and onwards) your Lloyd's income is treated as earned and your Lloyd's profits or losses are taken into account in working out your net relevant earnings for pension purposes.

Relevant earnings.

The staring point for net relevant earnings is to add together all your earned income for the year (your relevant earnings). For each source of earned income, you include the taxable amount.  Where it is trading income (such as from membership of Lloyd's) the taxable amount is the profit for the year less any losses from that trade brought forward from previous years.  For instance, this will be the figure in box 3L.91 for Lloyd's profits of 1997-98.

Lloyd's profits for 1997-98 are reduced in this way event though the losses brought forward may include losses that arose for years when your Lloyd's income was unearned.

Net relevant earnings.

From the total of your earned income for the year, certain deductions are made to arrive at net relevant earnings. One of these deductions is for trading losses of the same year, but only if profits from that trade for that year would have been regarded as earned income. This means that for 1993/94 and after, you do deduct Lloyd's losses of the year from other earned income of the same year to arrive at net relevant earnings for that year (unlike 1992-93 and before where you would not deducted Lloyd's losses in working out net relevant earnings).

Personal Stop Loss (PSL)

Stop loss insurance

Stop loss is a type of insurance which provides cover if you make a loss of more than a specified amount in an underwriting year.  If you make a loss on your syndicate results, a stop loss policy will pay over to you a certain portion of that loss, called a recovery.  Recoveries are included in the Lloyd's taxable results in the year the loss arose for tax purposes.

Premiums paid for these policies are allowed as deductions by reference to the calendar year in which they are paid, regardless of the account or accounts covered by the policy for which the premium is paid.

Stop loss recoveries

Unlike other non-syndicate income, personal stop loss recoveries are in general included as income of the tax year in which the loss that triggered the recovery arises for tax purposes: for instance, a stop loss recovery in respect of an Account 1994 loss is taxable 1997-98 even though you may not receive it until 1998.

Late notified stop loss recoveries

The exception to the general rule is where a recovery becomes payable for the loss of an earlier Account and for some reason (other than fraud or neglect), you have not told your Tax Office about it in time to include it in an assessment for the year of loss.  In these circumstances, the recovery is assessable in the tax year corresponding with the calendar year it was received.  This will apply if you have received any stop loss recoveries for Account 1992 and run offs to 31 December 1994 or prior years and have not yet notified LUU that you are due recoveries for them.

Stop loss repayments

If following the recovery, you are compensated in some other way for the loss (for instance, by an award of damages), a stop loss policy requires you to pay back some or all of the recovery.  Any repayments made directly to a stop loss insurer are treated in the same way as premiums; a deduction is allowed for the year of payment.  There is no adjustment made to the assessment for the year the recovery that is being repaid was assessed.

Other stop loss repayments

Some types of policy covered a number of years’ losses and required the insured to repay the stop loss insurer any profits made in the two accounts after the term of the policy.  Like repayments of recoveries, these payments are allowed as deductions of the tax years corresponding to the calendar year in which the payment is made, and not as deductions from the years’ syndicate profits, for example, a Name has a policy covering Accounts 1992 and 1993 and receives recoveries in respect of losses for both these years.  Account 1994 is a profit, declared in June 1997 and the full amount of the profit is, under the terms of the policy, paid over to the stop loss insurer in January 1998. The recoveries under the policy are assessable in 1992-93 and 1993-94 (the years the losses arise for tax purposes), the Account 1994 profit is assessable in full in 1997-98 and the repayment to the stop loss insurer is allowed as a deduction in 1998-99.

Failed stop loss insurers

Should a PSL insurer be unable to meet in full claims under policies, any sum not recoverable is treated for tax purposes as a bad or doubtful debt.  Once you can establish that the recovery is unlikely to be paid in full, you need to make an estimate of the amount that is in doubt.  For example, a PSL underwriter goes into liquidation. The liquidator issues a statement on 10 April 1997 which shows that only 40% of claims are likely to be paid.  The amount you can claim as a deduction will be 60% of the amount still to be paid out under your PSL policy. The deduction is given for the year in which you can establish the debt will not be paid in full, in this case 1997-98.  In common with bad debt relief for traders in general, the adjustment is made in the year the debt is established as doubtful, and not be adjusting the taxable profit or loss for the year the amount recoverable was taxed.

Doubtful recoveries from stop loss insurers NOT party to the Settlement

For PSL insurers that are not party to the Settlement, you can claim bad debt relief.  For any amounts of stop loss recoveries that you establish as doubtful in 1997, please include any claims in ‘Other Lloyd's expenses’ at box 3L.71.  In all cases, describe the amounts claimed, in the ‘Additional information’ box on Page LU3.

Subsequent changes in value of expected recovery

If in a later year the amount you expect to recover from your PSL insurer decreases, you can make a further claim to bad debt relief for the reduction in the amount you expect to receive.  Similarly, if the amount increases, or you receive more than the amount you expected to receive, the increase or the difference between the amount claimed as a bad debt relief and the amount received should be shown as an addition to profits in that year.

Foreign tax

Foreign tax is paid in connection with your Lloyd's results in three ways.

1.	First, if any of your personal funds are invested abroad, foreign tax may be withheld when the interest, distribution etc. is paid over to you - the sum asked for in box 3L.52.

2.	In some dozen or so countries, tax is levied by the overseas tax authority by reference to the profits of syndicate business written by agents operating in those countries.  Lloyd's meets these tax bills centrally and syndicate results are reported to Names net of this overseas tax.  Because the syndicate results are reported to you net of overseas tax, it is necessary as a first step to add that overseas tax back to your syndicate results to work out the full measure of profits.  This is done at box 3L.58B for syndicate results for Account 1994 and run offs to 31 December 1996.

3.	Thirdly, returns are made to the US and Canadian tax authorities of each Name’s Lloyd's business in those two countries and federal income tax is levied on the reported profits.  Lloyd's deals with the returns and liabilities centrally and reports to Names annually the amount of US and Canadian taxes paid (or repaid) on their behalf.  The amount to enter at box 3L.74 and 3L.75 is the US and Canadian federal tax paid shown on lines 27 and 31 of CTA 1(1994).

Where foreign tax has been suffered on income that is also liable to UK tax, relief for the foreign tax can be allowed either by giving credit for the amount of foreign tax paid against UK tax on the same income (for UK residents where there is sufficient UK tax due on the income) or where there is not enough UK tax due (or if the Name so chooses), relief can be given as a deduction in arriving at the net profit or loss.

Foreign Pages 1997-98

The instructions in the Notes to Foreign Pages for completing Column A, D and E at the top of page F3 do not apply to claiming tax credit relief for the foreign tax paid on your Lloyd's profits.  This is because of the pooling basis that applies for Lloyd's foreign tax, which means that it is not necessary to identify separately the country in which the foreign tax is paid or branch profits in each country.  Following the instructions below instead.

Column A

Enter ‘Lloyd's’ instead of the name of the foreign county where the income arose

Column D

Enter the total amount in sterling of foreign tax paid on your Lloyd's income (box 3L.78).  Use the exchange rate prevailing at the date you received the income to translate the foreign tax to sterling.

Column E

Enter the total profits from membership of Lloyd's (box 3L.91).

If you are calculating your tax credit relief on your income, include the total foreign tax in box 6.9 then follow the instruction at Part 2 on page FN12, bearing in mind that for tax credit relief purposes, your total profit from Lloyd's (box 3L.91) is regarded as one item of income and foreign tax paid on Lloyd's income is regarded as foreign tax on that item of income.

Refunds of US tax

Under US tax rules, trading losses can be taken back and offset against the profits of the three preceding years.  To the extent that US tax has been paid on these earlier year’s profits, carrying the losses back will generate a repayment of US tax which Lloyd's reports to you on the relevant MUS Taxation Advice.  For refunds shown at lines 28 to 30 on your CTA 2(1997), how you report them on this year’s Tax Return depends on how relief was given for the US tax when it was originally paid.

Tax credit relief

For refunds of foreign tax where relief was given against UK tax on earlier years Lloyd's profits, the refund is treated as additional tax chargeable on Lloyd's profits for the tax year corresponding to the calendar year of receipt. The exchange rate to use is the same rate that was used to calculate the amount of tax credit relief given for the foreign tax in the earlier year, which may differ from the sterling amount actually received in the later year.

Relief by deduction

Where relief was originally given by deduction from Lloyd's profits or losses, any refunds are added to the Lloyd's income of the year of receipt.

Cessation

Final year of assessment 1996-97: US and Canadian federal income tax

Because of the transition to the declaration year basis of assessing syndicate results and the way in which US and Canadian federal income taxes are levied on Lloyd's profits, some US and Canadian tax on Account 1993 (and run offs to 31 December 1995) results would generally be included in the Lloyd's foreign tax pool for 1997-98. For Names whose final year is 1996-97, any such amounts should instead have been included in the Lloyd's foreign tax pool of their final year, 1996-97.

Final year of assessment 1997-98; payments and refunds made after 31 December 1997

Payments of foreign tax are included in the Lloyd's foreign tax pool for 1997-98 (the final year), and relieved in the same way as the rest of that year’s pool.

Refunds of foreign tax received after 31 December 1997 are treated as refunds received in the final year, 1997-98 and added to the taxable profits of the final year, or to the tax chargeable on those profits, depending on how relief was originally given for the tax now being refunded.

New style Special Reserve Funds (NSRF)

These funds can be set up by Names under Section 175 FA 1993.  Personal representatives of deceased members may not set up new style Special Reserve Funds.

If you have an NSRF, you may transfer up to half of the aggregate of your commercial (not your tax adjusted) syndicate profits for any account into your fund.  If the aggregate syndicate result is a loss, you must withdraw sufficient from the fund to meet the loss.  When the value of assets in the fund exceeds 50% of your overall premium limit, any balance is returned to you as taxable income.  Transfers to and withdrawals from the fund also happen when there are cash calls, stop loss recoveries and on cessation.

If you have such a fund you will need to complete the entries in the Lloyd's Pages for transfers into and withdrawals from the fund.  Lloyd's CSU reports the net transfer to or withdrawal from your fund for each tax year on the relevant Taxation Advice.

Net withdrawals from an NSRF should be shown in box 3L.58C, and net transfers to such a fund in box 3L.68A.

Withdrawals from NSRF on cessation

For Names who have ceased, the balance of the fund is taxed as trading income of the final year that Lloyd's results are assessable on the Name personally.  For surviving Names, this will be the final year of assessment of the trade, but may be different for deceased Names - full details are given in the Lloyd's Notes for the Trust and Estate Tax Return.

Losses

Please note that the rules for claiming relief for losses arising from membership of Lloyd's are in some ways different from the loss relief for trades in general and the information given in Help Sheet IR227 Losses on claiming relief for trading losses to reduce your taxable profit in the earlier years or following cessation does not apply to losses from membership of Lloyd's.

Time limits  Remember to make your claims within the time limits shown on page LUN13 for losses in early years of trade and terminal loss relief and in Help Sheet IR227  for other loss relief claims.  For 1997-98 and onwards, there are NO extensions to time limits for members of Lloyd's.  Late claims cannot normally be accepted.

Losses in early years of trade

There are special reliefs for losses that arise in the first four years of a business.  The general rule is that the losses arising in the tax year in which the business commences and the three succeeding tax years are available for relief.  Because of the corresponding year concept that applies to taxing income from membership of Lloyd's, the first year of assessment of your Lloyd's trade is the tax year corresponding with the underwriting year in which you first participated on syndicates.

For instance, if you commenced underwriting 1 January 1994, your first year of assessment is 1994-95, and these ‘early years of trade’ loss relief provisions can apply to losses for 1994-95 through to 1996-97 (non-syndicate income and expenditure of year ended 31 December 1994, 1995 and 1996 respectively) and 1997-98 (Account 94 results and non-syndicate income and expenses of the year to 31 December 1997).  The loss for any of these years can be carried back for relief against other income of the three years of assessment running up to the year of loss, taking income of an earlier year before income of a later year.

Time limit  The time limit for making claims for this relief for losses arising in 1994-95 and 1995-96 expired 5 April 1998.  You have until 31 January 1999 to claim relief for losses arising in 1996-97 and the time limit for losses of 1997-98 is 31 January 2000.

For losses arising in 1997-98, you can claim loss relief by filling in the appropriate boxes on your Tax Return.  For deductions from income of this year, use box 3L.85.  If you are claiming any deduction from capital gains for 1997-98 complete box 8.5 on the Capital Gains Pages.

If you are claiming a deduction from income or capital gains for earlier years, complete box 3L.86 on the Lloyd's Pages.

If you are carrying the loss forward against future profits from membership of Lloyd's, complete box 3L.87 on Lloyd's Pages.

Cessation

The rules for when your trade as a member of Lloyd's ceases were changed substantially in the 1993 and 1994 Finance Acts.  The basic rules now is that the final year of assessment for profits from membership of Lloyd's is the tax year corresponding with the calendar year in which your deposit is repaid, but please see the following section for further information on cessation for deceased Names.

If, for whatever reason, you do not have a deposit to be repaid, Regulations provide that the final year of assessment is the tax year corresponding with the final calendar year in which you had syndicate results declared.

The date of resignation is not relevant in determining cessation for tax purposes, for example, a Name resigns 31 December 1990 but some of his syndicates go into run off.  These open syndicates are finally reinsured into Equitas as at 31 December 1995. Under the rules for taxing run off results these are assessable 1993-94.  The final results of these open years are declared in July 1996.  The Name’s deposit is repaid to him in February 1997.  The final year of assessment of the trade is therefore 1997-98, being the tax year corresponding with the calendar year in which the deposit  was released.

If the Name did not have a deposit to repay - which may have happened if the deposit has been drawn down to meet previous years’ losses - the final year of assessment would however be 1996-97, being the tax year corresponding to the calendar year in which the final year’s results are declared.

For Names who finally sever their connections with Lloyd's as a result of Reconstruction and Renewal, other than for those who have died, the final year of assessment will either be 1996-97 (if there is no deposit to repay) or 1997-98 (where the balance of a deposit has been repaid as part of a Finality surplus paid in 1997).

Loss reliefs on cessation

Terminal loss relief

Terminal loss relief is an alternative to the ordinary ways in which losses can be relieved but you must make sure that you do not claim the same loss twice.  If you have already claimed some part of the terminal loss already, then you must reduce the terminal loss by the amount of relief you have already claimed.

For ceasing members of Lloyd's, the loss available for terminal loss relief is the loss of the last tax year for which there were syndicate results included in the computation. If your syndicate results were declared in 1997 (Account 1994 and/or run offs to 31 December 1996), the loss for 1997-98 is used for terminal loss relief purposes.

Your terminal loss must be set against any profits (after deducting losses brought forward) from membership of Lloyd's taxed in the previous year of assessment - in the above example 1996-97.  Once these have been reduced to nil, any balance of the terminal loss must be set against profits taxed in the preceding year, 1995-96.  Finally, if there is still a balance, this must be set against the Lloyd's profits taxed in 1994-95.

Because of the special way in which this relief works for Names, the terminal loss in some circumstances may not be the loss of the final year of assessment. For example, the final syndicate results are declared in 1997 but the deposit is released in January 1998 - the loss for terminal loss relief purposes is that of 1997-98 but the final year of assessment will be 1998-99.  This may affect Names who ceased as a result of R&R. For these Names it is the loss (if any) of 1993-94 which is available for terminal loss relief. This is because their final syndicate results (Account 1993 and/or run offs to 31 December 1995) were assessable 1993-94. Please note that the time limit for making a claim to terminal losses that arose in 1993-94 is 5 April 2002.

You do not need to wait to claim terminal loss relief until you are ready to send in your completed Tax Return.  You can claim relief as soon as you know how big the loss is, normally once you have the tax adjusted results for 1997-98 sent to you by Lloyd's MSU on CTA 2(1997).  You may use the form issued by Lloyd's in a Market Bulletin to claim relief or you may write a letter stating that you wish to claim terminal loss relief showing the date of cessation of trade (which for terminal loss relief purposes for members of Lloyd's is 5 April of the tax year in which the final open syndicate results are assessed - in the example quoted above, 5 April 1998) and details of how much the loss is.

Relief for members who have been underwriting since before 1972

For Names who have been underwriting members of Lloyd’s for the 1971 Account or earlier and have underwritten continuously since then, special relief at cessation of underwriting is available to compensate for any double counting of profits that may have arisen from the change in basis of assessing profits from membership of Lloyd's brought in for 1972-73 and subsequent years.  LUU have maintained records of the amount of relief that may be available under this provision so please contact LUU for advice should you be in this position.

Post-cessation income and expenses

There are special rules for allowing relief for expenses and taxing income that a former Name may pay or receive after his Lloyd's trade has ceased for tax purposes.  Post cessation Lloyd's income and expenditure is carried back and included in the profits or losses of the final year of the trade.  Do not enter any such Lloyd's related income and expenses received or paid in the period 1 January 1997 to 5 April 1998 in box 15.11 of the Tax Return: you should instead tick box 22.5 and enter the amounts in the ‘Additional information’ box on page 8 of your Tax Return, so that your 1997-98 self assessment can be amended accordingly.

If you receive any such sums after you have sent this Return but before the end of the enquiry period (normally 31 January 2000 but later if you send your Tax Return late), please notify your Tax Office by 31 January 2000 so your 1997-98 self assessment can be amended.

Death

The Tax Return to be filled in by personal representatives of deceased Names depends on the date of Name died.  For deaths:

on 5 April 1994 or earlier, LUU will send a special form for returning details of any Lloyd's related income and expenses that may arise to the estate in 1997, and

between 6 April 1994 and 5 April 1998, complete the Lloyd's Pages of the Trust and Estate Tax Return.

Full details of the rules for cessation, final year of assessment etc. are explained in the Lloyd's Notes for the Trust and Estate Tax Return.  Please contact LUU if you need to help in determining what is the final year.

Filling in the Lloyd’s Underwriters Pages    Who should complete these Pages?    Structure of Pages

Income from ancillary or personal funds at Lloyd’s    UK Interest    Interest from UK banks, building societies and deposit takers paid gross/net of tax    National Savings    Interest distributions from UK authorised unit trusts and open-ended investment companies    Other income from UK savings and investments    Relevant discounted securities    Total UK interest before accrued income share    Accrued Income Scheme and losses on relevant discounted securities

UK dividends and other distributions    Total dividends/distributions plus credit

Stock dividends and foreign income dividends    Stock (or scrip) dividends  Foreign income dividends from UK  companies    Foreign income dividends/distributions from UK authorised unit trusts and OEICs    Non-qualifying distributions and loans written off    Total dividends plus notional income tax

Foreign source income from assets in personal funds at Lloyd’s    Non UK interest    Dividends from overseas sources    Other foreign source income    Total UK and foreign tax deducted    Total non-UK income before tax    Total income from personal funds at Lloyd’s

Other Lloyd’s receipts    Receipts    Receipts from Lloyd’s Central Fund    Compensation receipts      Other Lloyd’s non-syndicate income    Late notified stop loss recoveries    Aggregate tax adjusted syndicate results    Syndicate foreign tax    Withdrawals from New Style Special Reserve Fund    Stop loss recoveries    Repayments of foreign tax previously allowed by deduction    Total other Lloyd’s receipts    Total Lloyd’s incomings

Outgoings and syndicate losses    Non syndicate expenditure and syndicate losses    Stop loss premiums    Bank guarantees/letter of credit fees    Aggregate syndicate losses    Lloyd’s members association expenses   Repayments to Central Fund    Personal quota share premiums    Estate protection plan premiums    Interest on loans to fund underwriting    Net transfer to NSRF    Members’ agent profit commission and salaries    Accountancy fees    Other Lloyd’s expenses    Total Lloyd's outgoings

Lloyds foreign tax    Foreign tax on personal fund income    US federal income tax    Canadian Federal income tax    Syndicate foreign income tax    Additional payments for foreign tax    Refunds of foreign tax for which tax credit relief was given

Summary of net trading profits/allowable losses    1997-98 Loss    1997-98 Profit

Class 4 National Insurance Contributions

Other information    Personal pension relief (PPR) and retirement annuity relief (RAR)    Carry bank of pension payments    Earned income  Non-working Names : 6 April 1993 and after

Personal stop loss (PSL)    Stop loss insurance    Stop loss recoveries    Late notified stop loss recoveries    Stop loss repayments    Failed stop loss insurers

Foreign tax    Refunds of US tax

Cessation

New style Special Reserve Funds (NSRF)    Withdrawals from NSRF on cessation

Losses   Cessation    Loss reliefs on cessation    Post-cessation income and expenses

Death


Mail Merge

The Mail Merge facility enables you to send standard letters to your clients. For more information on entering standard letters see Client correspondence/standard letters. You may select the clients to whom the letter is sent by applying selection criteria to the Event dates record against each clients record. See Client Event Dates for more information. The purpose of the Event processing within the tax package is best explained by way of an example, as follows:

Suppose you write to your clients on the 1st of April each year requesting that they send you details of their income etc to enable you to complete their tax forms. If they have not done this by 30th April you send them a reminder letter and if they have still not done this by the 30th May you send them a further reminder letter. You might set-up the event system as follows:

1. Set-Up the Event Descriptions as follows: - see Event descriptions for all clients

1.	Tax return information requested

2.	Tax return information received

3.	First reminder sent to client

4.	Further reminder sent to client

2. 1st April - Send letter requesting client tax information

From the Mail Merge window highlight the appropriate letter in the grid. Click the Check 1 check box and then select event 1 Tax return information requested from the first drop down list, select Date is equal to from the second drop down list and leave the date in the last column blank to identify clients from whom information has not already been requested. Click the Update the date of event check box and then select event 1. Tax return information requested. Now click the Print button and the system will print letters to all clients who have not already been sent this letter. As each letter is printed the clients date for event 1 (Tax Information requested from client) is automatically updated.

3. Information received from client

From the Open Client window click the Events button and enter the date the information was received in to event 2 (Tax information received from client (See Client Event Dates for more information on entering event dates.

4. 30th April Send first reminder

From the Mail Merge window highlight the appropriate letter in the grid. Click the Check 1 check box and then select event 1 Tax return information requested from the first drop down list, select Date is not equal to from the second drop down list and leave the date in the last column blank to identify all clients from whom information has been requested. Alternatively, by selecting date is before and entering a date of say 20/04/97 only those clients from whom information had been requested before 20/04/97 would be indentified. Click Check 2 check box and then select event 2. Tax return information received from the first drop down list, select Date is equal to from the second drop down list and leave the date in the last column blank to identify all clients from whom information has not been received.  Click the Update the date of event check box and then select event 3. First reminder sent to client. Now click the Print button and the system will print letters to all clients who have not sent their tax information. As each letter is printed the clients date for event 3 (First reminder sent to client) is automatically updated.

5. 30th May - Send further reminder

From the Mail Merge window highlight the appropriate letter in the grid. Click the Check 1 check box and then select event 2 Tax information received from client from the first drop down list, select Date is equal to from the second drop down list and leave the date in the last column blank. Click Check 2 check box and then select event 3. First reminder sent to client from the first drop down list, select Date is not equal to from the second drop down list and leave the date in the last column blank. Click the Update the date of event check box and then select event 4. Further reminder sent to client. Now click the Print button and the system will print letters to all clients who have not responded to the first reminder letter. As each letter is printed the clients date for event 4 (Further reminder sent to client) is automatically updated.

As you can see from the above, event processing is a flexible way of sending letters to specific groups of clients and a useful tool to help you progress your clients. A maximum of 20 events may be defined.


Mail Merge Button

Mail Merge Button - Click this button to send standard letters to your client database through the Mail Merge facility. Click Mail Merge for more information on the Mail Merge facilities. For information on creating standard letters see Client correspondence/standard letters.


Main Return Form

How to fill in your Tax Return - Introduction

Filling in your Tax Return

What makes up your Tax Return

How to fill in pages 3 to 8 of your Tax Return

Paying your tax

How to complain

The Taxpayer's Charter


Ministers of Religion

CONTENTS

Filling in the Ministers of Religion Pages

Why separate Pages for ministers?

How are ministers taxed?

What income should I include?

Income as a minister of religion

Income

Salary or stipend

Fees, offerings, gifts and grants , personal expenses

•	and vicarage or manse expenses paid for you, living

•	accommodation vouchers and credit cards, ,

•	round-sum expenses and rent allowances,

•	mileage allowances

Other income of your post or appointment

Benefits and expenses payments received

Car and car fuel benefits, vicarage or manse services

•	and benefits, interest-free and low-interest loans

Other benefits and expenses payments made to you

Taxable income, benefits and expenses received

Expenses paid out as a minister of religion

Rent, maintenance, repairs and insurance of

•	vicarage, manse etc., travelling expenses and capital

•	allowances, books, stationery, postage and telephone

Robes and expenses of divine service, secretarial

•	expenses, service benefit cap, other expenses

Other income as a minister of religion

Chaplaincy income

Any other income as a minister

Clergy pension

Lump sum and compensation payments

•	including such payments from a Church in

•	which you formerly held an office or employment

Foreign earnings and foreign earnings deduction

Foreign tax

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for the Ministers of Religion Pages are available from the Orderline.

IR125: Using your own car for work

IR134: Income Tax and relocation packages

IR136: Income Tax and company vans - a guide for employees and employers

IR201: Vouchers, credit cards and tokens

IR202: Living accommodation

IR203: Car benefits and car fuel benefits

IR204: Lump sums and compensation payments

IR205S:Foreign Earnings Deductions for Seafarers

IR206: Capital allowances for employees and office holders

IR207: Non-taxable payments or benefits for employees

IR211: Employment - residence and domicile issues

IR214: Service benefits connected with job-related living accommodation

Booklet 480: Expenses and Benefits - A Tax Guide

Filling in the Ministers of Religion Pages

Gather together the material you need, such as:

your P60 (or a P14 if you operated PAYE directly yourself)

P11D, P9D or equivalent information if you received benefits or expenses payments

receipts for allowable expenditure you have incurred

any Help Sheets you have asked for

Fill in these Pages if you were:

a minister of religion holding any post or appointment as such, or

an employee and the duties of your employment consisted of acting wholly or substantially as a minister of religion

Why separate Pages for ministers?

Some tax rules apply only to clergymen and ministers of religion.  Also the sorts of income you get and the expenses you incur may be different from other taxpayers.  These Notes will help you to understand the special rules, give you some guidance about various sorts of income and tell you what expenses you can deduct to get your taxable amount.

How are ministers taxed?

The same tax rules to ministers of all faiths, religions and denominations.  These notes cover tax law in general terms and for brevity use some common words.  For example references to a ‘church’ include references to a mosque, stupa, synagogue, temple, and so on, and any body of persons representing or acting on behalf of these. ‘Vicarage or manse’ includes any building in which you reside and from which you perform the duties of your ministry.

If the particular circumstances of your ministry are not covered in these Notes, ask your Tax Office or tax adviser for guidance.  Most ministers are office holders or employees and pay tax on the income from any offices or employments they hold.  These Pages cater for this income.  If you think you are self-employed, ask the Orderline for the self-employment Pages.

What income should I include?

Include any income connected with your posts or appointments as a minister, such as fees from weddings and funerals, and chaplaincy income.  Enter income not connected with your ministry (or capital gains) elsewhere in your Tax Return.  See you Tax Return Guide for help.

Income as a minister of religion

Income

Give details of the full amount of your gross income before expenses, even if you have made over some of that income to a charity.  If you made payments to a charity under a deed of covenant, or if you wish to claim Gift Aid relief, enter the amounts paid in boxes 15.9 and 15.10 on page 5 of your Tax Return, after reading the notes on page 22 of our Tax Return Guide.

Salary or stipend

boxes 1M.1 and 1M.2  Enter have the gross amount (before Income Tax and National Insurance Contributions are taken off) you received in the tax year and the PAYE tax deducted.  These figures will be shown on your P60 (or P45 (Part1A). If your post or appointment ceased in the year).  If you calculated your own PAYE using the Direct Collection or Direct payment procedure, enter the amount shown for the year on your part of the form p14.

Fees

box 1M.3  Enter the total of the fees due to you for services (marriages, burials and cremations for instance), preaching or other activities of your ministry.

If fees are included with your salary in the P60 figure you have entered in box 1M.2, do not enter them again in box 1M.3.

Offerings

box 1M.4  Any offerings or collections that you can keep by right, tradition or custom form part of your taxable income.  Enter the total for the year.

If the offerings are made on Easter day, and two Easter days fall within the same tax year, you may exclude the offerings made on the second Easter day from your taxable income for the year, provided that you include those offerings made on the second Easter day in next ear’s Tax Return (on your Ministers of Religion Pages).

Gifts and grants

boxes 1M.5 and 1M.6  Enter in box 1M.6 the total of any gifts and grants that increase your income and you receive in your capacity as a minister.  Do not include personal gifts, such as birthday presents unconnected with your ministry, or gifts and lump sum grants made to you in order to alleviate hardship peculiar to your own personal circumstances.  Grants given to clergymen generally, rather than by reference to your particular personal circumstances, are taxable and should be included here.  If you are unsure if a grant is taxable ask your tax office or tax adviser.

Enter any tax deducted in box 1M.5.

If a taxable gift is made in kind (for instance, a gift of a motor car), the taxable value depends on whether your earnings were at a rate of £8,500 a year or more (see ‘Benefits and expenses payments received’ on page MN3).  If they were, the taxable value may depend on the nature of the asset and whether it has been used or depreciated before it was given to you.  See Booklet 480 Expenses and benefits - A Guide to Tax, available from the Orderline, or ask your tax office or tax adviser for advice.  If your earnings (including the gift) were at a rate of less than £8,500 a year, the taxable value is what you could sell the gift for, that is, its second hand value.  This value should be used whether or not you actually sell it.

Personal expenses, and vicarage or manse expenses, paid for you.

box 1M.7  Enter the total amount of any personal bills or expenses (for instance, if the Church Council pays a repair bill for your car), and any bills for lighting, heating and maintaining your vicarage or manse for which you are responsible, and which have been paid for you.  You may be able to claim a deduction for some of these amounts.  See the notes on boxes 1M.24 to 1M.32 on pages MN5 and MN6.

If you are a full-time minister and a church corporation or charity provides you with accommodation to live in and from which you perform the duties of your ministry, then certain amounts paid on your behalf or made good to you are not taxable.  These are Council Tax (if payable by you rather than the church), general rates (Northern Ireland), water rates and community water charge (Scotland).  Do not include them in your taxable income.

If your earnings from your post of appointment (including benefits and expenses) were at a rate of less than £8,500 a year, some vicarage expenses are not taxable.  See the note on box 1M.23 for more information, but you must, in any event, give details of the expenses in box 1M.7.

Living accommodation, vouchers and credit cards

box 1M.8  If you are provided with living accommodation from which you carry out your ministry, the value of your private occupation of the accommodation is normally exempt from tax.  However, if your post is administrative rather than pastoral the value of accommodation provided to you is taxable.  Your church may have given you a figure for this.  Ask the Orderline for Help Sheet IR202 Living accommodation of you wish to check this or work out the figure yourself.

Your income, with some exceptions, includes the value of any vouchers and the value of goods or services obtained with a credit card or token provided to you by reason of your post or appointment.  If you need further information so that you can check figures given to you by your church, or work them out yourself, ask the Orderline for help Sheet IR201 Vouchers, credit cards and tokens.  If you used the vouchers or credit card to meet expenses of your job, include the value before any deduction in box 1M.8 and claim a deduction for any allowable expenses in boxes 1M.24 to 1M.32 - see notes starting on page MN5.

Round sum expenses and rent allowances

boxes 1M.9 and 1M.10   Enter the total of any round-sum allowances paid to you, and any tax deducted unless these are included in the figures on your P60.  Also include any allowance paid to you to help you meet rent or mortgage payments.  You may be able to claim a deduction for the expenses you pay out of a round-sum allowance or for part of any rent you pay.  Do this in boxes 1M.24 to 1M.32 - see the notes starting on page MN5.

Mileage allowances

box 1M.11  If you are paid an allowance for using your own car for church business journeys, the amount you receive may be more than the amount of the tax relief you can claim.  The extra of taxable profit - enter this in box 1M.11.  If the amount you receive is less than the amount of the tax relief, the excess can be included in box 1M.26.

Your church may have an arrangement with the Tax Office called a Fixed profit Car Scheme.  In that case, your church may give you details of the profit to be entered in box 1M.11.  Otherwise, please ask he Order line for leaflet IR125: using your own car for work, which explains how to work out the profit or relief.

Other income of your post of appointment

boxes 1M.12 and 1M.13  Enter in boxes 1M.12 and 1M.13 the amount of any other income (and tax on that income) from your post or appointment.  If you hold a chaplaincy because it goes with your post by right, tradition or custom, then include the income from it here.  However, income from chaplaincies that are separate from your main appointment should be included in boxes 1M.35 and 1M.36.

Balancing charges

If you have disposed of an asset for which you have claimed capital allowances, include any balancing charge in box 1M.12.  If you need help, ask the Orderline for Help Sheet IR206 Capital allowances (general), or, if the asset was a car, leaflet IR125; Using your own car for work.

box 1M.14  Add up figures in boxes 1M.1, 1M.5, 1M.9 and 1M.12 and enter the result in box 1M.14.

box 1M.15  Add up figures in boxes 1M.2, 1M.3, 1M.4, 1M.6. 1M.7, 1M.8, 1M.10, 1M.11 and 1M.13 and enter the result in box 1M15.

Benefits and expenses payments received

Enter in boxes 1M.16 to 1M.21 benefits (and expenses payments) provided to you or members of your family or household.

You only pay tax on these if your earnings* from your post or appointment were at a rate of £8,500 a year or more.  Do not enter in boxes 1M.16 to 1M.21 any amounts you have already entered elsewhere.

If your church provides you with benefits or taxable expenses payments, they should have sent details of these to the Inland revenue.  The details are provided on the P11D or equivalent document.  Your church will either give you a copy of this or tell you what is shown on it.

The details you get will not include any items for which your church has a dispensation and you do not need to include these items on your Tax Return.  (A dispensation is an arrangement that your church may have made with the Inland Revenue.  It saves you the trouble of including as income a benefit or expenses payment received, then making a matching claim for allowable expenses you incur.)

The taxable amount of a benefit is called ‘cash equivalent’.  There is more detailed information about this, the £8,500 threshold and the meaning of ‘family or household’ in Booklet 480 Expenses and Benefits - A Tax Guide, available from the Order line.  This booklet also contains further guidance on benefits and expenses.

Including benefits and expenses payments received and after making any adjustments to accommodation service benefits on Help Sheet IR214: Service benefits connected with job-related living accommodation but before deducting allowable expenses.

Car and car fuel benefits

boxes 1M.16 and 1M.17  Enter the cash equivalent of cars made available to you for private use (or to members of your family or household) in box 1M.16.  Your church (or whoever provided the car) should give you a figure.

You also have to pay tax on the benefit of fuel provided for private travel in a car made available to you.  Your church (or whoever provided the fuel) will give you a figure for the fuel charge.  Enter this in box 1M.17.

Ask the Orderline for help Sheet IR203 Car benefits and car fule benefits if you want to check any of the figures or work out the cash equivalent yourself.

If you use your own car for travelling in the performance of your duties,  see notes on boxes 1M.11 and 1M.26.  If you have been given a car outright, see also the notes on box 1M.6.

Vicarage or manse services and benefits

box 1M.18  Enter in box 1M.18 any services or other benefits provided in connection with a vicarage, manse or other premises you occupy.  Exclude any amounts you have put in box 1M.7 (because they were your responsibility).  Examples of what to include here are:

heating, lighting and cleaning bills and expenses of repairing, maintaining and decorating the premises (including the garden) that are the responsibility of the church**.  The cash equivalent is the amount of the bill or expense.  However, you should exclude structural repairs and decoration of the exterior of the premises, and any repairs to fixtures and fittings that would be the responsibility of the landlord if the premises were let to you on a tenant’s repairing lease.  If you need any help, ask your Tax Office or tax adviser

furniture, soft furnishings and other normal domestic effects provided for you use**.  The cash equivalent of these is usually based on 20% of their value when they were first provided as a benefit

domestic services (other than cleaning).  The cash equivalent is the cost of providing these.

If you use the premises partly for performing your duties, apportion the cost of any amount that relates to all the premises and exclude the portion relating to the part used for your duties.  However, if you do this you cannot claim a deduction for expenses (box 1M.25) for the excluded amount

Interest-free and low-interest loans

box 1M.19  Enter in box 1M.19 the cash equivalent of any interest-free or low-interest loan.  Your church (or whoever provided you with the loan) should have given you a figure for this.  For more information about the taxation of interest-free and low-interest loans generally, ask the Orderline for the leaflet IR145: Low-interest loans provided by employers.  This will also explain how to claim any tax relief in box 15.2 or 15.3 of your Tax return if the loan is for a qualifying purpose.

If you are provided with living accommodation that is exempt from tax (see the note on box 1M.8 on page MN2), the taxable amount on these items is subject to a ceiling of 10% of your net earnings (including benefits and expenses).  If you think this applies to you, ask the Orderline for Help Sheet IR214: Service benefits connected with job-related living accommodation.

Other benefits

box 1M.20  Enter in box 1M.20 the cash equivalent of any other benefits you received not covered elsewhere in the Ministers of Religion Pages.  if your church, or some other body, has made payments for you to an unapproved retirement benefits scheme, or you have received payments from an unapproved retirement benefit scheme, do not include these in box 1M.20.  See the notes on boxes 1M.43 to 1M.46.  Cash equivalents are arrived at in different ways, according to the type of benefit.

The cash equivalent of private medical or dental etc. insurance is generally what the benefit cost the person who provided it, minus any amount made good to that person.  If that cost represents benefits for more than one minister or employee, the cash equivalent for each will be based on a proper proportion of the whole amount.

If you were provided with a van, ask the Orderline for leaflet IR136: Income Tax and company vans - a guide for employees and employers.

If an asset has been transferred to you, or an asset other than land has been provided for private use (apart from anything in the note on box 1M.18) see Booklet 480 Expenses and Benefits - A Tax Guide available from the Orderline.

For other benefits, the cash equivalent will generally be what the benefit cost the person who provided it minus any amount made good to that person.  If that amount represents benefits provided for more than one minister or employee, the cash equivalent for each will be based on a proper proportion of the whole amount.  Some of the more common benefits are listed in Working Sheet 1 below.  Use this to help you arrive at a total for box 1M.20

Working Sheet 1 - other benefits

Assets transferred	£
Assets provided for use	£
Telephone(s)	£
Subscriptions	£
Goods or services provided	£
Nursery places provided    (see Booklet 480)	£
Educational assistance provided    (see Booklet 480)	£
Relocation allowances (see note aside)	£
All other benefits (including food)	£
Total                                      A	£

Copy the figure in box A to box 1M.20

Any payments you receive from, or any goods or services provided to you by, your church or representative body when you move house are part of your taxable earnings.  However, if you move house for job purposes and meet certain conditions, the first £8,000 of any help is exempt from tax.

When completing these Pages remember that:

the £8,000 limit applies to the move as a whole and is not a limit for each tax year, and

your church is required to tell the Inland Revenue about the excess of any relocation expenses and benefits over the £8,000 limit.

Your church should give you details of the amount to include in box 1M.20.  More detailed information about relocation packages is in leaflet IR134: Income Tax and relocation packages, available from the Orderline.

Expenses payments made to you

box 1M.21  Enter the total of payments or reimbursements made to you, apart from amounts you have already included in boxes 1M.7 or 1M.10.  Do not include amounts for which the church has a dispensation.  If you want more information about expenses payments, ask the Orderline for Booklet 480 Expenses and Benefits - A Tax Guide.

Taxable income, benefits and expenses received

box 1M.22  Add together figures in boxes 1M.16 to 1M.21

box 1M.23  Enter in box 1M.23 the amount of your taxable income and benefits as a minister of religion.  What this figure is depends on whether your total income, benefits and expenses from your post or appointment were at a the rate of £8,500 (or more) a year, or less than £8,500.

If the income, benefits and expenses of your post were at a rate of £8,500 or more, enter in box 1M.23 the total of boxes 1M.15 and 1M.22.

If you were under the £8,500 threshold you can by concession exclude from your taxable income certain sums paid on your behalf (or reimbursed to you) in connection with a vicarage or manse provided to you by a charity or ecclesiatical corporation.  To do this, complete Working Sheet 2 entering amounts you have included in box 1M.7 for the items shown in the Working Sheet.  Then subtract the total in box B from the figure in box 1M.15 and enter the result in box 1M.23.

Working Sheet 2 - excluded items other benefits

Amounts paid to you or reimbursed to you

•	Heating and lighting		£
•	Cleaning		£
•	Gardening		£
	Total	B	£

Expenses paid out as a minister of religion

These notes tell you about expenses you can deduct in working out the taxable income from your post or appointment as a minister.  You can only deduct expenses that you have borne out of the income (including benefits and expenses payments) of your post or appointment.  If the benefits and expenses payments you receive are not taxable because you are below the £8,500 threshold, then you must not claim a deduction for expenses you meet out of such non-taxable amounts.

Rent

box 1M.24  If you rent a house and part of its is used mainly for your duties as a minister, you may deduct an appropriate part (not exceeding one-quarter) of the rent you pay.

Maintenance, repairs and insurance of vicarage, manse etc.

box 1M.25  If you are a full-time minister and a church corporation or charity provides you with accommodation in which you reside and from which you perform the duties of your ministry, then you may deduct one-quarter of the expenses borne by you in maintaining, repairing or insuring the premises.

The notes on box 1M.32 tell you when you can claim a deduction in other circumstances; for instance, if you are part-time or perform your duties from a house you own.  If you are also claiming a deduction for maintenance, repairs and so on at box 1M.32, you must restrict the one-quarter claimed in box 1M.25 by the amount claimed in box 1M.32.  If you need help with this, ask your Tax Office or tax adviser.

Travelling expenses and capital allowances

box 1M.26  You can deduct travelling expenses where these were necessarily incurred in the performance of the duties of your ministry.

If you used your own car for such business travel and you received a mileage allowance for this, then ask the Orderline for leaflet IR125: Using your own car for work (see notes on box 1M.11 beginning on page MN2).

If you church (or anyone else) did not pay you an allowance you can claim a deduction for the allowable motoring costs.  There are two ways of doing this:

the exact basis, or

the simpler basis

Motoring costs - the exact basis

The allowable motoring expenses are the cost of fuel used on business journeys plus the business proportion of other motoring costs such as maintenance, insurance and vehicle excise duty (road tax).  The business proportion is calculated by reference to the business and total miles travelled in the car in the year.  You will also be able to make a claim for capital allowances.  If you want to work out your allowable motoring expenses and capital allowances, ask the Orderline for leaflet IR125:  Using your own car for work.

You will need to keep records of all your motoring expenses to support this claim.  You will also need to keep details of your business and private mileage in the car during the year.

Motoring costs - the simpler basis

If you prefer it, you can calculate your allowable motoring costs using the following table:

Car engine size	Up to 4,000 business miles(pence per Mile)	Over 4,000 business miles(pence per mile)
Up to 1,000cc	28	17
1,001 - 1,500cc	35	20
1,501 - 2,000cc	45	25
Over 2,000CC	63	36

example

You travelled 6,000 business miles.  Your car has a 1,600cc engine.  Your allowable costs are:

4,000 miles at 45 pence  £1,800

2,000 miles at 25 pence  £   500

Total                              £2,300

You cannot claim capital allowances for your car if you use this method.  This is because the figures in the table already include an element for capital depreciation.

If you choose this method, you need only keep a record of your total business mileage in the car for the year,  and a note of the engine size of the car.

Once you have identified the expenses you wish to claim

Add together:

all the allowable travel costs incurred.  If you have received motor mileage allowance, remember to include only the excess of any allowable expenses over your allowance - ask the Orderline for leaflet IR125: Using your own car for work, which contains a working sheet to work out the excess.

the accommodation/meal costs incurred on business journeys

the other business expenses related to business journeys.  These would include, for example, business telephone calls and fax/photocopying costs etc.  But they do not include the cost of telephone calls home, daily newspapers and personal laundry.

Then enter the total in box 1M.26

As with all expenses claims, you should retain any record of amounts paid and any receipts/vouchers you have in case your Tax Office ask for them.  Do not send them with your Tax Return.

You cannot claim capital allowances on a car if you receive a motor mileage allowance and this has been dealt with under a Fixed Profit Car Scheme (box 1M.11), or the excess of allowable costs over allowances has been worked out using the simpler basis set out above and in leaflet IR125: Using your own car for work.  This is because the figures used in these methods already include an amount for depreciation.

If the duties of your ministry require the use of equipment (such as a computer or reprographic machine or theology reference books) and you are obliged to incur the expense of providing this yourself, you can claim capital allowances.  Ask the Orderline for Help Sheet IR206 Capital allowances (general), which contains some examples showing how to calculate the allowance.

Books

box 1M.27  You can deduct the cost of books you have purchased for use in the conduct of divine service or used directly in the preparation of sermons.  No deduction is available for books or periodicals you use for general background reading.  However, you can claim capital allowances on substantial theological reference books.  See the notes on box 1M.26 on page MN5.

Stationery, postage and telephone

box 1M.28  Deduct the cost of stationery, postage and an appropriate part of telephone costs incurred in carrying out your duties.

Robes and expenses of divine service

box 1M.29  You can deduct the cost of repair or replacement of robes worn in the conduct of divine service under church law or by the custom of a particular church.  You cannot claim for the cost of everyday clothing worn on other occasions.  If you paid for items consumed in divine service, then enter here the amount you spent.

Secretarial expenses

box 1M.30  You can deduct the cost of secretarial assistance, where this is necessarily incurred in the performance of the duties of your ministry.  You cannot deduct sums paid to your spouse for their work as an active member of the church, for example, as leader of a women’s group, or for housekeeping.

Service benefit cap

box 1M.31  If you are over the £8,500 threshold (see ‘Benefits and expenses payments received’ on page MN3) and the service benefits such as heat, light, repairs etc connected with accommodation provided to you exceed 10% of the income of your post, ask for Help Sheet IR214: Service benefits connected with job-related living accommodation. This will tell you how to calculate the reduction, if any, to the amount of your taxable benefits.

Other expenses

box 1M.32  If part of the premises where you live is set aside for use in performing the duties of your ministry, for instance if you set aside a study for church business, then you may deduct part of the cost of lighting, heating, cleaning, maintaining, etc the premises in proportion to the part of the premises so used.  Make sure that any part of the expense of repairs, maintenance, etc claimed here is excluded from an claim you make in box 1M.25.

If it was necessary for you to engage someone to perform temporarily the duties of your office, then you may claim a deduction for the expense.

If in your duties you have to entertain visiting clergy, officers of the church or members of the church on official occasions, you may deduct the cost of providing reasonable entertainment to them.  Entertaining on informal occasions or social gatherings is not allowable.

You may also be entitled to a deduction for annual subscriptions to professional bodies approved by the Inland Revenue and relevant to your work.  If you are entitled to a deduction, the professional body to whom you pay the subscription can tell you how much may be deducted.

Most of the expenses you can claim have been covered in these notes.  You may be able to claim for other necessary expenses you incur solely in performing the duties of your ministry.  Necessary expenses are those that each and every minister in your post would have to meet.  They have to be expenses that you cannot do your job without incurring and they have to be incurred in actually doing the duties of your post.   You may have agreed with the Inland Revenue claims for other items in the past.  If so, you should calculate the amount of allowable expenses on the agreed basis.  If you are uncertain about what you can claim, ask your Tax Office or tax adviser for help.

box 1M.33  Add together the figures in boxes 1M.24 to 1M.32 and enter the result in box 1M.33.

box 1M.34  Enter in box 1M.34 the figure in box 1M.23 minus the figure in box 1M.33.

Other income as a minister of religion

Chaplaincy income

boxes 1M.35 and 1M.36  Enter in boxes 1M.35 and 1M.36 details of any chaplaincy income that is separate from your main appointment.  Do not include chaplaincy income you have put in box 1M.13.

Any other income as a minister

boxes 1M.37 and 1M.38  if you receive any incidental income as a minister not entered elsewhere in the Ministers of Religion Pages, enter the income in box 1M.38 and any tax deducted in box 1M.37.

Clergy pension

boxes 1M.39 and 1M.40  Enter any pension received under a Clergy Pension Measure in box 1M.40 and any tax deducted in box 1M.39.

Lump sum and compensation payments

boxes 1M.43 to 1M.46  Different rules apply to different types of lump sum payments connected with your office or employment as a minister.  You will need Help Sheet IR204 Lump sums and compensation payments, available from the Orderline, if you received a lump sum or compensation payment, a payment from an unapproved retirement benefits scheme, or your church has made a contribution to such a scheme for you, in the 1998-99 tax year.

Use the Help Sheet to work out the figures to put in boxes 1M.43 to 1M.46.

Foreign earnings and foreign earnings deduction

box 1M.48

Foreign earnings

You may not be liable to UK Income Tax in the year ended 5 April 1999 on all your income if:

you have claimed non-residence or non-domicile treatment for the 1998-99 tax year, or split-year treatment for that year (if you were not resident for part of the year), or

you made such a claim in a previous year, and have included income earned in that year in Ministers of Religion Pages, or

you have included income in the Ministers of Religion Pages that relates to a later year and you think that you will be claiming non-residence or non-domicile treatment for that later year, or

you received income in a foreign country that you could not bring to the UK because of exchange controls or a shortage of foreign currency in that country.

Liability may arise, though, in earlier or later years.  It is also possible that you may be liable to income tax in another country.

Use the Working Sheet in Help Sheet IR211 Employment - residence and domicile issues to work out the part of your income and receipts that is not taxable and include this amount in box 1M.48 and make a note of what you have done in the ‘Additional information’ box on Page M2.

Foreign earnings deduction

You can qualify for this deduction if:

you work wholly or partly abroad, and

you remain resident and ordinarily resident in the UK, and

the work abroad is carried out during a ‘qualifying period’ of 365 days or more.

If you think this applies to you, ask the Orderline for Help Sheet IR205 Foreign earnings deduction.

Foreign Tax

box 1M.49  If you have paid foreign tax on your ministry income, you may be able to claim tax credit relief.  Ask your Tax Office or tax adviser for details.  If you want to claim tax credit relief, fill in the Foreign Pages, available from the Orderline, and leave box 1M.49 blank.

If you do not want to claim tax credit relief enter in box 1M.49 the amount of any foreign tax you have paid on the ministry income shown on the Ministers of Religion Pages.

box 1M.50  Add the figures in boxes 1M.14, 1M.41 and 1M.46 together and enter the total in box 1M.50.

box 1M.51  Add up the figures in boxes 1M.34, 1M.42 and 1M.47 - subtract any figures in boxes 1M.48 and 1M.49 - and enter the result in box 1M.51.

Filling in the Ministers of Religion Pages  Why separate Pages for ministers  How are ministers taxed? What income should I include?  Income as a minister of religion  Income  Salary or stipend  Fees, offerings, gifts and grants, personal expenses and vicarage or manse expenses paid for you, accommodation, vouchers and credit cards, round-sum expenses and rent allowances, mileage allowance  Other income of your post of appointment  Benefits and expenses payments received  Car fuel benefits, vicarage or manse services and benefits, interest-free and low interest loans  Other benefits, expenses payments made to you, concessional relief for heating and lighting etc. expenses  Taxable income, benefits and expenses received  Expenses paid out as a minister of religion  Rent, maintenance, repairs and insurance of vicarage, manse etc., travelling expenses  Books, stationery, postage and telephone, robes and expenses of divine service, secretarial expenses, service benefit cap, other expenses   other income as a minister of religion  Chaplaincy income  Any other income as a minister  Clergy pension  Lump sum and compensation payments  Foreign earnings and foreign earnings deductions  Foreign tax


Navigating The Tax Form.
Navigating the Tax Form

Once a tax return has been opened you may display any of the tax return main pages by clicking on the appropriate tab key at the top of the main window. Clicking on the Open button opens the return on page 2 of form SA100.

You may toggle between full and partial screen view by double clicking on the blue toolbar at the top of each Tax Return page or the Life Tax Kit  toolbar.

At any point it is possible to fold over (close) the page being worked upon and return to the main screen by clicking (Windows 95-98) or double clicking (Windows 3.1 and 3.11) the control box at the top of the screen. The next page of the tax return upon which you wish to work may then be selected by clicking on the appropriate Tab Key displayed at the top of the screen.

Within the tax return page you may move from entry to entry by pressing the tab and back tab keys or by using your mouse or pointing device. You may also move directly to another box on the form by clicking on that box.

Inputting data into certain boxes may only be effected via the schedule facility, which is accessed by clicking on the icons depicted by fanned pages.

After you have transferred data from the previous year you will notice that eye buttons have replaced certain of the fanned pages buttons. This provides an at a glance indication that schedules containing data brought forward from the previous year are present.

Clicking a fanned pages button with the right-hand mouse button changes the icon to an "eye". You may toggle between the two styles allowing you to set a visual indication as to which schedules contain data or those schedules you wish to highlight e.g. those containing incomplete data and to which you need to return.

The page may be scrolled by clicking on the scroll bar on the right hand side or by dragging the scroll box with the mouse. At the top and bottom of each page are the Previous Page and Next Page buttons. These work in an identical way to those on the main screen toolbar. Please note that if page 8 is currently displayed clicking the Next Page button will move you to page 1. On the other hand if, for instance, page 1 is currently displayed clicking The Previous Page button will move you to page 8.

You may also navigate the pages of the return form by clicking the Page Up and Page Down buttons.

Whilst the program supports the display of several pages at the same time this is only practical if your computer is running in at least Super VGA mode and preferably using Windows 95-98 as its operating system.

Help button - Click this button to access the Help system. You may also press the F1 key at any time for context sensitive help relating to the current activity on the core return. Where appropriate, the Inland Revenue Note is displayed.

Selecting the F1 key whilst in the process of completing a return brings up the Inland Revenue Note relevant to the section upon which you are working.

Exit button - Click this button to leave the program. The currently opened tax return is automatically saved and closed.


Next Page Button

Next Page Button - Click this button to move to the next page of the clients tax return. If page 12 is currently displaying clicking this button will move to page 1. For more information on navigating the tax form see Navigating The Tax Form.


Non Residence
NOTES ON NON-RESIDENCE ETC:

Filling in your Non-residence etc. Pages

Deciding your residence status

Deciding your ordinary residence status

Split-year treatment

Split-year treatment - capitalgains

Domicile

Tax implications

Double taxation agreements

Non-residents and UK property income

Non-UK residents

Dual residents

Claims for allowances by non-residents

Further advice or information

Table 1 - Scope of liability to Income Tax on employment income

Table 2 - Scope of liability to Income Tax on pension income

Table 3 - Scope of liability to Income Tax on investment income

Table 4 - Scope of liability to Income Tax on self-employment income

Table 5 - Scope of liability to Capital Gains Tax on disposals of assets

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules on non-residence etc. are available from the Orderline. If you live or work abroad, you can contact the Orderline on InternationaAccess code followed by

44541 555664 (fax 44541 555778).

IR20: Residents and Non-Residents etc.

IR58: Going to Work Abroad?

IR205S: Foreign Earnings Deduction for Seafarers

IR211: Employment - residence and domicile issues

IR212: Tax equalisation

IR300: Non-residents and investment income

IR302: Duaresidents

IR303: Non-resident entertainers and sports persons

IR304: Non-residents - relief under Double Taxation Agreement

Filling in your Non-residence etc. Pages

Broadly, you are resident in the UK if you spend at least half of a tax year here, or regularly spend at least a quarter of each tax year here. Normally days of arrival and departure from the UK are ignored in counting the number of days spent in the UK. These Notes will help you to determine whether you are:

not resident in the UK

not ordinarily resident in the UK

entitled to split-year treatment

not domiciled in the UK.

They also explain how residence and domicile affect Income Tax and Capital Gains Tax.

If any of the four categories above applies to you, you should fill in the Non-residence etc. Pages before you filin the rest of your Tax Return to give details of:

income from working wholly or partly outside the UK

pensions from abroad

overseas investment income

a trade or profession carried on wholly or partly outside the UK

chargeable capitagains

claims for allowances

claims for relief from UK tax as a resident of another country or under the terms of the double taxation agreement between the UK and that country.

The Notes explain:

what double taxation agreements are, and how they can reduce the UK tax you pay

what to do if you are a resident in the UK and, for tax purposes, also resident in a country with which the UK has a double taxation agreement

how, in generaterms, the rest of your Tax Return is to be completed, as a result of your tax status

what other information is available.

Deciding your residence status

You can find out your residence status by working through questions 1 to 5.

1. Were you present in the UK at any time during the year ended 5 Apri1999?

If 'NO', you are not resident in the UK. Tick box 9.2 on Page NR1 of the Non-residence etc. Pages. Please also complete boxes 9.9 to 9.16 as appropriate. Go to the section headed 'Deciding your ordinary residence status'.

If 'YES', go to question 2.

2. Were you in the UK for a totaof 183 days or more in the year ended 5 Apri1999?

If 'YES', you are resident in the UK. Tick box 9.1. Go to the

section headed 'Deciding your ordinary residence status'.

If 'NO'

go to question 3, if you have previously been resident in the UK but left before 6 Apri1998, or

go to question 4, if you left during the year ended 5 April 1999, or

go to question 5, if you came to the UK before 6 Apri1999 having previously been not resident in the UK.

3. If you left the UK before 6 April 1998

(a) since your departure have you lived, or do you intend to live, outside the UK for three years or more?

(b) have you, or your spouse, worked full-time outside the UK or have you been abroad for a settled purpose throughout the year ended 5 April 1999?

If 'NO' to (a) and (b), you are resident in the UK. Tick box 9.1. Go to the section headed 'Deciding your ordinary residence status'.

If 'YES' to (a) or (b), go to question 3 (c) below.

(c) have your visits to the UK in the period to April 1999 averaged fewer than 91 days in a tax year (excluding days spent in the UK owing to exceptional circumstances beyond your control, for example illness) over the period of absence or from 5 April 1995 (whichever is the shorter)?

If 'YES' to (c), you are not resident in the UK. Tick box 9.2. Please also complete boxes 9.9 to 9.16 as appropriate. Go to the section headed 'Deciding your ordinary residence status'.

If 'NO' to (c), you are resident in the UK. Tick box 9.1. Go to the section headed 'Deciding your ordinary residence status'.

4. If you left the UK during the year ended 5 April 1999:

were you resident and ordinarily resident in the UK for the year ended 5 April 1998?

If 'YES', you are resident in the UK. Tick box 9.1. Go to the

section headed 'Deciding your ordinary residence status'.

If 'NO', go to question 5.

5. If you came to the UK before 6 April 1999:

(a) when you came to the UK did you intend to remain here for two years or more?

(b) if you came to the UK before 6 April 1998, did you at any time between the date you came and 6 April 1998 anticipate remaining in the UK for two years or more from the date you came?

(c) during the year ended 5 April 1999 did you anticipate remaining in the UK for two years or more from the date you came?

(d) at any time during the year ended 5 April 1999 had you been in the UK for two years or more from the date of your arrival?

(e) if you are remaining in the UK, have you owned or had a lease of three years or more on accommodation in the UK at any time between your arrival and 6 April 1999?

(f) if you came to the UK before 6 April 1994, have your visits to the UK exceeded 363 days (excluding days spent in the UK owing to external circumstances beyond your control) in the four years ended 5 April 1998?

(g) at any time during the year ended 5 April 1999, did you anticipate making visits to the UK that would average 91 days or more a tax year, over a four year period including 1998-99?

If 'YES' to any of questions 5(a) to 5(g), you are resident in the UK. Tick box 9.1. Go to question 6.

If 'NO' to all of questions 5(a) to 5(g), you are not resident in the UK. Tick box 9.2. Please also complete boxes 9.9 to 9.16 as appropriate. Go to question 6.

Deciding your ordinary residence status

If you are resident in the UK year after year, you are 'ordinarily resident' here. You can find out your ordinary residence status by answering questions 6 to 9 (or question 10, if you are a student).

6. Were you resident in the UK in the year ended 5 April 1999?

If 'YES', go to question 7.

If 'NO', you are not ordinarily resident in the UK. Tick box 9.4.

Please also complete boxes 9.17 to 9.24 as appropriate.

7. Were you ordinarily resident in the UK in the tax year ended 5 April 1998?

If 'YES', you are ordinarily resident in the UK. Tick box 9.3.

If 'NO', go to question 8.

8. Were you resident in the UK in each of the four years up to the year ended 5 April 1998?

If 'YES', you are ordinarily resident in the UK. Tick box 9.3.

If 'NO', go to question 9.

9.

(a) When you came to the UK did you intend to remain here for three years or more?

(b) If you came to the UK before 6 April 1998, did you at any time between the date you came and 6 April 1998 anticipate remaining in the UK for three years or more from the date you came?

(c) During the year ended 5 April 1999 did you anticipate remaining in the UK for three years or more from the date you came?

(d) If you are remaining in the UK, have you owned or had a lease of three years or more on accommodation in the UK at any time between your arrival and 6 April 1999?

(e) On 6 April 1998 had you been in the UK for at least three years?

(f) If you came to the UK before 6 April 1994, have your visits to the UK exceeded 363 days (excluding days spent in the UK owing to external circumstances beyond your control) in the four years ended 6 April 1998?

(g) At any time during the year ended 5 April 1999 did you anticipate making visits to the UK that would average 91 days or more in a tax year over a four year period including 1998-99?

If 'YES' to any of questions 9(a) to 9(g), you are ordinarily resident in the UK. Tick box 9.3.

If 'NO' to all of questions 9(a) to 9(g), you are not ordinarily resident in the UK. Tick box 9.4. Please also complete boxes 9.17 to 9.24 as appropriate.

Students

10. If you are a student in the UK for a period of study or education:

(a) was it your intention during the year ended 5 April 1999 to be here for four years or more from the date of your arrival in the UK?

(b) if you came to the UK before 6 April 1998, did you at any time between the date you came and 6 April 1998 anticipate remaining in the UK for four years or more from the date you came?

(c) during 1998-99 were you still in the UK on or after the fourth anniversary of your arrival here?

(d) have you at any time between your arrival here and 6 April 1999 owned or had a lease of three years or more on accomodation in the UK?

(e) on leaving the UK will you be returning regularly for visits that average 91 days or more a tax year?

If 'YES' to any of these questions, you are ordinarily resident in the UK. Tick box 9.3.

If 'NO' to all these questions, you are not ordinarily resident in the UK. Tick box 9.4. Please also complete boxes 9.17 to 9.24 as appropriate.

Split-year treatment

You are either resident or not resident in the UK for the whole of a tax year. However, by concession, the tax year is split in certain circumstances when you come to, or leave, the UK part way through a tax year. By answering the following questions you will be able to

find out whether or not you qualify for split-year treatment for Income Tax purposes. For Capital Gains Tax purposes, as well as

answering questions 11 to 18, you will need to consider the section headed 'Split-year treatment - capital gains' on page NRN4.

If you are resident in the UK for 1998-99 but only came to the UK during the year ended 5 April 1999

11.

(a) Did you come to the UK during the year ended 5 April 1999 intending to remain here for at least three years, having been not ordinarily resident in the UK throughout the year ending 5 April 1998?

(b) Between the date of your arrival in the UK and 5 April 1999, have you owned or had a lease of three years or more on accommodation in the UK?

If 'YES' to either (a) or (b), you are treated as resident from the date of your arrival and entitled to split-year treatment. Tick box 9.6 (make sure you have ticked box 9.1). Please complete box 9.25.

If 'NO', answer question 12.

12. Did you return to the UK during the year ended 5 April 1999 on completion of a period that included at least a whole tax year in full-time employment outside the UK by you or your spouse, and

during this period your visits to the UK totalled fewer than 183 days in any tax

those visits averaged fewer than 91days a tax year?

If 'YES', you are treated as resident from the date of your arrival and entitled to split-year treatment. Tick box 9.6 (and make sure you have ticked box 9.1). Please complete box 9.25.

If 'NO', go to question 13.

13. Did you at any time before 6 April 1999 intend to remain here for at least two years, having been not ordinarily resident in the UK throughout the year ended 5 April 1998?

If 'YES', you are treated as resident from the date of your arrival and entitled to split-year treatment. Tick box 9.6 (make sure you have ticked box 9.1). Please complete box 9.25.

If 'NO', go to question 14.

If you are resident in the UK for 1998-99 but left the UK during the year ended 5 April 1999

14. Were you not ordinarily resident throughout the year ended 5 April 1999?

If 'YES', go to question 15.

If 'NO', go to question 16.

15.

(a) Did you at any time from the date you came to the UK, to the date you left the UK, anticipate remaining here for two years or more from the date you came?

(b) On the date you left the UK had you been here for two years or more?

If 'YES', to (a) or (b), go to question 15(c) below.

If 'NO', you do not qualify for split-year treatment.

(c) Did you leave the UK during the year ended 5 April 1999 to live abroad permanently, and your visits between the date of your departure and 6 April 1999 averaged fewer than 91 days a tax year?

If 'YES', you are treated as resident up to and including the date of your departure and entitled to split-year treatment. Tick box 9.6

(and make sure you have ticked box 9.1). Please complete box 9.26.

If 'NO', you do not qualify for split-year treatment.

16. Did you leave the UK during the year ended 5 April 1999 to live abroad permanently, and

your absence will continue to at least 6 April 2000, and

your visits to the UK between the date of your departure and 6 April 2000 will average fewer than 91 days a tax year?

If 'YES', you are treated as resident up to and including the date of your departure and entitled to split-year treatment. Tick box 9.6 (and make sure you have ticked box 9.1). Please complete box 9.26.

If 'NO', go to question 17.

17. Did you leave the UK during the year ended 5 April 1999 to take up full-time employment abroad, and

your absence and employment will continue until at least 6 April 2000, and

your visits to the UK between the date of your departure and 6 April 2000 will average fewer than 91 days a tax year?

If 'YES', you are treated as resident up to and including the date of your departure and entitled to split-year treatment. Tick box 9.6 (and make sure you have ticked box 9.1). Please complete box 9.26.

If 'NO', go to question 18.

18. Did you leave the UK during the year ended 5 April 1999, having been ordinarily resident, to accompany or join your spouse who had taken up full time employment abroad, and

your spouse's absence and employment and your absence abroad will continue until at least 6 April 2000, and

your visits to the UK between the date of your departure and 6 April 2000 will average fewer than 91 days a tax year, and

if your spouse left the UK during the year ended 5 April 1999, your spouse's visits to the UK between the date of departure and 6 April 2000 will average fewer than 91 days a tax year, or

if your spouse left the UK before 6 April 1998, your spouse's visits to the UK totalled fewer than 183 days in the year ended 5 April 1999 and averaged fewer than 91 days a tax year between the date of departure and 6 April 1999 or between 6 April 1995 and 6 April 1999, whichever is the shorter?

If 'YES', you are treated as resident up to and including the date of your departure and entitled to split-year treatment. Tick box 9.6 (and make sure you have ticked box 9.1). Please complete box 9.26.

If 'NO' to both questions 17 and 18 you do not qualify for split-year treatment.

Split-year treatment - capital gains

You do not qualify for split-year treatment for Capital Gains Tax purposes if:

by answering questions 11 to 18 on pages NRN3 and NRN4 you find you do not qualify for Income Tax purposes, or

you left the UK on or after 17 March 1998 and you were resident or ordinarily resident for tax purposes for any part of at least four out of seven tax years ended 5 April immediately preceding the tax year 1998-99 (that is, 1991-92 to 1997-98 inclusive), or

you returned to the UK on or after 6 April 1998 and you have been resident or ordinarily resident in the UK at any time during the five tax years 1993-94 to 1997-98 inclusive.

If you do not qualify for split-year treatment for Capital Gains Tax purposes and you have made any disposals of assets during the tax year ended 5 April 1999, the chargeable gains and allowable losses should be reported on the Capital Gains Pages. The Capital Gains Pages are available from the Orderline.

Domicile

Domicile is a general law concept. There are many factors that affect

your domicile. Some of the main points you should consider if you

are claiming not to be domiciled in the UK are:

you are normally domiciled in the country where you have your permanent home

you cannot be without a domicile

you can only have one domicile at any given time

your existing domicile is presumed to continue until it is proven that a new domicile has been acquired

domicile is distinct from nationality or residence.

There are three types of domicile for Income Tax and Capital Gains Tax purposes:

domicile of origin

domicile of choice

domicile of dependency.

Domicile of origin

You normally acquire a domicile of origin from your father when you are born. It need not be the country in which you were born. A domicile of origin may change as a result of adoption but not otherwise. A domicile of origin is not easy to displace. For example, if you leave the country of your domicile of origin, you will continue to be domiciled there until you acquire a domicile of choice elsewhere.

Domicile of choice

You have a legal capacity to acquire a new domicile at the age of 16. Broadly, to acquire a domicile of choice you must leave your current country of domicile and settle in another country. You need to provide strong evidence that you intend to live there permanently or indefinitely. The following factors will be relevant, though the list is not exhaustive:

your intentions

your permanent residence

your business interests

your social and family interests

your ownership of property

the form of any Will you have made.

If you need help, ask your Tax Office or tax adviser.

Domicile of dependency

Until you have the legal capacity to change it, your domicile will follow that of the person on whom you are legally dependent. If the domicile of that person changes, you automatically acquire the same domicile, in place of your domicile of origin.

Before 1974, married women automatically acquired their husband's domicile. As a married woman, who married before 1974, you retain your husband's domicile until you legally acquire a new domicile.

An exception to this rule is the double taxation agreement between the UK and the USA, which provides that a marriage before 1974 between a woman who is a US national and a man domiciled within the UK, is deemed to have taken place on 1 January 1974.

Relevance of your domicile to your tax liability

Having read the above guidelines, if you think you are not domiciled in the UK you must now decide whether domicile has any immediate relevance to your UK tax liability. If you are not resident and not ordinarily resident in the UK, it will not usually be necessary to consider domicile and boxes 9.5 and 9.27 to 9.31 need not be completed. Work through the following questions.

19. Did you have any income arising abroad or gains on assets situated outside the UK for the year ending 5 April 1999 that will not be wholly remitted to the UK?

20. Have you made (or will you be making) a claim for the year ending 5 April 1999 for UK tax relief on contributions to a non-UK pension scheme or retirement benefit plan, which were incurred out of remuneration you received from an employer who is not resident in the UK?

21. Have your costs for the year ending 5 April 1999, or those of your family, in travelling between the country in which you normally live and the UK, been borne or reimbursed by your employer?

22. In the year ending 5 April 1999 did you have income from an employment:

where the employer was not resident in the UK, and

all the duties of the employment were carried out abroad, and

you have not remitted the whole of the income to the UK?

If 'YES' to any of questions 19 to 22, domicile is relevant for the year ended 5 April 1999. Tick box 9.5. Please also complete boxes 9.27 to 9.31 as appropriate.

If 'NO', to all of questions 19 to 22, domicile is not relevant for the year ended 5 April 1999. Do not fill in boxes 9.5 and 9.27 to 9.31.

Tax implications

Broadly the UK charges tax on:

income arising in the UK, whether the individual to whom it belongs is resident in the UK or not

income arising outside the UK that belongs to individuals resident in the UK

gains accruing on the disposal of assets anywhere in the world, that belong to individuals resident or ordinarily resident in the UK.

Special rules apply in some circumstances, but generally the amount of Income Tax and Capital Gains Tax you have to pay depends on whether you are resident and ordinarily resident in the UK, and in some cases on your domicile.

Application to specific sources of income/gains

The Tables summarise the tax consequences of the tax status you claim. If a Table shows that you are liable to tax, fill in relevant boxes in your Tax Return. If a Table shows that you are not liable, you do not need to put the income or gains concerned in your Tax Return.

If a Table shows that you are liable on a remittance basis, you are liable to UK tax on the amount of your overseas income or gains paid here, or transmitted, or brought to the UK in any way. If this applies, enter the amount of the remittance in the relevant boxes in your Tax Return.

The 'arising' basis

Unless a Table shows that you are liable to Income Tax or Capital Gains Tax on the remittance basis, enter the full amount of income or gain arising from the particular source in the tax year, even if the income or gain is not brought to the UK. In the case of business profits or rental income, the 'full amount of income arising' means the gross income minus allowable expenses. For other sources the 'full amount' is the gross income arising.

The 'remittance' basis

Where a Table shows that you are liable to Income Tax or Capital Gains Tax on the remittance basis, enter in the relevant part of your Tax Return the full amount of the actual sums received in the UK in the tax year, irrespective of the tax year in which the income arose. The amount received in the UK might be less or more than the amount of income or gains arising in the tax year.

Example 1

Ian opened an overseas interest-bearing bank account in 1996-97 and interest arose as follows:

1996-97 £200 1997-98 £400 1998-99 £500

If none of the interest was received in the UK in 1996-97 or 1997-98, but £800 was brought to the UK in 1998-99, he will be liable to UK Income Tax for 1998-99 on £800, even though only £500 arose in that year. He will put £800 in the Foreign Pages.

If, however, the above account had been closed on 31.12.97, the whole of the £600 interest that arose in 1996-97 and 1997-98 could be brought to the UK at any time in the 1998-99 tax year without incurring a UK tax charge.

Example 2

John is resident but not domiciled in the UK. He has an overseas bank account containing £50,000, from the proceeds of selling property overseas of £45,000 (the original cost of which was £30,000) and interest credited for the year of £5,000. If he transfers £35,000 to the UK during the year, he will be liable to tax as follows:

(a) £5,000 will be liable to Income Tax. He will put it in the Foreign Pages. Note that remittances from 'mixed' funds of income and capital are treated primarily as coming from income

(b) £10,000 will be liable to Capital Gains Tax - this is one-third of the amount transferred to the UK (£35,000 minus £5,000). He will put this in the Capital Gains Pages. The fraction is used because immediately before the transfer to the UK the fund contained £50,000, of which £45,000 was proceeds from the disposal of property overseas and one third of that (£15,000) was a gain (£45,000 minus the original £30,000 cost).

Meaning of 'received in the UK'

Income or gains are 'received in the UK' if funds provided in the UK are derived from income or gains arising overseas. The precise way this result is achieved makes no difference. Any commercially recognised form of money, such as cash, notes, cheques, promissory notes, bills of exchange or financial credit, can constitute a remittance.

The money does not have to be physically imported from overseas. It may, for example, be received in the UK from another UK resident, in return for money, or assets representing income or gains, being transferred to them abroad. Nor does the money have to be received by you personally - if it is received by someone else on your authority, for example, in settlement of a debt between you and that person, then a remittance will have occurred.

If you use overseas income or gains to acquire assets that you subsequently bring to the UK, the import of the asset may in some circumstances constitute a 'sum received'. Even where it does not, if at a later date, you sell the asset in the UK, the proceeds will be treated as a taxable remittance of income or gains, to the extent that the funds originally used to acquire the asset were derived from overseas income or gains.

Similarly, if you use overseas income or gains to acquire an asset or investment abroad, and at a later date the asset or investment is sold or encashed and the proceeds transferred to the UK, the proceeds will constitute a sum 'received' and be taxable up to the amount of the overseas income or gains used to acquire the asset in the first place.

If you are in doubt about whether income or gains from abroad have been received in the UK, or the precise amount of that income or gains, ask your Tax Office or tax adviser for assistance.

Double taxation agreements

A double taxation agreement is an arrangement between the governments of two countries to resolve taxation issues affecting them both. Agreements contain detailed provisions designed to eliminate or relieve the double taxation that can occur when income arises in one country to a resident of another. They do this by either exempting the income from tax in one country, or by reducing the rate at which tax is charged in one country and allowing credit for that reduced rate of tax in the other.

The UK has double taxation agreements with the following countries:

Antigua and Barbuda

Argentina

Australia

Austria

Azerbaijan

Bangladesh

Barbados

Belarus	1

Belgium

Belize

Bolivia

Botswana

Brunei

Bulgaria

Canada

China

Côte d'Ivoire (Ivory Coast)

Croatia	2

Cyprus

Czech Republic

Denmark

Egypt

Estonia

Falkland Islands

Fiji

Finland

France

Gambia

Germany

Ghana

Greece

Grenada

Guernsey

Guyana

Hungary

Iceland

India

Indonesia

Ireland (Republic of)

Isle of Man

Israel

Italy

Jamaica

Japan

Jersey

Kazakhstan

Kenya

Kiribati

Korea (Republic of)

Latvia

Lesotho

Luxembourg

Macedonia	2

Malawi

Malaysia

Malta

Mauritius

Mexico

Mongolia

Montserrat

Morocco

Myanmar (Burma)

Namibia

Netherlands

New Zealand

Nigeria

Norway

Pakistan

Papua New Guinea

Philippines

Poland

Portugal

Romania

Russian Federation

St Kitts and Nevis

Sierra Leone

Singapore

Slovak Republic (Slovakia)

Slovenia	2

Solomon Islands

South Africa

Spain

Sri Lanka

Sudan

Swaziland

Sweden

Switzerland

Thailand

Trinidad and Tobago

Tunisia

Turkey

Tuvalu

Uganda

Ukraine

USA

Uzbekistan

Venezuela

Vietnam

Yugoslavia	2

Zambia

Zimbabwe

Notes

1. The UK's agreement with the Soviet Union is to be regarded as in force between the UK and Belarus. The position with regard to former Soviet Republics not listed is less clear, but the UK will in all cases apply the provisions of the agreement on the basis that it is still in force (until such time as new agreements take effect with particular countries).

2. The UK's agreement with Yugoslavia is to be regarded as in force between the UK and Croatia, Macedonia and Slovenia and the Federal Republic of Yugoslavia. The position with regard to the remainder of what was Yugoslavia remains unclear.

Non-residents and UK property income

Even though you may be not resident in the UK you could be liable to UK tax on income arising in the UK, including income from property. This is so whether or not tax is deducted by your letting agent, or tenants if there is no letting agent. You should complete the Land and Property Pages, available from the Orderline.

You are not liable to UK tax if your total UK taxable income (including net property income) is less than any UK tax allowance to which you may be entitled.

A non-resident individual who is entitled to UK property income may, in certain circumstances, apply to receive that income with no tax deducted. Contact your Tax Office for help. You should complete the Land and Property Pages.

Non-UK residents

If you are not resident in the UK but resident in a country with which the UK has a double taxation agreement, you may be able to get relief from UK tax under the terms of that agreement in respect of income arising in the UK from:

pensions (other than UK government pensions) and some annuities

royalties

dividends

interest.

Some agreements require you to be subject to tax in the other country on the income in question, before you get relief from UK tax. The precise conditions for exemption or relief can be found in the relevant agreement. It is not possible to give full details here, as they vary from agreement to agreement. To claim double taxation relief, ask the Orderline for Help Sheet IR304: Non-residents -relief under Double Taxation Agreements and fill in box 9.35 to claim relief. If you require further assistance, ask your Tax Office or tax adviser.

Dual residents

It may be that you are resident in the UK under UK domestic tax law and also resident for the same period in another country under that country's rules (that is, you are 'dual resident'). If the other country is one with which the UK has a double taxation agreement, the agreement will usually provide special rules for determining (but only for the purpose of applying its detailed provisions) in which of the two countries you are regarded as a resident. If you are 'dual resident', you may be entitled to claim the exemptions and reliefs from UK tax granted to residents of that other country.

The rules for determining residence for the purposes of a double taxation agreement can be complex. Broadly, the standard provisions look at criteria such as the availability of a 'permanent home', your personal and economic relations with both countries, where you have an 'habitual abode', and your nationality.

Some of these terms have special meanings and interpretation of them is not always straightforward. Not all agreements have identical rules, or similar effect on tax liability. The precise conditions for exemption or relief can be found in the relevant agreement. If you require further assistance, ask your Tax Office or tax adviser.

If you intend to make a claim, tick box 9.8. Please also complete boxes 9.32 to 9.35 to claim any relief. Ask the Orderline for Help Sheet IR302: Dual residents which gives more information and includes a claim form for completion. You will also need to obtain a certificate from the overseas tax authority showing that they regard you as a resident under the domestic tax law of that country for the period of claim.

Claims for allowances by non-residents

If you are not resident in the UK and you satisfy one of the conditions listed below, you are entitled to the allowances that would be available to you if you were resident in the UK. The conditions are that you:

are a Commonwealth citizen

are a citizen of a state within the European Economic Area (EEA) that is Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Republic of Ireland, Spain, Sweden and the United Kingdom

are or have been employed in the service of the British Crown

are employed in the service of any UK missionary society

are employed in the service of any State under the protection of Her Majesty

are resident in the Isle of Man or the Channel Islands

have previously resided within the UK, and are resident abroad for the sake of your health or the health of a member of your family living with you

are a widow whose late husband, or a widower whose late wife, was employed in the service of the British Crown.

If you satisfy one of the following conditions, you will need to get a certificate from the overseas tax authority stating that you are resident there for tax purposes for the period of the claim, and have documents (for example, a passport) to show that you are a national of that country. Keep the certificate and documents in case they are needed later to support your claim.

The conditions are:

you are a national of Bulgaria, Israel, or

you are a national and also a resident of Argentina, Azerbaijan, Belarus, Bolivia, China, Côte D'Ivoire, Croatia, Czech Republic, Egypt, Estonia, Hungary, Indonesia, Japan, Kazakhstan, Korea, Latvia, Macedonia, Mexico, Mongolia, Morocco, Philippines, Poland, Romania, Russian Federation, Slovak Republic, Slovenia, Sudan, Thailand, Tunisia, Turkey, Ukraine, Uzbekistan, Venezuela, Vietnam, Federal Republic of Yugoslavia, or

you are a resident of Austria, Barbados, Belgium, Falkland Island, Fiji, Finland, France, Germany, Greece, Irish Republic, Kenya, Luxembourg, Mauritius, Myanmar (Burma), Namibia, Netherlands, Norway, Portugal, Singapore, South Africa, Swaziland, Sweden, Switzerland and Zambia.

Unless you were a resident of Fiji, Greece, Irish Republic, Myanmar (Burma), Namibia, Singapore or Swaziland you will not be entitled to personal allowances under the final category if your income consisted solely of dividends, interest and royalties or any combination thereof.

Tick box 9.7 if you are claiming personal allowances.

The double taxation conventions between the United Kingdom and the former Soviet Union, and what was Yugoslavia, allowed claims to be made by nationals who were also residents of these countries. However, the present position in relation to former Soviet and Yugoslav states not listed above is unclear.

Life assurance premium relief

If you ticked boxes 9.2 and 9.7 and have paid premiums on a life assurance policy taken out before 14 March 1984, you may be entitled to claim relief on gross premiums paid. If you consider you are entitled to claim such relief, contact Financial Intermediaries and Claims Office (International) at the address given below*.

Further advice or information

More detailed information can be found in booklet IR20: Residents and Non-Residents, and leaflet IR58: Going to Work Abroad? You can get these from the Orderline.

Special rules apply to some people working abroad and also to members of visiting forces who are posted to the UK. Further guidance may be obtained as follows:

Crown employees (for example, civil servants, diplomats, members of the armed forces)

HMIT Cardiff 4  (Technical Unit) Foreign Section Ty-Glas  Llanishen Cardiff Wales CF4 5GN (Tel: 01222 753271)

European Community (EC) employees and also members of visiting forces who are posted to the UK

Financial Intermediaries and* Claims Office (International) St John's House . Merton Road Bootle Merseyside England L69 9BB (Tel: 0151 472 6000)

Employees working in oil and gas exploration and extraction industries (where East the employer is not resident in the UK)

Foreign Group, HMIT Centre 1 Queensway House Kilbride Glasgow Scotland G79 1AA (Tel: 013552 75000)

Merchant Navy seafarers

Marine Section, HMIT Cardiff 1 Ty-Glas Llanishen Cardiff Wales CF4 5FN (Tel: 01222 753271)

Non-resident entertainers and sports persons

Foreign Entertainers Unit 2nd floor Royal House Prince's Gate 2-6 Homer Road Solihull West Midlands England B91 3WG (Tel: 0121 606 2861/2/3)

Table 1 - Scope of liability to Income Tax

	Residence status  3 and whether domiciled in UK	Employment performed wholly or  partly in the UK:	Employment performed wholly outside the UK 5
		-  in the UK	-  outside the UK
Foreign emoluments1and 4	Resident and ordinarily resident, not domiciled	Liable - less possible deduction 2	Liable - less possible deduction 2	Liable on the remittance basis - see notes
	Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis  - see notes	Liable on the remittance basis  - see notes
	Not resident not domiciled	Liable	Not liable	Not liable
Other earnings 4	Resident and ordinarily resident, domiciled	Liable - less possible deduction 2	Liable - less possible deduction 2	Liable - less possible deduction 2
	Resident and ordinarily resident, not domiciled	Liable - less possible deduction 2	Liable - less possible deduction 2	Liable - less possible deduction 2
	Resident but not ordinarily resident, domiciled	Liable	Liable on the remittance basis - see notes	Liable on the remittance basis - see notes
	Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis - see notes	Liable on the remittance basis - see notes
	Not resident	Liable	Not liable	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

1)	Foreign emoluments' is the term used in the Taxes Acts to mean the earnings of someone who is not domiciled in the UK and whose employer is not resident in the UK (nor in the Republic of Ireland).

2)	If you think that you may qualify for a Foreign Earnings Deduction for Seafarers, ask the Orderline for Help Sheet IR205S: Foreign Earnings Deduction for Seafarers.

3)	If your residence and domicile status is anything other than resident and ordinarily resident and domiciled in the UK and you worked overseas during the year, you should refer to Help Sheet IR211: Employment - residence and domicile issues before completing the Employment Pages.

4)	If you are tax equalised by your employer, you should refer to Help Sheet IR212: Tax equalisation before completing the Employment Pages.

5)	If you hold an office or employment but no liability to UK Income Tax arises on the earnings, you do not need to complete the Employment Pages for that office or employment. Tick 'Yes' at Question 1 on page 2 of your Tax Return and make a note in the 'Additional information' box on page 8 explaining your circumstances.

If you held two or more offices or employments with the same employer or associated employers and emoluments from, say, one are chargeable to UK Income Tax but from the other are not, you should complete the Employment Pages for both or all of the associated employments. If you are unsure, contact your Tax Office for advice.

Table 2 - Scope of liability to Income Tax on pension income *

If Table 2 shows that you are liable to Income Tax on pension income complete:

boxes 11.1 to 11.13 as appropriate on page 4 of your Tax Return

the Foreign Pages for any overseas pension.

If Table 2 shows that you are not liable to Income Tax on overseas pension income, you need not complete the Pages for that income.

	Paid by, or on behalf of a person:
Residence status and whether domiciled in UK	- in the UK	outside the UK (overseas pension)
Resident and ordinarily resident, domiciled	Liable	Liable 1
Resident and ordinarily resident, not domiciled	Liable	Liable on the remittance basis 2  - see notes
Resident but not ordinarily resident, domiciled	Liable	Liable 1 and 3
Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis 2  - see notes
Not resident	Liable 4 and 5	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

1)	Less 1\10 th deduction.

2)	Pensions arising in the Republic of Ireland are liable on the arising basis minus 1 Ú10 th deduction. In the case of Irish Government pensions this applies only if the pensioner is solely a UK national.

3)	Commonwealth or Irish citizens are liable on the remittance basis and the 1 Ú10 th deduction is not due other than on pensions arising in the Irish Republic when Note 2 applies.

4)	Where the pension is paid by an employer or their successor in the UK for an employment carried out abroad, that pension will not be liable to UK Income Tax. An employment is regarded as having been carried on abroad if:

the last ten years' service for which the pension is paid was abroad, or

the service abroad amounted to

half the total service for which the pension is paid was abroad, and

at least ten of the last 20 years.

This note does not apply to a UK or Northern Ireland Crown employment pension.

5)	The tax charge on National Insurance retirement pensions is limited to the amount, if any, deducted at source. If you have any such income and you intend to calculate your tax, ask the Orderline for Help Sheet IR300: Non-residents and investment income.

Table 3 - Scope of liability to Income Tax on investment income

If Table 3 shows that you are liable to Income Tax, complete the following parts of your Tax Return, relevant to each source of income:

for income from UK savings and investments - see boxes 10.1 to 10.32 on page 3 of your Tax Return

for rent or income from UK land or property - see the Land and Property Pages

for other income from UK investments - see page 4 of your Tax Return and the Trusts etc. Pages

for income from investments outside the UK - see the Foreign Pages.

If Table 3 shows that you are not liable to Income Tax, you need not complete the Tax Return for that particular source of income. You can therefore answer 'No' to the second part of Question 6 on page 2 of your Tax Return, where there is no liability in respect of income or benefit resulting from a transfer of assets.

	Investment income:	UK government securities
Residence status and whether domiciled in UK	- arising in   the UK	- arising outside     the UK
Resident and ordinarily resident, domiciled	Liable	Liable	Liable
Resident and ordinarily resident, not domiciled	Liable	Liable on the remittance basis 1 and 5 - see notes	Liable
Resident but not ordinarily resident, domiciled	Liable	Liable 2	Not liable
Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis 1 - see notes	Not liable
Not resident but ordinarily resident, domiciled	Liable 3	Not liable 4	Liable
Not resident but ordinarily resident, not domiciled	Liable 3	Not liable 4 - unless footnote 5  below applies	Liable
Not resident and not ordinarily resident, domiciled	Liable 3	Not liable 4	Not liable
Not resident and not ordinarily resident, not domiciled	Liable 3	Not liable 4	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

1)	Income arising in the Republic of Ireland is liable on the arising basis.

2)	Commonwealth or Irish citizens are liable on the remittance basis, except for income arising in the Republic of Ireland.

3)	Income from property in the UK, and investment income connected to a trade carried on in the UK through a branch or agency are liable to Income Tax in the normal way. The tax charge on other income covered by Table 3 is limited to the amount of tax, if any, deducted at source. If you have any income within this latter category and you intend to calculate your tax, ask the Orderline for Help Sheet IR300: Non-residents and investment income.

4)	In the case of any gain under a life insurance policy, contract for life annuity, or capital redemption policy, only applies if the policy or contract was made outside the UK with an insurance company not resident in the UK or with an overseas branch of an insurance company resident in the UK, and the policy proceeds are not payable in the UK. If you need help ask your Tax Office or tax adviser.

5)	If you have received a benefit in the UK from an overseas trust, company or other entity (see Notes on Foreign pages FN9 and FN10), it should be entered in the appropriate boxes on the Foreign Pages to the extent that it could have been paid out of any income that has not already been paid away by that overseas trust, company or other entity. If you need help, contact Special Compliance Office, (Section 739 Group), The Triad, Stanley Road, Bootle, Merseyside L69 9EJ. Telephone 0151 300 4037.

Table 4 - Scope of liability to Income Tax on self-employment income

If Table 4 shows that you are liable to Income Tax on self-employment income complete a set of Self-employment Pages for each self-employment and for each set of accounts relevant to the basis period for each self-employment. If Table 4 shows that you are not liable to Income Tax on self-employment income do not complete those Pages for that income.

Residence status and whether domiciled in the UK	Trade, profession or vocation carried on wholly or  partly in the UK	Trade, profession or vocation carried on wholly outside the UK
Resident and ordinarily resident, domiciled	Liable	Liable
Resident and ordinarily resident, not domiciled	Liable	Liable  on the remittance basis 1 - see notes
Resident but not ordinarily resident, domiciled	Liable	Liable 2
Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis 1 see notes
Not resident	Liable 3	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

1)	Income from a trade, profession or vocation carried out wholly in the Republic of Ireland is liable on the arising basis.

2)	Commonwealth (this includes British) or Irish citizens are liable on the remittance basis unless the trade or profession is carried out wholly in the Irish Republic when Note 1 applies.

3)	Complete the Self-employment Pages to show profits attributable to the UK. Special rules apply to financial trades carried on through certain UK brokers and investment managers which generally limit the liability to tax deducted at source. Ask your Tax Office or tax adviser.

Table 5 - Scope of liability to Capital Gains Tax on disposals of assets*

If Table 5 shows that you are liable to Capital Gains Tax, complete the Capital Gains Pages.

If Table 5 shows that you are not liable to Capital Gains Tax, do not complete those Pages for these assets.

	Gains on disposal of:
Residence status and whether domiciled in UK	- UK assets	- overseas assets
Resident and ordinarily resident, domiciled	Liable	Liable
Resident and ordinarily resident, not domiciled	Liable	Liable on the remittance basis - see notes
Resident but not ordinarily resident, domiciled	Liable 1	Liable
Resident but not ordinarily resident, not domiciled	Liable 1	Liable on the remittance basis  - see notes
Not resident but ordinarily resident, domiciled	Liable	Liable
Not resident but ordinarily resident, not domiciled	Liable	Liable on the remittance basis  - see notes
Not resident and not ordinarily resident, domiciled	Not liable 2	Not liable
Not resident and not ordinarily resident, not domiciled	Not liable 2	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

1)	There is no liability if the disposal is of certain UK government securities.

2)	Liability will arise if the assets were used or held for the purposes of a trade, profession or vocation carried on in the UK through a branch or agency or by the branch or agency.

Filling in your Non-residence etc. Pages  Deciding your residence status   Deciding your ordinary residence status   Split-year treatment   Split-year treatment - capitalgains   Domicile   Tax implications  Double taxation agreements  Non-residents and UK property income  Non-UK residents  Dual residents  Claims for allowances by non-residents   Further advice or information  Table 1 - Scope of liability to Income Tax on employment income  Table 2 - Scope of liability to Income Tax on pension income  Table 3 - Scope of liability to Income Tax on investment income  Table 4 - Scope of liability to Income Tax on self-employment income  Table 5 - Scope of liability to Capital Gains Tax on disposals of assets


Non Residence Q9
Non Residence ETC. Q9

Make sure you fill In the Non-residence etc. Pages first if, in the period 6 April 1998 to 5 April1999, you consider yourself to be any of the following:

not resident in the UK

not ordinarily resident in the UK

entitled to 'split year treatment' - if you are resident for one part of the year, and not resident for the other

not domiciled in the UK, and it is relevant to your Income Tax or Capital Gains Tax liabilities

resident in the UK while also resident in a country with which the UK has a Double Taxation Agreement - there is a list of agreements in the Notes for the Foreign Pages.

The Notes for Non residence etc. Pages include relevant contact telephone numbers for certain groups with their own rules, for example, foreign entertainers and sports persons.

If you live or work abroad, you can contact the Helpline on: International Access code followed by 44541 555445

and the Orderline on:

International Access code followed by 44541 555664 (fax 44541 555778)


Open Button

Open Button - Click this button to open a tax form. If another tax form is already open it is automatically saved and closed. For more information see Opening A Tax Form.


Opening a Clients Tax Form
Opening a Tax Form

Click the Open Tax Return button and the Grid in the upper left hand corner of the Open Tax Return screen displays details of the two default descriptions contained within the program or the names that you have previously entered. Click on the name of the person upon whose return you wish to work and the details relevant to that person are displayed on the screen.


Operational Notes

Opening a tax form

Navigating the tax form

Completing a tax return

Printing a tax form

Computing tax liabilities

Backing up and Restoring the Tax Database

Technical Information


Pages 3 to 8

Step 3

Fill In pages 3 to 8 of your Tax Return

Remember to fill in Question 18 if you have calculated your tax bill.

Finally, sign and date the Declaration and send your completed Tax Return back to me. Do not include your financial records. Keep them safe.


Partnership
Notes on Partnership (short version)

CONTENTS

Filling in the Partnership Pages

The Partnership Tax Return

The Partnership Statement

If you were a member of more than one partnership or the partnership carried on more than one business

Changing between self-employment and partnership

If the partnership disposed of any chargeable assets

Pension payments

Partnership details

Your share of the partnership's trading or professional income

Class 4 National Insurance Contributions

Investment income

Your share of taxed income and tax paid

Glossary

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for partnerships are available from the Orderline.

IR220: More than one business

IR222: How to calculate your taxable profits

IR224: Farmers and market gardeners

IR227: Losses

Filling in the Partnership Pages

You must fill in the Partnership Pages if, at any time during the 1998-99 tax year, you were entitled to a share of profits, losses or income from a business which you carried on in partnership.

But read the note in the next column if you carried on the same business in partnership and as a sole trader during the year.

The Partnership Tax Return

You are jointly responsible, with your partners, for making a Partnership Tax Return for 1998-99. The records used to complete it should be kept until at least 31 January 2005 in case your Tax Office asks to see them.

Each partner who was a member of the partnership during the return period will be liable to an initial automatic penalty of £100 if the completed Partnership Tax Return is not sent back to me on time. Penalties are also chargeable on each partner if the Partnership Tax Return is incorrect through the fraud or negligence of any partner. The Inland Revenue will normally have until 31 January 2001 to decide whether an enquiry is necessary to check the accuracy of the figures in the Partnership Tax Return.

The Partnership Statement

The Partnership Tax Return includes a summary of the share of profits, losses or income allocated to you during any period for which you were a member of the partnership. This summary is called the 'Partnership Statement' and you should use the information in that Statement to complete your Partnership Pages.

If the partnership makes up its accounts to more than one accounting date in 1998-99, then it may have been required to complete a separate Partnership Statement for each period.

There are two types of Statement:

a 'full', unabridged, version covering all the possible types of partnership income you might receive, and

a 'short', abridged, version for partnerships that only have trading income and interest with tax deducted from banks, building societies or other deposit takers.

If your partnership completes a full Partnership Statement, you will need to ask the Orderline for the full Partnership Pages and transfer the figures to those Pages.

Most partnerships will complete the short Partnership Statement and I have sent you the Partnership Pages for it. The notes below explain how to complete the short Partnership Pages. They use technical terms such as 'trade', 'basis period' and so on. They explain these terms as fully as possible, but they are not a comprehensive guide in all circumstances. If you are in doubt about the correct tax treatment of a particular item, ask your Tax Office or tax adviser for advice. There is also a glossary of terms.

If you were a member of more than one partnership or the partnership carried on more than one business

Separate Partnership Statements will be completed:

for each partnership of which you were a member, and

for each business if the partnership carried on more than one business.

In these circumstances you must complete a set of the relevant Partnership Pages for each partnership and/or business. Either photocopy blank pages you already have, or ask the Orderline for more copies. If you use photocopies, please put your name and tax reference at the top.

You should also ask the Orderline for Help Sheet IR220: More than one business. It includes a Working Sheet to deal with special rules for Class 4 National Insurance Contributions.

Changing between self-employment and partnership

Normally you will need to complete the Partnership Pages if you were a partner during the year ended 5 April 1999 and the Self-employment Pages if you were self-employed during that period. Where you carried on the same business during the year, but did so as a sole trader for part of the year and in partnership for part follow the guidance below.

Step 1  Identify your basis period for this year. See the notes for boxes 4.5 and 4.6.

Step 2  Do not treat the date of change from sole trade to partnership, or partnership to sole trade, as requiring an entry in either box 4.3 or 4.4.

Step 3   Check whether the accounts information for any accounting period relating to your basis period has been returned in the Partnership Tax Return.

Step 4   If it has, you should complete the Partnership Pages and calculate your taxable profit or allowable loss for this year. This will be based on:

your share of the partnership profit or loss shown in the Partnership Statement, together with

the profit or loss of any accounting period affecting your basis period during which the business was not carried on in partnership for which you have entered details in boxes 3.11 to 3.70 in the Self-employment Pages.

Step 5   Otherwise, enter the accounts information in boxes 3.11 to 3.70 and 3.93 to 3.109 in the Self-employment Pages and complete boxes 3.71 to 3.92, and box 3.120 in those Pages to calculate your taxable profit or allowable loss for this year. Do not complete the Partnership Pages.

If the partnership disposed of any chargeable assets

The Partnership Tax Return shows details of the chargeable assets disposed of. Do not put details of the capital gains arising on your share of the proceeds from the disposal of partnership assets in these Pages. Put details in the Capital Gains Pages instead, unless

the total value of all the assets you disposed of in 1998-99 (through the partnership or otherwise) is no more than £13,600, and

your total chargeable gains do not exceed £6,800, in which case no tax will be due.

See your Tax Return Guide for more information.

Pension payments

If you want to claim relief for pension payments, contributions to retirement annuities, or additional voluntary contributions, fill in Question 14 on page 5 of your Tax Return.

Partnership details

boxes 4.1 and 4.2  Make sure you complete these boxes for each set of Pages you fill in. Enter the partnership tax reference number in box 4.1 and describe the partnership trade or profession, for example 'farming' or 'contracting', in box 4.2.

boxes 4.3 and 4.4  If you became a partner after 5 April 1998, you should enter that date in box 4.3. If you stopped being a partner before 6 April 1999, you should enter that date in box 4.4.

Your share of the partnership’s trading or professional income

boxes 4.5 and 4.6  You pay tax for 1998-99 on the profits and losses of your 'basis period'. For this purpose the normal basis period rules for trading and professional income are applied to your share of the partnership's profits (and losses), as if that income had arisen to you from a business that you carried on alone. These notes describe this as your 'notional business'. After the first one or two years as a partner, your basis period will be the same as the partnership's accounting period, unless the partnership changes its accounting date. For example, if the partnership's accounting date is 31 December and you became a partner on 1 January 1997, your basis period for 1998-99 is the 12 months from 1 January 1998 to 31 December 1998.

However, your 'notional' business will be regarded as having commenced on the date you became a partner, or if you previously carried on the partnership business on your own account, the date on which you first started that business. It will be regarded as having ceased on the date you ceased to be a partner, or, if you subsequently carried on the business on your own account, the date you ceased to carry on that business.

Full details of the rules used to determine your basis period are in Help Sheet IR222: How to calculate your taxable profits.

Enter the date on which your basis period starts and ends in boxes 4.5 and 4.6 respectively.

boxes 4.7 and 4.8  Your share of the partnership's profit or loss is the amount shown in the Partnership Statement. You should not make any adjustments to that figure other than those described in the next column.

If your basis period is the same as the partnership's accounting period, enter your share of the partnership's profit or loss in box 4.7 (enter a loss in brackets) and ignore box 4.8.

In any other case, you will need to calculate the profit or loss of the basis period by adding together (or subtracting, as appropriate) your share of the profits or losses of the partnership's accounting periods. Enter your share of the profits or loss for the partnership's accounting period ended in 1998-99 in box 4.7 (enter a loss in brackets). If more than one accounting period ends in 1998-99, enter the share of profit for the most recent set of accounts. If no accounting period ends in 1998-99, enter '0' in box 4.7.

To arrive at your profit or loss for your 1998-99 basis period, enter in box 4.8 the amount to be added to, or subtracted from, the figure in box 4.7. If this adjustment means you need to deduct a figure at box 4.8, enter the figure in brackets and remember to subtract it in arriving at your total taxable profit. Help Sheet IR222: How to calculate your taxable profits explains how to calculate the adjustments.

If you carried on the partnership business as a sole trader during any part of your basis period, the adjustment in box 4.8 may

include amounts for:

the partnership's accounting period(s)

the accounting period(s) when you carried on the business alone, for which you have entered details in boxes 3.11 to 3.70 and 3.93 to 3.109 in the Self-employment Pages, or

a combination of the two.

You may not be able to complete box 4.8 because it is impossible for the partnership to prepare the accounts needed to enable you to calculate the adjustment before the latest date for sending your Tax Return. If so, you should provide an estimate, tick box 22.3 in your Tax Return and explain in the 'Additional information' box why you cannot provide a final figure, and enter the date by which you expect to be able to do so.

If, because of your residence status, you are taxable on the remittance basis on profits arising overseas, the amount to be entered in box 4.7 is your share of the partnership profit according to the rules for non-residents (the UK profit only).

boxes 4.9 to 4.11

Overlap profits and relief

If the partnership's accounting date is a date other than 5 April overlaps in your basis periods may occur:

in the first three years after your 'notional' business starts up - see the notes on boxes 4.5 and 4.6, or

in a year in which there is a change in the partnership's accounting date.

You may be able to claim overlap relief for the profit (the overlap profit) which arises in any overlap period. Overlap relief may be due for 1998-99 if:

you ceased to be a partner in 1998-99, or

the partnership's business ceased in 1998-99, or

the partnership changed its accounting date in 1998-99 and your basis period, as shown in boxes 4.5 and 4.6, exceeds 12 months.

Enter in box 4.9 any unused overlap profit (including any unused transitional overlap profit) brought forward from 1997-98; in box 4.10 any overlap profit used in 1998-99; and in box 4.11 any unused overlap profit carried forward to 1999-2000.

Ask the Orderline for Help Sheet IR222: How to calculate your taxable profits which contains instructions on how to calculate overlap profits and how to claim overlap relief.

box 4.12  If the partnership carried on a farming business, you may be able to claim to average your share of two years' profits. Ask the Orderline for Help Sheet IR224: Farmers and market gardeners, which explains this. The amount of the adjustment to enter here is the amount by which the profit for the higher of the two years is reduced by the claim. This entry does not change the amount of any loss in box 4.14.

Also use box 4.12 to claim credit for foreign tax deductions if you are not claiming tax credit relief in the Foreign Pages for foreign tax paid.

boxes 4.13 and 4.14  If box 4.7 and any adjustments in boxes 4.8, 4.10 and 4.12 result in a profit, enter this in box 4.13 and '0' in box 4.14. If the result is a loss, enter this in box 4.14 and '0' in box 4.13, unless you have claimed farmer's averaging. If the result is a loss and you have claimed farmer's averaging enter the profit resulting from the claim in box 4.13 and the loss in box 4.14.

If the partnership made a loss, you may be able to claim tax relief for your share of that loss. If you want information about losses, ask the Orderline for Help Sheet IR227: Losses. If you have now left the partnership, or the partnership's business has now ceased,you should ask for Help Sheet IR222: How to calculate your taxable profits.

Time limits: some claims must be made by 31 January 2001. You should ensure that any claims you wish to make are made within the time limit prescribed. Late claims cannot normally be accepted.

box 4.15  Help Sheet IR227: Losses provides information on how you may claim tax relief on losses. If you wish to offset your 1998-99 loss against other income of 1998-99, enter in box 4.15 the amount you are claiming to offset.

box 4.16  If you want to offset the 1998-99 loss against income of an earlier year, enter the amount of the loss in box 4.16. If you were a member of a partnership which commenced business prior to 6 April 1994 you will need to ask your Tax Office or tax adviser to find out the amount you can claim. If you have already claimed to offset this loss, you should still include it in the entry in box 4.16, and enter the amount repaid in the 'Additional information' box on page 8 of your Tax Return.

box 4.17  Enter in box 4.17 any losses sustained in 1998-99, but not claimed in any other way, that you claim to carry forward against later profits.

boxes 4.18 and 4.19  Enter in box 4.18 any losses sustained in the same business in earlier years that you claimed to carry forward against later profits but have not already used. You can use that loss to offset any profit entered at box 4.13.

Enter in box 4.19 the amount you are deducting up to the figure in box 4.13.

box 4.21  Enter any amounts that have not been included in the partnership accounts but which are needed to calculate your taxable profits; for example, any Enterprise Allowance (sometimes called Business Start-Up Allowance) you received in the year to 5 April 1999. This will normally have been paid to you rather than the partnership and therefore will not have been included in the Partnership Tax Return.

Class 4 National Insurance Contributions

Partners must pay Class 4 contributions on profits from the partnership unless they are 'excepted'. The contributions are a percentage of taxable profits for the tax year between lower and upper profit limits.

box 4.23  You are excepted from paying Class 4 contributions for 1998-99 if you were:

a man aged 65 or over, or a woman aged 60 or over, (this includes a person whose birthday fell on 6 April 1998), or

aged under 16 on 6 April 1998 and the Inland Revenue National Insurance Contributions Office has granted you exception (to apply for exception ask for form CA 2835U, from the Inland Revenue National Insurance Contributions Office), or

not resident in the UK for tax purposes during 1998-99 (ask your Tax Office if you do not know whether this applies to you).

It is possible for certain other people to be excepted from paying Class 4 contributions. If you think you may be excepted because you are a trustee, or a diver or diving supervisor, or a sleeping partner, ask your Tax Office or tax adviser.

Sometimes, where both Class 1 and Class 4 contributions could be due, Class 4 contributions may not be payable. In these circumstances the Inland Revenue National Insurance Contributions Office may agree for your Class 4 contributions to be 'deferred' until your overall contributions can be determined. Only the Inland Revenue National Insurance Contributions Office can agree to deferment and its leaflet CA72 gives further details.

If you were excepted from Class 4 NIC, or the Inland Revenue National Insurance Contributions Office has agreed to defer contributions:

tick box 4.23

enter '0' in boxes 4.24 and 4.25

explain in the 'Additional information' box that you are excepted or deferred, and give the reason.

boxes 4.24 and 4.25  If this was your only business, use the following Working Sheet to arrive at figures to enter in boxes 4.24 and 4.25.

If you have more than one business do not use the Working Sheet. Instead, ask the Orderline for Help Sheet IR220: More than one business.

Working Sheet for NICs (one partnership interest only)

from box 4.22

Taxable profit for 1998-99	A	£

Adjustments to profits chargeable	copy to box 4.24

to NICs (see notes* below)	B	£

Profit for National Insurance	A minus B

Contributions (A minus B)	C	£

Exempt threshold	D	£7,310

Amount chargeable	C minus D

(Maximum £17,910 in box E)	E	£

If you want to calculate your tax, complete box F and copy it to box 4.25 in your Partnership Pages. If you want me to calculate your tax, ignore boxes F and 4.25.

Class 4 NIC due	F	£

(Maximum £1,074 in box F)

*Trading losses of this business from 1997-98 and earlier years that have not yet been set against profits chargeable to Class 4 NIC may be brought forward and set against the Class 4 profits of the same business for 1998-99. (This is because losses that are allowable for tax are also treated as losses arising for the purposes of Class 4 NIC. They may be allowed for Class 4 in the same ways as losses are allowed for tax.)

*Interest can be deducted in calculating Class 4 profits if it is incurred for the purposes of your business but has not been deducted in arriving at your taxable profits. Include any such interest from 1997-98 and earlier years which has not been set against previous Class 4 profits, or which was paid in 1998-99.

Investment income

You must include your share of any partnership investment income in the Partnership Pages - that is, income other than trading or professional income. It will be shown on the Partnership Statement.

You can use the short Partnership Pages if your only share of investment income was interest with tax deducted from a UK bank, building society or other deposit taker. Otherwise you must ask the Orderline for the full version of the Partnership Pages (and Notes) and complete those instead.

Your share of taxed income and tax paid

boxes 4.70 and 4.74  The basis period for all investment income that has had UK tax deducted at source is the year ended 5 April 1999. This is the case even if the partnership carried on a trade or profession.

Enter in box 4.70 your share of any partnership interest with tax deducted from a bank, building society or other deposit taker. Enter your share of the tax deducted in box 4.74. Get the figures from your Partnership Statement.

box 4.75  If the partnership was a subcontractor in the building industry, it may have received some payments under the Construction Industry Tax Deduction Scheme. Enter in box 4.75 your share of any deduction made on account of tax from payments made to the partnership during the period 6 April 1998 to 5 April 1999. Get the figure from your Partnership Statement.

box 4.75A  Enter in box 4.75A your share of tax deducted from trading income (not SC60 deductions).

Glossary

Accounting date The date to which the partnership's accounts are made up.

Basis period The period on which your profits for the tax year are based.

Investment business Any business carried on by the partnership that does not amount to carrying on a trade or profession.

Overlap profits and overlap relief Overlap profits arise when basis periods overlap so that the same profits are taxed in two different tax years. Overlap relief deducts the overlap profits in a later tax year so that over the life of your business you do not pay tax on more profits than you earn.

Trade Any commercial operation supplying goods or services to a customer for profits is likely to be regarded as a trade. If you are in doubt whether you carried on a trade, profession or vocation during 1998-99, ask your Tax Office or tax adviser.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Filling in the Partnership Pages  The Partnership Tax Return  The Partnership Statement  If you were a member of more than one partnership or the partnership carried on more than one business  Changing between self-employment and partnership  If the partnership disposed of any chargeable assets  Pension payments  Partnership details  Your share of the partnership’s trading or professional income  Class 4 National Insurance Contributions  Investment Income  Your share of taxed income and tax paid  Glossary


Partnership (full)
Notes on Partnership (full version)

CONTENTS

Filling in the Partnership Pages

The Partnership Tax Return

The Partnership Statement

If you were a member of more than one partnership or the partnership carried on more than one business

Changing between self-employment and partnership

If the partnership disposed of any chargeable assets

Pension payments

Partnership details

Your share of the partnership's trading or professional income

Class 4 National Insurance Contributions

Investment income

Your share of untaxed income

Income from UK savings

Income from foreign savings

Other untaxed UK income

Other untaxed foreign income

Income from offshore funds

UK land and property

Allowable loss on furnished holiday lettings

Overlap relief - untaxed investment income

Your share of taxed income and tax paid

Accrued income

Glossary

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for partnerships are available from the Orderline.

IR220: More than one business

IR222: How to calculate your taxable profits

IR224: Farmers and market gardeners

IR227: Losses

Filling in the Partnership Pages

You must fill in the Partnership Pages if, at any time during the 1998-99 tax year, you were entitled to a share of profits, losses or income from a business which you carried on in partnership.

But read the note if you carried on the same business in partnership and as a sole trader during this year.

The Partnership Tax Return

You are jointly responsible, with your partners, for making a Partnership Tax Return for 1998-99. The records used to complete it should be kept until at least 31 January 2005 in case your Tax Office asks to see them.

Each partner who was a member of the partnership during the return period will be liable to an initial automatic penalty of £100 if the completed Partnership Tax Return is not sent back to me on time. Penalties are also chargeable on each partner if the Partnership Tax Return is incorrect through the fraud or negligence of any partner. The Inland Revenue will normally have until 31 January 2001 to decide whether an enquiry is necessary to check the accuracy of the figures in the Partnership Tax Return.

The Partnership Statement

The Partnership Tax Return includes a summary of the share of profits, losses or income allocated to you during any period for which you were a member of the partnership. It is called the 'Partnership Statement' and you should use the information in that statement to complete your Partnership Pages.

If the partnership makes up its accounts to more than one accounting date in 1998-99, then it may have been required to complete a separate Partnership Statement for each period.

There are two types of Statement:

a 'full', unabridged, version covering all the possible types of partnership income you might receive, and

a 'short', abridged, version for partnerships that only have trading income and interest received, with tax deducted, from banks, building societies or other deposit takers.

Most partnerships will complete the short Partnership Statement, and the partners can use the short Partnership Pages.

However, you should fill in the full Partnership Pages if your partnership completes the full Partnership Statement.

The following notes explain how to complete the full Partnership Pages. They use technical terms such as 'trade', 'basis period' and so on. They explain these terms as fully as possible, but they are not a comprehensive guide in all circumstances. If you are in doubt about

the correct tax treatment of a particular item, ask your Tax Office or tax adviser for advice. There is also a glossary of terms.

If you were a member of more than one partnership or the partnership carried on more than one business

Separate Partnership Statements will be completed:

for each partnership of which you were a member

for each business if the partnership carried on more than one business.

In these circumstances you must complete a set of the relevant Partnership Pages for each partnership and/or business. Either photocopy blank pages you already have or ask the Orderline for more copies. If you use photocopies, please fill in your name and tax reference on each set.

You should also ask the Orderline for Help Sheet IR220: More than one business. It includes a Working Sheet to deal with special rules for Class 4 National Insurance Contributions.

Changing between self-employment and partnership

Normally you will need to complete the Partnership Pages if you were a partner during the year ended 5 April 1999 and the Self-employment Pages if you were self-employed during that period. Where you carried on the same business during the year, but did so as a sole trader for part of the year and in partnership for part follow the guidance below.

Step 1  Identify your basis period for this year. See the notes for boxes 4.5 and 4.6.

Step 2  Do not treat the date of change from sole trade to partnership, or partnership to sole trade, as requiring an entry in either box 4.3 or 4.4.

Step 3   Check whether the accounts information for any accounting period relating to your basis period has been returned in the Partnership Tax Return.

Step 4   If it has, you should complete the Partnership Pages and calculate your taxable profit or allowable loss for this year. This will be based on:

your share of the partnership profit or loss shown in the Partnership Statement, together with

the profit or loss of any accounting period affecting your basis period during which the business was not carried on in partnership for which you have entered details in boxes 3.11 to 3.70 in the Self-employment Pages.

Step 5   Otherwise, enter the accounts information in boxes 3.11 to 3.70 and 3.93 to 3.109 in the Self-employment Pages and complete boxes 3.71 to 3.92, and box 3.120 in those Pages to calculate your taxable profit or allowable loss for this year. Do not complete the Partnership Pages.

If the partnership disposed of any chargeable assets

The Partnership Tax Return shows details of the chargeable assets disposed of. Do not enter details of the capital gains arising on your share of the proceeds from the disposal of partnership assets in these Pages. Enter details in the Capital Gains Pages instead, unless

the total value of all the assets you disposed of in 1998-99 (through the partnership or otherwise) is no more than £13,600, and

your total chargeable gains do not exceed £6,800, in which case no tax will be due. See your Tax Return Guide for more details.

Pension payments

If you want to claim relief for pension payments, contributions to retirement annuities, or for additional voluntary contributions, fill in Question 14 on page 5 of your Tax Return.

Partnership details

boxes 4.1 and 4.2   Make sure you complete these boxes for each set of Pages you fill in. Enter the partnership tax reference number in box 4.1 and describe the partnership trade or profession, for example 'farming' or 'contracting', in box 4.2.

boxes 4.3 and 4.4  If you became a partner after 5 April 1998, you should enter that date in box 4.3. If you stopped being a partner before 6 April 1999, you should enter that date in box 4.4.

Your share of the partnership’s trading or professional income

boxes 4.5 and 4.6  You pay tax for 1998-99 on the profits and losses of your 'basis period'. For this purpose the normal basis period rules for trading and professional income are applied to your share of the partnership's profits (and losses), as if that income had arisen to you from a business that you carried on alone. These notes describe this as your 'notional business'. After the first one or two years as a partner, your basis period will be the same as the partnership's accounting period, unless the partnership changes its accounting date. For example, if the partnership's accounting date is 31 December and you became a partner on 1 January 1997, your basis period for 1998-99 is the 12 months from 1 January 1998 to 31 December 1998.

However, your 'notional' business will be regarded as having commenced on the date you became a partner, or if you previously carried on the partnership business on your own account, the date you first started that business. It will be regarded as having ceased on the date you ceased to be a partner, or, if you subsequently carried on the business on your own account, the date you ceased to carry on that business.

Full details of the rules used to determine your basis period are in Help Sheet IR222: How to calculate your taxable profits.

Enter the date on which your basis period starts and ends in boxes 4.5 and 4.6 respectively.

boxes 4.7 and 4.8  Your share of the partnership's profit or loss is the amount shown in the Partnership Statement. You should not make any adjustment to that figure other than those described below.

If your basis period is the same as the partnership's accounting period, enter your share of the partnership's profit or loss in box 4.7 (enter a loss in brackets) and ignore box 4.8.

In any other case, you will need to calculate the profit or loss of the basis period by adding together (or subtracting, as appropriate) your share of the profits or losses of the partnership's accounting periods. Enter your share of the profits or loss for the partnership's accounting period ended in 1998-99 in box 4.7 (enter a loss in brackets). If more than one accounting period ends in 1998-99, enter the share of profit for the most recent set of accounts. If no accounting period ends in 1998-99 enter '0' in box 4.7.

To arrive at your profit or loss for your 1998-99 basis period, enter in box 4.8 the amount to be added to, or subtracted from, the figure in box 4.7. If this adjustment means you need to deduct a figure at box 4.8, enter the figure in brackets and remember to subtract it in arriving at your total taxable profit. Help Sheet IR222: How to calculate your taxable profits explains how to calculate the adjustments.

If you carried on the partnership business as a sole trader during any part of your basis period, the adjustment in box 4.8 may include amounts for:

the partnership's accounting period(s)

the accounting period(s) when you carried on the business alone, for which you have entered details in boxes 3.11 to 3.70 and 3.93 to 3.109 in the Self-employment Pages, or

a combination of the two.

You may not be able to complete box 4.8 because it is impossible for the partnership to prepare the accounts needed to enable you to calculate the adjustment before the latest date for sending your Tax Return. If so, you should provide an estimate, tick box 22.3 in the Tax Return and explain in the 'Additional information' box on page 8 why you cannot provide a final figure, and enter the date by which you expect to be able to do so.

If, because of your residence status, you are taxable on the remittance basis on profits arising overseas, the amount to be entered in box 4.7 is your share of the partnership profit drawn up in accordance with the rules for non-residents (the UK profit only).

boxes 4.9 to 4.11

Overlap profits and relief

If the partnership's accounting date is a date other than 5 April then overlaps in your basis periods may occur:

in the first three years after your 'notional' business starts up - see the notes on boxes 4.5 and 4.6, or

in a year in which there is a change in the partnership's accounting date.

You may be able to claim overlap relief for the profit (the overlap profit) which arises in any overlap period.

Overlap relief may be due for 1998-99 if:

you ceased to be a partner in 1998-99, or

the partnership's business ceased in 1998-99, or

the partnership changed its accounting date in 1998-99 and your basis period, as shown in boxes 4.5 and 4.6, exceeds 12 months.

Enter in box 4.9 any unused overlap profit (including any unused transitional overlap profit) brought forward from 1997-98; in box 4.10 any overlap profit used in 1998-99; and in box 4.11 any unused overlap profit carried forward to 1999-2000.

Ask the Orderline for Help Sheet IR222: How to calculate your taxable profits which contains instructions on how to calculate overlap profits and how to claim overlap relief.

box 4.12  If the partnership carried on a farming business, you may be able to claim to average your share of two years' profits. Ask the Orderline for Help Sheet IR224: Farmers and market gardeners, which explains this. The amount of the adjustment to  enter here is the amount by which the profit for the higher of the two years is reduced by the claim. This entry does not change the amount of any loss in box 4.14.

Also use box 4.12 to claim credit for foreign tax deductions, if you are not claiming tax credit relief in the Foreign Pages for foreign tax paid; please also enter the amount in the 'Additional information' box on Page P4.

boxes 4.13 and 4.14  If box 4.7 and any adjustments in boxes 4.8, 4.10 and 4.12 result in a profit, enter this in box 4.13 and '0' in box 4.14. If the result is a loss, enter this in box 4.14 and '0' in box 4.13, unless you have claimed farmer's averaging. If the result is a loss and you have claimed farmer's averaging enter the profit resulting from the claim in box 4.13 and the loss in box 4.14.

If the partnership made a loss, you may be able to claim tax relief for your share of that loss. If you want information about losses, ask the Orderline for Help Sheet IR227: Losses. If you have now left the partnership, or the partnership's business has now ceased, you should ask for Help Sheet IR222: How to calculate your taxable profits.

Time limits: some claims must be made by 31 January 2001. You should ensure that any claims you wish to make are made within the time limit prescribed. Late claims cannot normally be accepted.

box 4.15  Help Sheet IR227: Losses provides information on howyou may claim tax relief on losses. If you wish to offset your 1998-99 loss against other income of 1998-99, enter in box 4.15 the amount you are claiming to offset.

box 4.16  If you want to offset the 1998-99 loss against income of an earlier year, enter the amount of the loss in box 4.16. If you were a member of a partnership which commenced business prior to 6 April 1994, ask your Tax Office or tax adviser to find out the amount you can claim. If you have already claimed to offset this loss, you should still include it in the entry in box 4.16, and enter the amount repaid in the 'Additional information' box on page 8 of your Tax Return.

box 4.17  Enter in box 4.17 any losses sustained in 1998-99, but not claimed in any other way, that you claim to carry forward against later profits.

boxes 4.18 and 4.19  Enter in box 4.18 any losses sustained in the same business in earlier years that you claimed to carry forward against later profits but have not already used. You can use that loss to offset any profit in box 4.13. Enter in box 4.19 the amount you are deducting up to the figure in box 4.13.

box 4.21  Enter any amounts that have not been included in the partnership accounts but which are needed to calculate your taxable profits; for example, any Enterprise Allowance (sometimes called Business Start-Up Allowance) you received in the year to 5 April 1999. This will normally have been paid to you rather than the partnership and therefore will not have been included in the Partnership Tax Return.

Class 4 National Insurance Contributions

Partners must pay Class 4 contributions on profits from the partnership unless they are 'excepted'. The contributions are a percentage of taxable profits for the tax year between lower and upper profit limits.

box 4.23  You are excepted from paying Class 4 contributions for 1998-99 if you were:

a man aged 65 or over, or a woman aged 60 or over, (this includes a person whose birthday fell on 6 April 1998), or

aged under 16 on 6 April 1998 and the Inland Revenue National Insurance Contributions Office has granted you exception (to apply for exception ask for form CA 2835U, from the Inland Revenue National Insurance Contributions Office), or

not resident in the UK for tax purposes during 1998-99 (ask your Tax Office if you do not know whether this applies to you).

It is possible for certain other people to be excepted from paying Class 4 contributions. If you think you may be excepted because you are a trustee, or a diver or diving supervisor, or a sleeping partner, ask your Tax Office or tax adviser.

Sometimes, where both Class 1 and Class 4 contributions could be due, Class 4 contributions may not be payable. In these circumstances the Inland Revenue National Insurance Contributions Office may agree for your Class 4 contributions to be 'deferred' until your overall contributions can be determined. Only the Inland Revenue National Insurance Contributions Office can agree to deferment and its leaflet CA72 gives further details.

If you were excepted from Class 4 NIC, or the Inland Revenue National Insurance Contributions Office has agreed to defer contributions:

tick box 4.23

enter '0' in boxes 4.24 and 4.25

explain in the 'Additional information' box that you are excepted or deferred, and give the reason.

boxes 4.24 and 4.25  If this was your only business, use the following Working Sheet to arrive at figures to enter in boxes 4.24 and 4.25.

If you have more than one business do not use the Working Sheet. Instead, ask the Orderline for Help Sheet IR220: More than one business.

Working Sheet for NICs (one partnership interest only)

from box 4.22

Taxable profit for 1998-99	A	£

Adjustments to profits chargeable	copy to box 4.24

to NICs (see notes* below)	B	£

Profit for National Insurance	A minus B

Contributions (A minus B)	C	£

Exempt threshold	D	£7,310

Amount chargeable	C minus D

(Maximum £17,910 in box E)	E	£

If you want to calculate your tax, complete box F and copy it to box 4.25 in your Partnership Pages. If you want me to calculate your tax, ignore boxes F and 4.25.

Class 4 NIC due	F	£

(Maximum £1,074 in box F)

*Trading losses of this business from 1997-98 and earlier years that have not yet been set against profits chargeable to Class 4 NIC may be brought forward and set against the Class 4 profits of the same business for 1998-99. (This is because losses that are allowable for tax are also treated as losses arising for the purposes of Class 4 NIC. They may be allowed for Class 4 in the same ways as losses are allowed for tax.)

*Interest can be deducted in calculating Class 4 profits if it is incurred for the purposes of your business but has not been deducted in arriving at your taxable profits. Include any such interest from 1997-98 and earlier years which has not been set against previous Class 4 profits, or which was paid in 1998-99.

* Losses arising from Furnished Holiday Lettings are not allowable for Class 4 NIC purposes.

Investment income

You must fill in boxes 4.26 to 4.78 as appropriate if you carried on a business in partnership in 1998-99 and the partnership received any investment income, that is, income other than trading or professional income. Income from which UK tax has been deducted (taxed income) should be entered in boxes 4.68 to 4.78. Other investment income (untaxed income) should be entered in boxes 4.26 to 4.67.

For taxed income, all partners must return the income of the year to 5 April 1999.

For untaxed income, the period for which you must return  income can vary.

You should normally return income for the same basis period as applies to the trade or professional income. Any adjustments you need to make will be of the same type as the adjustment made for your share of trade or professional income. But if the partnership has no trade or professional income, then income should be returned for the year to 5 April 1999 instead.

Your share of untaxed income

boxes 4.26 and 4.27  If the partnership carried on a trade or profession in 1998-99, the basis period for any untaxed income is normally the same as that for your share of the partnership's trade or professional income. Full details of the rules are given in Help Sheet IR222: How to calculate your taxable profits, available from the Orderline. The 'untaxed income' is treated as having been derived from a second 'notional' business that you carried on alone. That business will be treated as having commenced on the date you became a partner and having ceased on the date you ceased to be a partner. Enter the appropriate basis period in boxes 4.26 and 4.27.

You may be required to make adjustments to convert your shares of income for the partnership's accounting periods into your taxable profit for your basis period. These adjustments are equivalent to the adjustments made in box 4.8 for trading or professional income.

If the partnership did not carry on a trade or profession in 1998-99, that is, it carried on a pure investment business, the basis period is the tax year. Enter 6 April 1998 in box 4.26 and 5 April 1999 in box 4.27. No adjustments will be required.

Income from UK savings

boxes 4.28 to 4.30   Enter in box 4.28 your share of the partnership's income from UK savings from which no UK tax has been deducted for the appropriate period in 1998-99. Enter in box 4.29 the adjustment needed, if any, to arrive at the income for your basis period.

Enter in box 4.30 the amount of your share of the partnership's income from UK savings for your basis period.

Include in the figure in box 4.28 the gross amount of your share of any partnership National Savings Bank Ordinary Account interest. Include in box 4.29 any remaining amount of the first £70 exemption that will not be used against personal NSB Ordinary Account interest (personal NSB interest goes in box 10.8 on page 3 of your Tax Return). Include the net taxable amount of your share of partnership NSB Ordinary Account interest in box 4.30.

Income from foreign savings

boxes 4.31, 4.32 and 4.34  Enter in box 4.31 your share of the partnership's income from foreign savings from which no UK tax has been deducted for the appropriate period. Enter in box 4.32 the adjustment needed, if any, to arrive at the income for your basis period which should be entered in box 4.34.

Foreign tax

box 4.33  You can claim tax credit relief in the Foreign Pages, available from the Orderline, for foreign tax paid. You do not have to claim tax credit relief but it is usually to your advantage to do so. Enter in box 4.33 the amount of foreign tax for which you are not claiming tax credit relief. Remember to deduct it before putting the result in box 4.34.

Other untaxed UK income

boxes 4.36 to 4.42  Enter your share of the partnership's other untaxed income for the appropriate period at box 4.37. If there was a loss, enter it in box 4.36. Make adjustments in boxes 4.38 or 4.39 to arrive at the profit (or loss) for your basis period which should be entered in box 4.42.

Enter in box 4.40 the loss sustained in this activity in 1997-98, or earlier years, and which you have claimed to carry forward against later profits. This amount should be deducted from the profit of your basis period to arrive at the taxable profit to be entered in box 4.42. The balance of losses to be carried forward after taking into account any loss sustained in 1998-99 at box 4.36 (as adjusted at box 4.38) should be included in box 4.41.

Other untaxed foreign income

boxes 4.43 to 4.50   Enter your share of the partnership's other foreign income from which no UK tax has been deducted for the appropriate period at box 4.44. If there was a loss, enter the figure in box 4.43. Make adjustments in boxes 4.45 or 4.46 to arrive at the profit for your basis period which should be entered in box 4.50. Enter '0' if a loss.

Enter in box 4.47 the loss sustained in this activity in 1997-98 or earlier years which you have claimed to carry forward against later profits. This amount should be deducted from the profit of your basis period, with the figure in box 4.48, to arrive at the taxable profit to be entered in box 4.50. Enter '0' if a loss. The balance of losses to be carried forward after taking into account any loss sustained in 1998-99 at box 4.43 (as adjusted at box 4.45) should be included in box 4.49.

Foreign tax

box 4.48 and 4.50  You can claim tax credit relief in the Foreign Pages, available from the Orderline, for foreign tax paid. You do not have to claim tax credit relief, but it will usually be to your advantage to do so. Enter in box 4.48 the amount of foreign tax for which you are not claiming tax credit relief. Remember to deduct it from the profit of your basis period before putting the result in box 4.50.

Income from offshore funds

boxes 4.51 and 4.52  Enter your share of the partnership's income from offshore funds for the appropriate period in box 4.51. Enter in box 4.52 the adjustment needed to arrive at the income for your basis period.

Foreign tax

boxes 4.53 and 4.54  You can claim tax credit relief in the Foreign Pages, available from the Orderline, for foreign tax paid. You do not have to claim tax credit relief, but it will usually be to your advantage to do so. Enter in box 4.53 the amount of foreign tax for which you are not claiming tax credit relief. Remember to deduct it from the income of your basis period before putting the result in box 4.54.

UK land and property

boxes 4.55 to 4.59   Enter in box 4.55 your share of the partnership's income or loss from UK land and property for the appropriate period. If there was a loss, enter the figure in box 4.55 in brackets. Enter in box 4.56 the adjustments to arrive at the profit (or loss) for your basis period.

Enter in box 4.57 the loss sustained in this activity in 1997-98, or earlier years, which you have claimed to carry forward against later profits. This amount should be deducted from the profit of your basis period to arrive at the taxable profit or loss to be entered in box 4.59. The balance of losses to be carried forward after taking into account any loss sustained in 1998-99 in box 4.55 (as adjusted by box 4.56) should be included in the entry in box 4.58.

Allowable loss on furnished holiday lettings

boxes 4.60 to 4.63   Enter in box 4.60 your share of the allowable loss from furnished holiday lettings for 1998-99.

If you want to set your share of that loss against other rental income from the partnership, include it in box 4.63 - the amount that you deduct should never exceed the figure in box 4.59.

If you want to set your loss against other income you had in 1998-99, enter the amount you want to claim in box 4.61. But remember, the amount you claim should never exceed the total amount of your taxable income. To set it against 1998-99 capital gains, include it in the entry in box 8.5 of the Capital Gains Pages and not in box 4.61.

If you want to set your losses against income and gains for an earlier year, enter the amount you are claiming in box 4.62. Enter the amount in box 4.62 even if you have already claimed it (and make a note of the amount in the 'Additional information' box).

Overlap relief - untaxed investment income

boxes 4.64 to 4.66

boxes 4.64 to 4.66 Enter in box 4.64 any unused overlap

profit brought forward for your 'notional' business (see page PN4),

in box 4.65 any overlap profit used this year, and in box 4.66 any

unused overlap profit carried forward.

Overlap relief may be due on your share of untaxed investment

income if:

you ceased to be a partner in 1998-99, or

the partnership changed its accounting date.

In such circumstances the relief is to be given first against your total untaxed income. If there is an excess, this can be set off against your total income for 1998-99. Details of how this relief is calculated can be found in Help Sheet IR222: How to calculate your taxable profits.

Normally it will be to your advantage to claim overlap relief against untaxed income which may only be liable at 23% (box 4.67) before any income which may only be liable at 20% (box 4.35). You can claim the relief by:

entering in box 4.65 the amount of available relief up to a maximum of the amount which will reduce the figure in box 4.67 to zero, then

including any unused excess in boxes 4.29 and 4.32 (again, up to the maximum of the amount which will reduce the income in boxes 4.30 and 4.34 to zero), and

finally, including any remaining unused excess in box 4.15 to be set against your other 1998-99 income.

Your share of taxed income and tax paid

boxes 4.68 to 4.78  The basis period for all investment income which has had UK tax deducted at source is the tax year 6 April 1998 to 5 April 1999. This is true even if the partnership carried on a trade or profession

Enter your shares of the partnership's taxed savings income in box 4.68 and other taxed income in box 4.71.

Enter your shares of the Income Tax deducted in box 4.74, the deductions made by contractors on account of tax (SC60 tax) in box 4.75, other tax deducted from trading income (not SC60 deductions) in box 4.75A, tax credits in box 4.76 and notional Income Tax in box 4.78.

boxes 4.69 and 4.71  You can claim tax credit relief in the Foreign Pages, available from the Orderline, for foreign tax paid. Enter in box 4.69 or 4.72 the amount of the foreign tax deducted from income within boxes 4.68 and 4.71 respectively, for which you are not claiming tax credit relief. Remember to deduct it when entering the figures required in boxes 4.70 and 4.73 respectively.

box 4.73  Enter in box 4.73 the total of your shares of partnership income for 1998-99 excluding that income which may only be liable at 20%. This total should include any trading or professional income from box 4.22, any untaxed investment income from box 4.67 and the taxed income from box 4.71 minus any deduction for foreign tax entered in box 4.72.

Accrued income

Accrued income securities include all interest-bearing securities, including permanent interest-bearing shares in a building society, government loan stock and company loan stock, but not shares in a company or National Savings certificates.

You should calculate charges or reliefs for securities you or the partnership have bought, sold or transferred where the next interest payment after the purchase or sale fell between 6 April 1998 and 5 April 1999.

No charge arises and no relief is due for 1998-99 if the nominal value of all your accrued income securities (including your share of any partnership holdings) held at any time in 1998-99 or 1997-98, did not exceed £5,000.

If it did, a charge will arise if you or the partnership purchased securities without accrued interest (ex-dividend) or sold securities with the accrued interest (cum-dividend). The amount of the charge will be the adjustment for the accrued interest not received, that is, the amount by which the purchase price was reduced (purchase ex-dividend) or the sale price was increased (sale cum-dividend).

Again, if your total nominal value exceeded £5,000, a relief will be due if you or the partnership purchased securities with accrued interest (cum-dividend) or sold securities retaining the right to the next interest payment (ex-dividend). The amount of the relief will be the adjustment for the amount of extra interest received, that is the amount by which the purchase price was increased (purchase cum-dividend) or the sale price was decreased (sale ex-dividend). The acting partner will provide details of securities bought and sold, your share of any interest received and any accrued interest or relief.

For each kind of partnership security, combine the charges and reliefs to produce a net figure. Where the charges exceed the reliefs on your share of the partnership securities include the total net amount in box 4.68. Where the reliefs exceed the charges for a kind of security, deduct the excess from the interest received from that kind of security, and enter the reduced amount of interest in box 4.68.

Provide full details of the income, charges and reliefs in the 'Additional information' box on page P4.

Remember to include details of accrued income or reliefs on non-partnership holdings bought and sold, in the relevant part of your Tax Return - see the note on page 11 of your Tax Return Guide.

Glossary

Accounting date The date to which the partnership's accounts are made up.

Basis period The period on which your profits for the tax year are based.

Investment business Any business carried on by the partnership that does not amount to carrying on a trade or profession.

Overlap profits and overlap relief Overlap profits arise when basis periods overlap so that the same profits are taxable in two different tax years. Overlap relief deducts the overlap profits in a later tax year so that over the life of your business you do not pay tax on more profits than you earn.

Trade Any commercial operation supplying goods or services to a customer for profits is likely to be regarded as a trade. If you are in doubt whether you carried on a trade, profession or vocation during 1998-99, ask your Tax Office or tax adviser.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Filling in the Partnership Pages  The Partnership Tax Return  The Partnership Statement  If you were a member of more than one partnership or the partnership carried on more than one business  Changing between self-employment and partnership  If the partnership disposed of any chargeable assets  Pension payments  Partnership details  Your share of the partnership’s trading or professional income  Class 4 National Insurance Contributions  Investment Income  Your share of untaxed income  Income from UK savings  Income from foreign savings  Other untaxed UK income  Other untaxed foreign income  Income from offshore funds  UK land and property   Allowable loss on furnished holiday lettings  Overlap relief - untaxed investment income   Your share of taxed income and tax paid  Accrued income  Glossary


Partnership Q4

Fill in the Partnership Pages to give details of your share of Income If you carried on a trade, profession, vocation or other business, in partnership.

There is a 'short' and a 'full' version of these Pages.

You can use the 'short' version if your only partnership income was a share of trading or professional income, or interest with tax deducted from banks, building societies or deposit takers. You will have received a 'short' Partnership Statement from the Partnership. Use it to complete these Pages.

If you have any other partnership income, ask for the 'full' Partnership Pages and complete those instead.


Paying your tax

Your Statement of Account

If you send me your completed Tax Return by 30 September 1999,I will send you a statement showing how much tax you owe us, or we owe you, before any final payment is due on 31 January 2000. It will also explain how to pay.

It you send me your completed Tax Return after 30 September 1999,I cannot guarantee to process it in time to let you know how much to pay on 31 January 2000, although I will let you have a statement or instruction on how to pay your tax.

This might mean that you have to estimate how much to pay. If you pay too little, you will have to pay interest (and perhaps a surcharge). If you pay too much and have claimed a repayment, I will repay it with any interest due. If you do not claim a repayment I will set the amount due, plus any interest, against your next tax bill.

If you pay tax through PAYE

If you send your Tax Return to me by 30 September 1999, I will, if possible, collect any tax you owe less than £1,000 through your tax code for 2000-2001 (unless you tick box 22.2 in your Tax Return). If for any reason I cannot arrange this, I will let you know in time for you to pay the tax due by 31 January 2000.

If I receive your Tax Return after 30 September, there may not be time for me to provide this service. If your Tax Return is received before the end of November, I will tell you whether I shall be able to collect the tax due through PAYE or whether you need to make a payment on 31 January. In any event no tax bills will be collected through PAYE codes for people whose Tax Returns are received after the end of November.

If you send me your Tax Return after the end of November, you will need to pay any tax due on 31 January and you might have to pay interest (and perhaps a surcharge). If you pay too much and have claimed a repayment, I will repay it with any interest due. If you do not claim a repayment, then I will set the amount due, and any interest, against your next tax bill.

If you make payments on account

Some people may have to make 'payments on account', each normally equal to one half of the previous year's tax liability (net of tax deducted at source and tax credits on dividends). The payments are due on 31 January in the tax year and 31 July following the tax year.

If you needed to make payments on account for the year to 5 April 1999, I will already have sent you a statement of the first payment on account due by 31 January 1999. I will send you another statement in July with details of the second payment on account.

If the payments on account add up to less than you owe for 1998-99, you must pay the difference by 31 January 2000.

If the payments on account add up to more than the tax bill for 1998-99, I will repay the difference if you have claimed a repayment in Question 19 on your Tax Return, or set it against your next tax bill.

When you settle your tax bill for 1998-99 by 31 January 2000 you may also need to make your first payment on account for 1999-2000.

If you have asked me to calculate your tax, I will tell you how much to pay on account.

If you are calculating your tax, the Tax Calculation Guide explains how to calculate your payments on account.

Any Capital Gains Tax included in your 1998-99 tax bill will be excluded from the calculation of your 1999-2000 payments on account. If you have asked me to calculate your tax, I will exclude it from the amount I tell you to pay on account. If you are calculating your tax, the Tax Calculation Guide excludes Capital Gains Tax when you work through the boxes to calculate your payment on account.

You can make a claim to reduce this payment if you expect your tax bill (net of tax deducted at source and tax credits on dividends) to be lower in 1999-2000 than in 1998-99 - see page 10 of your Tax Calculation Guide for further details.

How to pay

Pay to the Accounts Office by one of the following methods:

Bank Giro

Girobank

at a Post Office with cash, or a cheque made payable to 'Post Office Counters Limited'

telephone or PC banking. Ask the Accounts Office for the details you need to give to your bank or building society.

post.

The address of the Accounts Office and further details of how to pay are given on the back of the Statement of Account I will send you.

If you do not pay your tax on time?

Interest will be charged on all late payments from the date the tax becomes due until it is paid. A surcharge will also be made on any tax for the year ending 5 April 1999, which is due by 31 January 2000, but is still unpaid at 28 February 2000. This surcharge will be:

5% of the tax paid late, and will rise to

10% if the tax is paid later than 31 July 2000.

If you pay too much tax

If you do not claim a repayment, then the amount you are owed, plus any interest due, will be set against your next tax bill.

If you do claim a repayment by ticking the 'Yes' box in Question 19, I will repay it, plus any interest due on the amount overpaid.

If your Tax Return is incorrect

If your Tax Return is incorrect and you have:

paid too much tax, then I will repay it, plus any interest due on the amount overpaid, if you have claimed a repayment (otherwise I will set it against your next tax bill), or

not paid enough tax, then I will ask for further tax. I may require you to pay interest, from the original due date, penalties and a surcharge.

If the notice requiring you to make your Tax Return was given after 31 July 1999

If the notice requiring you to make your Tax Return was given after 31 July 1999, you must send it back to me

within two months of the date the notice was given if you want me to calculate your tax, or

by the later of 31 January 2000 and three months after the date the notice was given if you want to calculate your tax.

If the notice requiring you to make your Tax Return was given after 31 October 1999 and you had notified me by 5 October 1999 of income and gains taxable for the year 1998-99, then the tax is due three months after the date the notice was given. In all other cases, the tax is due on 31 January 2000. You will be charged interest on any tax paid after the due date. A surcharge of 5% will also be made on any tax still unpaid more than 28 days after the due date.

The notice requiring you to make your Tax Return is 'given' on the day it is delivered to you. I will normally assume, for example, for the purpose of charging automatic penalties for the late submission of your Tax Return, that delivery will have taken place not more than seven days after the date of issue shown on the front of it.


Previous Page Button

Previous Page Button - Click this button to move to the previous page of the clients tax return. If page 1 is currently displaying clicking this button will move to page 12. For more information on navigating the tax form see Navigating The Tax Form.


Print Button

Print Button - Click this button to print a tax form or a blank tax form. If a tax form is open the system will default to printing the details and will also provide the option to print a blank tax form. For more information on printing tax forms see Printing Tax Forms.


Printing Tax Forms
Printing a Tax Form

Click the Print button to print your tax form (or a blank tax form). If a tax form is open the system will default to printing the details in that form.

The box at the top of the screen shows the first name in the Grid. You may elect to print a blank form by clicking the Blank Form button and revert to printing your tax return by again clicking this button.

The system will print all pages and schedules of the tax return by default. If you do not wish this click those check boxes relevant to the pages you wish to omit. If you clear a check mark in error clicking the check box once again will include it in the printout. If only a few pages are required click the Clear button (this changes to All button) to remove all check marks and then click only those pages you wish to print. Clicking the All button will reset the check marks on all the pages and supplementary pages.

The appropriate supplementary pages are selected as required by checking first on the name of the required page and then the number(s) of the relevant boxes.

Clicking the Pages with entries button ensures only those pages containing data will be printed.

Schedules are selected in a similar way. Click the Select Schedules button to display the schedule selection window and then click on the tab containing those schedules you wish to print and check the schedules to be printed. Alternatively you may select the Only Schedules for Pages to be Printed button.

The program defaults to printing the liability on page 7 of form SA100.

Once you have made your selections click the Exit button to return to the Print Tax Form window and then the Print button to print. As the system activates it displays the page number or schedule it is currently compiling. You may abort the printout by clicking the Abort button displayed whilst printing is in progress. On most computer systems configured to use the Windows Print Manager the tax return will only start printing once it has been fully compiled and will continue to print after the window has finished showing the print progress. During the physical printing process you may continue working on either return form.


Q 10 Did you receive any Income from UK savings and Investments

If you tick the 'No' box, go to Question 11.

Otherwise, check the following lists to see whether the income should be entered in boxes 10.1 to 10.32.

Exclude:

Premium Bond, National Lottery and gambling prizes

interest, dividends and bonuses from a Tax Exempt Special Savings Account (TESSA) unless your TESSA closed before the five years were up - for details ask the Orderline for our leaflet IR114: TESSA - tax free interest for taxpayers

dividends and other income from a Personal Equity Plan (PEP), or interest paid on cash held in a PEP unless you withdrew more than £180 interest - for details ask the Orderline for leaflet IR89: Personal Equity Plans

interest and terminal bonuses under Save As You Earn schemes

the first £70 of interest from a National Savings Ordinary Account

accumulated interest on National Savings Certificates, including index-linked certificates

interest on National Savings Children's Bonus Bonds

interest on Ulster Savings Certificates (if you normally live in Northern Ireland and lived there when you bought the certificates or when they were repaid)

interest awarded by a UK court as part of an award of damages for personal injury or death. If the interest is awarded by a foreign court, ask your Tax Office about Extra Statutory Concession A30

dividends on ordinary shares in a Venture Capital Trust where the shares are within the limit of £100,000 acquired per tax year - for details ask the Orderline for leaflet Venture Capital Trusts (VCTs), A brief guide

adoption allowances paid under the provisions of the Adoption Allowance Regulations 1991 or schemes approved by the Secretary of State for Scotland under Section 51 Adoption (Scotland) Act 1988

if you are a trustee, untaxed interest paid direct by the payer, acting through your authority, to beneficiaries who are entitled under trust to income as it arises.

Annuities under personal pension schemes, or retirement annuity contracts or trust schemes should be included in boxes 11.10 to 11.12. See Notes.

Gains made on UK life insurance policies, life annuities or capital redemption policies go in boxes 12.4 to 12.8. Do not include payments from insurance companies, guaranteed income bonds or similar products. Gains on these products also go into boxes 12.4 to 12.8. See Notes Gains on foreign policies go on the Foreign Pages.

If you are a partner in a business, your share of any partnership investment income goes on the Partnership Pages. If you do not have these Pages, ask the Orderline for them

If you receive annual payments from UK unauthorised unit trusts, these should be entered in boxes 13.1 to 13.3.

Include:

interest from UK banks, building societies or deposit takers. including any interest on current accounts

interest distributions from UK authorised unit trusts or UK open-ended investment companies

FIRST Option Bonds

income from National Savings (other than exclusions listed above)

other savings and investment income. including purchased life annuities and relevant discounted securities

dividends from UK companies, UK authorised unit trusts or UK open-ended investment companies

other distributions

UK scrip dividends

foreign income dividends from UK companies, UK authorised unit trusts, or UK open-ended investment companies

if you are the beneficiary of a bare trust (one in which you have an immediate absolute title to (a share of) the capital and income), enter your (share of) income here. You should not include it in the Trusts etc. Pages. You may need to ask the trustees for details of your (share of) income

accrued income on the transfer of securities.

If you have:

received cash as a result of a merger of two or more building societies, or

received cash, or been issued with shares, or received both cash and shares, as a result of either

a conversion of a building society to a company, or

 take-over of a building society by a company,

there may be liability to either Income Tax or Capital Gains Tax. The building society may be able to tell you whether there is any tax liability. If not, you should ask your Tax Office or tax adviser.

If you have received cash, then:

if the payment is liable to Income Tax (which is likely if you received it following a building society merger), you should enter it in boxes 10.2 to 10.4 in your Tax Return. If you are not sure whether the amount is liable to Income Tax, include it in boxes 13.1 to 13.3, then tick box 22.3 on page 8 of your Tax Return and give full details of the payment in the 'Additional information' box

if the payment is liable to Capital Gains Tax (which is likely if you received it following a conversion or take-over of a building society), you should add the gain on the payment to your other chargeable gains for the year. If the total gains exceed £6,800, or the total proceeds exceed £13,600, fill in the Capital Gains Pages available from the Orderline.

If you have received shares following a building society take-over or conversion, then you may need to supply details only when you dispose of those shares. Ask your Tax Office for details.

If your income from savings and investments is in the 'Include' list above, tick the 'Yes' box and fill in boxes 10.1 to 10.32 in your Tax Return, as appropriate. If not, tick the 'No' box

Children's savings - if you have made gifts to your son or daughter who is under the age of 18, which produce more than £100 gross income in a tax year, the whole of that income should be included on the Tax Return as your savings income.


Q 11 Did you receive a UK pension, retirement annuity or Social Security benefit?

If you tick the 'No' box, go to Question 12.

Otherwise, check the following lists to see whether your pension, or retirement annuity, or benefit should be entered in your Tax Return.

Exclude:

additions to your State pension or Social Security benefits that you get because you have a dependent child. These are not taxable. But additions for adult dependants are taxable and should be included

Jobfinder's grant

Maternity Allowance, which is not taxable. (Statutory Maternity Pay is taxable. Include Statutory Maternity Pay paid by the Department of Social Security in box 11.7 and Statutory Maternity Pay paid by your employer in boxes 1.8 to 1.10 on the Employment Pages)

War widow's pension and some pensions paid to other dependants of deceased Forces and Merchant Navy personnel are not taxable. Sometimes these are not paid, or are reduced, because you get another State pension or benefit such as a pension from overseas. Where this happens, it reduces the taxable amount of the other pension or benefit you receive. Ask 	the Orderline for Help Sheet IR310: War Widow's and  Dependant's pensions, which tells you how to work out the taxable amount

pensions for wounds or disability in military service or for other war injuries

pensions or benefits you get under the rules of another country(even if they are paid to you by the Employment Service or the Department of Social Security on behalf of that other country). These overseas pensions go on the Foreign Pages, available from the Orderline

refunds of surplus funds from additional voluntary contributions. These go in boxes 12.10 to 12.12

purchased life annuities. These go in boxes 10.12 to 10.14

Include:

State Retirement Pension

Widow's Pension

Widowed Mother's Allowance

Industrial Death Benefit Pension (but not Child Allowance)

Jobseeker's Allowance

Invalid Care Allowance

Statutory Sick Pay and Statutory Maternity Pay paid by the Department of Social Security

Taxable Incapacity Benefit

other pensions or retirement annuities paid by someone in the UK. These include pensions or annuities

from a former employerfrom a former employer

from your late husband's or wife's employer

from personal pension plans

from Free Standing Additional Voluntary Contribution schemes

for injuries at work or for work-related illnesses

from service in the armed forces

from retirement annuity contracts or trust schemes (but not purchased life annuities)

income withdrawals from a personal pension plan where the purchase of an annuity has been deferred.

If your pension or benefit is one that should be included, tick the 'Yes' box and fill in boxes 11.1 to 11.12, as appropriate.  Otherwise, tick the 'No' box


Q 13 Did you receive any other income which you have not already entered elsewhere on your Tax Return?

If you tick the 'No' box, go to Question 14.

There are many types of transaction which produce taxable income. Examples include:

all casual earnings not declared elsewhere on the Tax Return, including 'one off' freelance income and underwriting or sub-underwriting commissions

receipts under covenants entered into for genuine commercial reasons which are in connection with the payer's trade, profession or vocation

profits from isolated literary or artistic activities

rental from leasing equipment you own

income received after your interest in a business has ceased, or received following a change in the basis on which the profits of that business are calculated. This applies only if the income would not otherwise have been taken into account for tax purposes during the life of the business - for examples see 'Post-cessation and similar business receipts'.

any recoveries of expenses or debts for which you claimed relief as a post-cessation expense

sale of patent rights if you received a capital sum

annual payments received in the year, including annual payments received from UK unauthorised unit trusts and annual payments paid by former employers which do not constitute the payment of a pension.

If you did receive income that is taxable and you have not included it elsewhere in your Tax Return, tick the 'Yes' box and fill in boxes 13.1 to 13.6 using the notes below. If you are in doubt about what to include, ask your Tax Office or tax adviser.


Q 14 Do you want to claim relief for pension contributions made from your income?

If you tick the 'No' box, go to Question 15.

Tax relief is given at source for contributions to your employer's pension scheme (that is, not a personal pension scheme) deducted from your pay. If this is your only pension provision, tick the 'No' box and go to Question 15.

Otherwise. tick the 'Yes' box and fill in boxes 14.1 to 14.17, as appropriate.

Personal pensions and retirement annuities

You can claim tax relief as a deduction from your earned income for payments to a personal pension plan or to a retirement annuity contract taken out to provide you with benefits on your retirement. Where the contract (or policy) was taken out before 1 July 1988, payments are retirement annuity premiums. Payments to plans (or policies) taken out on or after 1 July 1988 are personal pension contributions. Keep your payment certificates or receipts.

How relief is given

How relief is obtained varies according to whether you are employed or self-employed.

It you are self-employed:

the amount of your payments that qualify for relief is limited to a percentage of your 'net relevant earnings' (see below)

payments to personal pension plans and to retirement annuity contracts are made 'gross', without tax being deducted

 relief is given by reducing the level of your taxable profits.

If you are an employee:

The amount of your payments that qualify for relief is limited to a percentage of your 'net relevant earnings' (see below)

payments to retirement annuities are made gross and relief is given by deduction from your taxable pay

payments to personal pension plans are made by you to the pension provider with the  tax having already been deducted at the basic rate, and no further relief will be due unless you are liable to tax at the higher rate. This always applies even if your contributions are collected by your employer.The basic rate tax relief is reclaimed direct from the Inland Revenue by your pension scheme administrator and added to your plan. But you still have to show the gross payments (that is before tax has been deducted) on your Tax Return. Ask your pension administrator for these amounts if they are not shown on your annual statement.

Net relevant earnings

Net relevant earnings are:

earnings from non-pensionable employment

your self-employed profits as a sole trader (box 3.88 on the Self-employment Pages)

your share of partnership profits (box 4.22 on the Partnership Pages)

any furnished holiday letting profit (box 5.14 on the Land and Property Pages and the figure from your Partnership Statement if you are in a partnership that has furnished holiday letting profits).

Limits to relief

The table below shows the maximum payments qualifying for relief for both personal pensions and retirement annuities. For personal pensions the percentage limits apply to earnings (up to a maximum of £87,600). Any personal payments made by your employer count towards your percentage limit. But you do not get tax relief on your employer's contributions.

If you pay into a retirement annuity contract only, there is no limit on the amount of earnings to which the percentage applies.

Age at 6 April 1998	Personal pensions limit	Retirement annuities - limit
35 or less	17.5%	17.5%
36-45	20.0%	17.5%
46-50	25.0%	17.5%
51-55	30.0%	20.0%
56-60	35.0%	22.5%
61-74	40.0%	27.5%
Ask the Orderline for Help Sheet IR330; Pension payments which includes Working Sheets and explains the limits to tax relief when you make payments to both a personal pension scheme and a retirement annuity contract.

Any personal pension payments which do not qualify for relief must be returned to you or your employer, if appropriate, by your personal pension scheme administrator.

Doctors and dentists

If you are claiming relief for payments to the NHS Superannuation Scheme (see box 14.16) and you are also paying personal pension contributions or retirement annuity premiums, you must deduct your NHS earnings from your net relevant earnings. Ask the Orderline for booklet IR1: Extra Statutory Concessions, which explains how to do this.

Carry back

You can in some circumstances allocate to an earlier year all or part of a payment made in 1998-99 to a personal pension plan or a retirement annuity contract. Payments made in 1998-99 may be allocated to:

1997-98,or

1996-97, but only if you had no net relevant earnings in 1997-98.

You can make your election to carry back payments either by including it in your Tax Return or sending a separate election to your Tax Office before 31 January 2000. Special forms are available for this purpose - form PP43 for personal pension payments and form 43 for retirement annuity payments. If you are an employee, your personal pension administrator will give you the form PP43 which you should complete and return to your scheme administrator. You need only send the form (always copy to your scheme administrator) to your Tax Office where you make your claim outside your Tax Return and you are claiming tax relief at the higher rate. The forms are also available from the Orderline.

Ask the Orderline for Help Sheet IR330: Pension payments. This includes a Working Sheet to help you work out the payments you can carry back.

Payments brought back

Under a carry back election you can also bring back payments already made in 1999-2000 (that is, paid after 5 April 1999 but before you send in your Tax Return). The relief will give rise to a tax credit which will be set against the tax due or repaid as appropriate.

Payments made between the date of filing your Tax Return and 5 April 2000 can be carried back in the usual way. There is no need to wait for your 1999-2000 Tax Return.

If you prefer to make your election earlier, send it to your Tax Office after you have made your payments.

Carry forward of unused relief

In certain circumstances unused relief from earlier years may be carried forward and given for payments which exceed the percentage limit in the year for which the relief is claimed. Ask the Orderline for Help Sheet IR330: Pension payments, which explains more about carry forward and includes Working Sheets to help you.

If you are an employee, your scheme administrator will give you a special form PP42 which you should complete and return to your scheme administrator. You need only send the form (always copy to your scheme administrator) to your Tax Office where you make your claim outside your Tax Return.

Help Sheet IR330: Pension payments

Ask the Orderline for Help Sheet IR330: Pension payments if:

you pay into both a retirement annuity contract and a personal pension plan, or

you bring back payments made after 5 April 1999, or

you carry back payments to a previous year, or

the figure in box 14.5, or 14.10 or 14.15 is more than the appropriate percentage limit of your earnings.

It includes Working Sheets to help you complete the boxes

Qualifying payments

The payments you make to your personal pension plan or retirement annuity contract which qualify for tax relief are normally subject to limits.

These qualifying payments are made up of one or more of the following, each of which is subject to its own limits:

the payment for relief in this tax year up to the percentage limit of your net relevant earnings for the year (see the note on 'limits to relief')

the payment you make in excess of your percentage limit for this tax year to take up unused relief from earlier years (see the note on 'carry forward of unused relief)

the payment you wish to carry back (including the amount you have already taken back) is limited to the relief still available in the earlier year (see the notes on 'carry back' and 'payments brought back').

If you are an employee who makes payments to a personal pension plan, your scheme administrator will check that your payments are within the permissible limits.


Q 15 Do you want to claim any other reliefs?

If you tick the ‘No' box, go to Question 16. Otherwise tick the Yes' box and fill in boxes 15.1 to 15.12, as appropriate, using the notes below.


Q 16 Do you want to claim any allowances?

Everyone gets the personal allowance of £4,195 automatically (except for non-residents, who should check the Non-residence etc. Pages for entitlement to any allowances).

If you were born before 6 April 1934 you may get a higher amount of personal allowance. Fill in box 21.4. If your income was over £16,200 in the year ended 5 April 1999, you may not get the higher amount or it may be restricted.

Other allowances available are:

blind person's allowance

transitional allowance (this allowance is only available for some wives with husbands on low income. To get it in 1998-99 it must have been given in 1997-98)

married couple's allowance

additional personal allowance - available in some circumstances, if you have a child living with you

widow's bereavement allowance

unused married couple's allowance and blind person's allowance (if due) from your husband or wife.

If you are married and you did not have enough income to use up all your married couple's allowance (or, if you are blind, blind person's allowance), you can transfer the unused part to your spouse - see the notes. If you are a married man, and you do not use all your personal allowance, these notes also tell you how you can give your wife transitional allowance in some circumstances.

If you want to claim one or more of these other allowances, tick the 'Yes' box and fill in boxes 16.1 to 16.28, as appropriate, in your Tax Return, using the notes below. You should still fill in any relevant boxes even if you contacterd your Tax Office during the year to claim the allowances. Otherwise tick the 'No' box and go to Question 17.


Q 17 Have you had any 1996-97 tax refunded directly by your Tax Office or DSS Benefits Agency?
Q 17 Have you already had any 1998-99 tax refunded or set off by your Tax Office or DSS Benefits Agency?

If you tick the 'No' box, go to Question 18.

Otherwise tick the 'Yes' box and fill in box 17.1.

box 17.1 Enter in box 17.1 the amount of any repayment of 1998-99 tax you have already received. You should include repayments of any:

SC60 deductions

PAYE tax

tax credits or tax paid on investment income, which have been repaid to you directly by your Tax Office or the DSS Benefits Agency.

You should also include in box 17.1 similar amounts which have not been refunded to you but have been re-allocated to other liabilities, including SC60 deductions set against other liabilities.


Q 18 Do you want to calculate your tax?

If you tick the 'No' box, go to Question 19.

Calculating your tax is optional, but If you tick the 'Yes' box, please do your calculation and fill in boxes 18.1 to 18.9.

I need this information so that I can check that you have got it right.

Your Tax Calculation Guide explains what to put in the boxes.

boxes 18.1 to 18.9


Q 19 Do you want to claim a repayment if you have paid too much tax?

If you tick the No box, go to Question 20.

Otherwise, tick the 'Yes' box to claim a repayment. Fill in boxes19.1 to 19.12, as appropriate. We would prefer not to make repayments of small amounts, because of administrative costs. So if the overpaid tax is below £10 we will normally set it against your next tax bill. But if you do not agree with this set-off, please contact your Tax Office.

If you do not claim a repayment, then any amount you are owed will be set against your next tax bill.

boxes 19.1 to 19.12  Tick box 19.1 if you want the repayment sent to you. You'll receive the repayment sooner if we make it direct to your bank or building society, and you won't have to take the cheque to the bank yourself.

Tick box 19.2 if you want the repayment sent direct to your bank or building society account or to someone else. Fill in boxes 19.3 to 19.7 to give details of your account or, if you want the repayment to go to a nominee, of that nominee's account. Fill in boxes 19.8 to 19.11 to give details of your nominee. You must sign box 19.12.

Please note that the Inland Revenue reserves the right not to make a repayment to your nominee, and will not normally make a repayment to an overseas nominee.


Q 20 Are your details on the front of the Tax Return wrong?

If you tick the 'No box, go to Question 21.

Otherwise tick the 'Yes' box and make the corrections on the front of your Tax Return.


Q 21 Please give other personal details

boxes 21.1 and 21.2 If convenient, enter your, or your agent's, telephone number in the appropriate box. (If you give your agent's number, please also give your agent's name and reference in the 'Additional information' box on page 8 of your Tax Return).

boxes 21.3 and 21.4 It would be helpful if you enter your marital status in box 21.3. This information does not affect your tax bill but it is useful for statistical purposes.

Enter your date of birth in box 21.4 if:

you are self employed, or

you were born before 6 April 1934, or

you have ticked the 'Yes' box in Question 14, or

you are claiming relief for Venture Capital Trust subscriptions

boxes 21.5 and 21.6 If you are self employed enter:

in box 21.5 up to your first two forenames, and

in box 21.6 your National Insurance number, if known. Leave blank if you do not know your number.


Q 22 Tick boxes and give additional information as appropriate

box 22.1 Tick box 22.1 if you expect to get a new pension or Social Security benefit in 1999-2000. This will help me get your tax code right

box 22.2  If you pay tax through PAYE and the amount you owe for 1998-99 is less than £1,000, I will, if possible, collect it through your tax code.

Tick box 22.2 if you do not want any tax you owe for 1998-99 collected through your tax code.

Provisional figures

box 22.3  Do not delay sending your Tax Return just because you do not have all the information you need. You must do your best to obtain the information, but if you cannot provide final figures by the time you need to send your Tax Return, then estimate the amount.

Tick box 22.3 and describe in the space provided:

which figures are provisional (refer to appropriate box numbers in your Tax Return), and

why you could not give final figures, and

when you expect to give me your final figures.

I will not normally regard a Tax Return as incomplete simply because it contains provisional figures, provided you have taken all reasonable steps to get the final figures, and you ensure that they are sent as soon as they are available. I would not, however, regard pressure of work either on you or your tax adviser, or the complexity of your affairs, as reasons for accepting a provisional figure.

You must ensure that any provisional figures you do include are reasonable and take account of all the information available to you.

If you negligently submit a provisional figure which is either inaccurate, or unnecessary, you may be liable to a penalty.

Other estimates (including valuations)

In some situations you may need to provide an estimated figure or valuation which you do not intend to amend at a later date. Broadly, this will be the case when:

a valuation is required (for example, of an asset at a certain date for the purposes of calculating Capital Gains Tax liability), or

there is inadequate information to enable you to arrive at a reliable figure (for example, where the records concerned have been lost or destroyed), or

while there is inadequate information to arrive at a precise figure, a reliable estimate can be made (for example, where the private proportion of an expense, such as motoring expenses, has been calculated on the basis of the detailed records of  a representative sample period).

You should identify any valuations you have used, either by ticking the appropriate box, in the Tax Return, (where there is one) and providing the details that the notes ask for, or by identifying the figure in the 'Additional information' box on page 8 of your Tax Return, and giving details of the valuation.

You should also identify any figures in your Tax Return which may not be very reliable; where appropriate, explain how the figure has been arrived at. But if you are including an estimate which, while not a precise figure is sufficiently reliable to enable you to make an accurate Tax Return, there is no need to make specific reference to it.

box 22.5 Tick box 22.5 if you are claiming:

relief now for 1999-2000 trading or certain capital losses. Enter the amount of the loss and year for which you are claiming relief in the 'Additional information' box, or

to have post-cessation or other business receipts taxed as income of an earlier year. Enter the amount and year in the 'Additional information' box, or

to spread literary or artistic income to earlier or later years. Enter details of any amounts spread back to last year and, if appropriate the year before, in the 'Additional information' box, or

relief for a contribution that you are required to make, either by the terms of your employment or by Act of Parliament, to a scheme to provide a pension for your spouse or financial support for your children in the event of your death. Normally you will be given relief for your payments through the PAYE system and no claim is necessary. However in some situations, particularly if you have to make a lump sum contribution on retirement, the relief available through PAYE may not cover the whole of the payment. You can claim relief on up to £100 of any payment not relieved under PAYE. Calculate the relief at the basic rate of tax (23%) on the lesser of £100 or the amount of the payment not relieved through PAYE. Enter the amount claimed in the 'Additional information' box, and if you are calculating your tax, copy that figure into box W45 (or box G62, L67 or F67 if you are using one of the other Tax Calculation Guides) on the Working Sheet in your Tax Calculation Guide.


Q 23 Declaration

Tick the boxes to show which Pages of your Tax Return you have filled in. (Remember to send back any loose supplementary Pages.)

If you have filled in your Tax Return

Sign and date the form in box 23.1.

If you have had your Tax Return filled in by someone else

If you have had your Tax Return filled in by someone else, acting on your behalf, you must sign the Return yourself to confirm to us that, to the best of your knowledge, it is correct and complete. This applies whether you have paid for the services of an accountant or other tax practitioner, or have simply had help from a friend or relative.

You should always allow sufficient time for checking and signing your Tax Return if it has been completed by someone on your behalf (particularly if you are likely to be abroad near the deadline for sending the Return back to me). Failure to make appropriate arrangements could mean that you miss the deadline and are charged penalties and interest.

Exceptional circumstances in which someone other than the taxpayer can sign a Tax Return

After someone dies, an executor may complete and sign a Tax Return for the period from 6 April up to the date of their death.

If a Receiver has been appointed to look after someone's affairs, they may complete the Tax Return addressed to the taxpayer.

Where an attorney has been formally appointed I may accept a declaration signed by that person, on behalf of the taxpayer, but only in certain circumstances. These are if you are signing for a person who is physically incapable of signing the Tax Return or mentally incapable of understanding its significance. If someone is physically incapable, we will accept your signature if you are an attorney acting under a general or enduring power. If someone is merely unavailable to sign the Return, for example because of absence abroad, your signature will not suffice. You may sign the Return for someone who is mentally incapacitated if you are an attorney appointed under an enduring power registered with the Court of Protection. In Scotland, if you are an attorney appointed under a power granted on or after 1 November 1990 or you are a curator bonis, you may sign the Tax Return.

If you are signing for someone else:

state the capacity in which you are signing in box 23.2, and

enter the name of the person you are signing for, and your name and address in the 'Additional information' box.


Q12 Did you receive taxable maintenance or alimony, gains on UK life Insurance policies, life annuities or capital redemption p
Q 12 Did you receive taxable maintenance or alimony, gains on UK life insurance policies, life annuities or capital redemption policies or refunds of surplus additional voluntary contributions?

If you tick the 'No' box, go to Question 13.

Otherwise tick the 'Yes' box and fill in boxes 12.1 to 12.12, as appropriate.


Questions Q1 to Q9

Step 1

Answer Questions Q1 to Q9 on page 2 of your Tax Return

If you tick the 'Yes' box:

check you have the right supplementary Pages at the back of your Tax Return.

phone the Orderline for any supplementary Pages you need, or photocopy the ones you have if you need extra copies.

Then tick the second 'Yes' box


Reports Button

Reports Button - Click this button to print client reports and to graph progress you are making with your clients tax affairs. See Reports & Progress Graph for more information.


Reports and Progress Graph

The Reports Button provides access to the reports and progress graph window, which includes two separate but related functions in the form of a reporting system and a progress graph.

Reports

The Report facility provides the same clients selection criteria based on client event dates as the mail merge facility. The selection criteria for the clients to be included in the Report may be specified as follows.

Check the relevant box (check box 1) and click on the narrative box or downward pointing arrow to the right of the check box.  Now make your selection from the drop down list of Events set up using the Open Client Tax Return screen.

Now click on the narrative box or downward pointing arrow to the immediate right and select the date format required.  Then enter the relevant date in the appropriate box.

When completing the date box it should be appreciated that by leaving the box blank all clients for whom the appropriate action has not been taken will be identified (see mail merge).

Similarly by leaving all selection criteria unspecified a list of all clients can be produced.

You may include up to four Events to be printed on the Report by clicking the Print Date check boxes and selecting the Event from the drop down lists. These criteria may be saved if desired by clicking the Save Report button.

After entering a Report Title from the list of the Report column headings already prepared click the Show Report button and the Report will be compiled and displayed on screen.  You may then page through the Report and/or print the Report by clicking the appropriate buttons displayed in the top left of the Report Window.

Progress Graph

The progress graph will show you, in the form of a pie chart with percentages, how you are progressing with your clients tax affairs based on selection criteria you specified.  Each selection criteria (Graph 1 to Graph 5) represents a pie slice. You specify the criteria by checking the Graph check box, selecting the event and clicking the Date or No Date radio buttons.  The system will automatically display the number of clients who meet the selection criteria.  Once you have specified the selection criteria (You must specify at least 1) click the Refresh Graph button and the graph will display the data.  If the As % of Total Clients check box is checked the system will add an additional pie slice which represents the clients who do not meet any of your selection criteria.


Schedule Button
Schedule Button - Click this button to open supplementary pages or a schedule where the details to be entered exceed the space available of the form.

After you have transferred data from the previous year you will notice that eye buttons have replaced certain of the fanned pages buttons. This provides an at a glance indication that schedules containing data brought forward from the previous year are present.

Clicking a fanned pages/eye button with the right-hand mouse button toggles between the two styles allowing you to set a visual indication as to which schedules contain data or those schedules you wish to highlight e.g. those containing incomplete data and to which you need to return.


Sections 3 to 7 provide more detailed guidance
Sections 3 to 8 provide more detailed guidance

Section 3  An introduction to Capital Gains Tax

Section 4  Calculating gains and losses

Section 5  Indexation allowance

Section 6  Taper relief

Section 7  Reliefs and elections

Section 8  worked examples of gains and losses


Selecting a Tax Office
Updating and Maintaining a Tax Office

When selecting a tax office you may enter the tax district number directly into the box provided on the screen or click the spy glass to the right of the number box to display a list of tax offices. The list is initially displayed in tax district number order but you may click the Sort by Town button to display the list alphabetically by town. Clicking the button a second time reverts to displaying by district number.

The list of tax offices may be scrolled by clicking the scroll bar on the right hand side of the list or by dragging the scroll box with the mouse. You may also use the up/down arrow and page keys to scroll the list.

When you have located the tax office you require click the entry so that it is highlighted and then click the Exit button. You may also double click the entry to select it and exit in one go. The window is closed and the tax district number is automatically entered into the box.


Self Employment
Notes on Self Employment

CONTENTS

Filling in the Self-employment Pages  Providing details of income and expenses  Provisional figures  Other estimates (including valuations)  Business details  Your basis period for 1998-99  Income and expenses - annual turnover below £15,000  Income and expenses - annual turnover of £15,000 or more  Value Added Tax  Sales/business income (turnover)  Business expenses  Other income/profits  Additional information  Table of business expenses  Tax adjustments to net profit or loss  Capital allowances and balancing charges  Adjustments to arrive at taxable profit or loss  Class 4 National Insurance Contributions  Subcontractors in the construction industry  Summary of balance sheet  Tax deducted from trading income  Particular trades  Glossary

HELP SHEETS AND LEAFLETSTable of business expenses

Help Sheets and leaflets giving more detailed information about particular tax rules for self-employment are available from the Orderline.

SA Bk 3: Self Assessment. A guide to keeping records for the self-employed

IR 220:  More than one business

IR222:  How to calculate your taxable profits

IR223:  Rent a Room for traders

IR224:  Farmers and market gardeners

IR227:  Losses

IR229:  Information from your accounts

IR231:  Doctors’ expenses

IR232:  Farm stock valuation

Filling in the Self-employment Pages

You must fill in the Self-employment Pages if, at any time during the 1998-99 tax year, you carried on a trade, profession or vocation as a self-employed person in the UK or abroad.  If you were a Name at Lloyd’s, fill in the Lloyd’s Underwriters Pages instead. If you were a member of a partnership, fill in the Partnership Pages instead.

Get the material you need to complete the Self-employment Pages:

your business accounts covering your basis period for the 1998-99 tax year (basis period)

your books and records, if you do not have accounts.

You should have records of all your business transactions.  You must keep these until at least 31 January 2005 in case your Tax Office asks to see them, SA/BK3 has more information.

If you have been in business for some years and your accounting date is the same as last year’s your basis period will be the accounting period ending in the year to 5 April 1999. You should use the information from this accounting period to complete the Self-employment Pages.

If you have just started in business, you can choose any convenient date to draw up your accounts but you may find using 5 April makes your calculations easier.

You may need to complete more than one set of Self-employment Pages if either of the following circumstances apply:

you do not have a single set of accounts for the period that is your basis period for 1998-99.  This may happen if your business has recently commenced, ceased or you have changed accounting date.  See the notes which explain how to work out your basis period and the accounts information you must provide, or

you had more than one business - you must complete separate Self-employment Pages for each.  Ask the Orderline for Help Sheet IR220: More than one business.  It includes a working sheet to deal with the special rules for Class 4 National Insurance Contributions in this situation.

If you have a single set of accounts which covers more than one business, you should transfer the figures to one set of Self-employment Pages.  Then deduct the income and disallow the expenses relating to any business other than your main business, and include it in a separate set of Self-employment Pages for each of your other businesses.

You should only include in the Self-employment Pages details relating to that self-employment.  Other income should be entered in the appropriate parts of your Tax Return. For example, enter:

partnership income in the Partnership Pages but see the note about changing between self-employment and partnership

income earned as an employee or company director in the Employment Pages

dividends from companies in boxes 10.15 to 10.17 on page 3 of your Tax Return.

If you are unsure whether your activities amount to a trade, profession or vocation, ask your Tax Office or tax adviser for advice.

You should contact your Tax Office (or the Helpline when the office is closed) for advice about filling in your Tax Return if, at some time after 6 April 1998, you were a construction worker and the person (or the business) for whom you worked told you that:

you were no longer to be treated as self-employed for that particular contract, and

your pay since then has suffered PAYE tax deductions

Read the notes before filling in the Self-employment Pages if you are an author or artist, or a farmer or market gardener, or a foster carer or adult carer.

If your trade involves provision of furnished accommodation in your only or main home, Rent a Room may apply.  Ask the Orderline for Help Sheet IR223: Rent a Room for traders.

If you have trade debts from overseas transactions which cannot be paid or brought to the UK because of exchange control restrictions or a shortage of foreign currency in the overseas country, ask your Tax Office or tax adviser about Extra Statutory Concession B38.

Before you start

You pay tax for 1998-99 on all your business profits (see note if you made a loss) for the basis period.

Your business profit for each business is the difference between:

your turnover, other business receipts, balancing charges and the value of goods taken for personal use,  and

allowable business expenses (including capital allowances).

The Self-employment Pages will help you work out your taxable business profit and will provide me with the information I need to process yourTax Return.

For each business you must:

provide business details in boxes 3.1 to 3.10

give details of income and expenses in boxes 3.11 to 3.13 if your annual turnover is below £15,000, or in boxes 3.14 to 3.60 if your annual turnover is £15,000 or more. Complete boxes 3.61 to 3.70 if capital allowances and balancing charges are included in boxes 3.12 and 3.11 or 3.57 and 3.55.

work out your taxable profit on Page SE3, using boxes 3.71 to 3.88

fill in boxes 3.89 to 3.92, and box 3.120 as appropriate

if you have a balance sheet, provide information about your business assets or liabilities in boxes 3.93 to 3.109.

Work through the following steps for each business:

Step 1 Work out the basis period for your business using the notes or Help Sheet IR222: How to calculate your taxable profits.

Step 2 Work out how many ‘accounts’ fall within that basis period

Step 3 Check whether you provided details of any of these ‘accounts’ in boxes 3.11 to 3.70 and boxes 3.93 to 3.109 of last year’s Tax Return. If so, you do not need to provide the same information again. You only need  to tick box 3.5A if details relating to all these accounts have already been included in last year’s Tax Return.

Step 4 If you have only one set of accounts for the basis period, fill in one set of Self-employment Pages for the whole of your basis period unless you have already provided this information in last year’s Tax Return.  You must always complete boxes 3.71 to 3.88 on Page SE3, as appropriate, to arrive at your taxable profit for 1998-99.

or

If you have more than one set of accounts for the basis period, complete boxes 3.1 to 3.70 and 3.93 to 3.109, as appropriate, on separate Self-employment Pages for each set of accounts.  You do not need to repeat any information for any period of account which you provided in last year’s Tax Return.  Then fill in boxes 3.71 to 3.92, and box 3.120 as appropriate, on the Self-employment Pages for the most recent set of accounts to arrive at your taxable profit for 1998-99.

The Notes will help you.  They use some technical terms such as ‘trade’, ‘basis period’ and so on.  They explain these terms as fully as possible, but they are not a comprehensive guide for all cases.  There is also a glossary of terms.

Providing details of income and expenses

For most businesses, the information on the Self-employment Pages will enable a full and fair picture of your business to be presented.  If there are any points needing further explanation, provide details in the ‘Additional information’ box on Page SE4.  You do not need to send me your accounts.

In some larger or more complex businesses additional information given on the Self-employment Pages may not be enough to provide a full and fair picture of your business.  Your may consider the submission of further information, including perhaps accounts or supporting calculations, necessary.  This may be the case where:

a large business has a substantial turnover, or

a business is complex (perhaps because it is a highly specialised trade), or

accounts or computations are required for a proper understanding of the figures.

But you must also complete Page SE2 if your annual turnover is £15,000 or more, and Page SE4 if you have a balance sheet.

If you do not have accounts

Even if you do not have accounts prepared for your business each year,  your taxable profit should still be worked out using generally accepted accountancy principles.  These Notes will help.  For further advice on how your profits are taxable, what to include in your turnover and what expenses are allowable for tax, ask the Orderline for Help Sheet IR222: How to calculate your taxable profits.

You will come across the terms ‘accounting period’ and ‘accounting date’ in both these Notes and the Help Sheets.  If you do not have accounts prepared for your business you should read:

‘accounting period’ to mean the period for which you provide details of your business income and expenses, and

‘accounting date’ to mean the date on which that period ends.

If you do have accounts

Accounts are prepared for a variety of reasons and in a variety of ways and it may not be immediately obvious where in your Self-employment Pages you should enter some of your figures.  Help Sheet  IR229: Information from your accounts gives further practical help on filling in the Self-employment Pages, including some worked examples.

In some situations you may need to combine or apportion your figures to fit the standard format.  There may be more than one acceptable way of doing this.  Whichever method you adopt, you should be consistent from one  year to the next.  If you want to explain any figures in  more detail, do so in the ‘Additional information’ box on Page SE4 of the Self-employment Pages.

Make sure that you transfer all the entries in your accounts, and that you include them only once.  Do not bring in any amounts which are not included in your accounts unless they are needed to calculate your taxable profit or were excluded in error from your accounts.  Include any such amounts in box 3.87.  Explain why the entry is necessary in the ‘Additional information’ box on Page SE4.

Changing between self-employment and partnership

Normally you will need to complete the Partnership Pages if you were a partner during the year ended 5 April 1999 and the Self-employment Pages if you were self-employed during that period. Where you carried on the same business during the year, but did so as a sole trader for part of the year and in partnership for part work through the following steps.

Step 1 If your basis period covers a period during which you carried on the business as a sole trader, you should complete the Self-employment Pages in the normal way. Do not complete the Partnership Pages.

Step 2 If your basis period covers a period during which you carried on the business in partnership, complete boxes 4.1 to 4.25 on the Partnership Pages to arrive at your taxable profit or allowable loss from the business for this year.

 Step 3 Complete boxes 3.11 to 3.70 and 3.93 to 3.109 in the Self-employment Pages for any accounting periods which cover part of your basis period and during which you carried on business exclusively as a sole trader. If you included this information in last year’s Tax Return, you do not need to repeat it this year. (Do not treat the date of change from sole trader to partnership, or partnership to sole trader, as requiring an entry in either box 3.9 or box 3.10 in the Self-employment Pages.) But if you have completed boxes 4.1 to 4.25 on the Partnership Pages, leave boxes 3.71 to 3.91 blank and tick box 3.5A.

Provisional figures

I would normally expect you to complete the income and expenses section of your Self-employment Pages with the final and correct figures of income and expenses. If despite your best efforts you are unable to do so, please read the notes in your Tax Return Guide which explain the exceptional circumstances in which Returns containing provisional figures may be accepted.

If it is actually impossible to provide final or even provisional accounts information from which your taxable profit is to be calculated before the latest date for sending your Tax Return, you should provide an estimate of your taxable profit in box 3.88 and tick box 3.72A. I would expect there to be very few such circumstances. The one common circumstance would be where, in the case of a newly commenced business, the first accounting period does not end until close to, or after, the statutory filing date. By ‘close to’ I mean within 3 months of the filing date.

If you have estimated your taxable profit or have included one or more provisional figures tick box 22.3 on page 8 of your Tax Return, and explain in the ‘Additional information’ box why you cannot provide final figures.  Give a date by which you expect to do so.

Other estimates (including valuations)

In some situations you may need to provide an estimated figure or valuation that you do not intend to amend at a later date.  If so, read the notes in your Tax Return Guide.

Business details

Your basis period for 1998-99

You pay tax for 1998-99 according to the profits, or losses, for your basis period.

After the first two or three years in business your basis period will be the 12 month period up to the date you choose as your annual accounting date.  For example, if you have been in business for a number of years and your annual accounting date is 31 December your basis period for 1998-99 is the 12 months from 1 January 1998 to 31 December 1998.

Ask the Orderline for Help Sheet IR222: How to calculate your taxable profits if:

your business started after 5 April 1996

your accounting date is not the same as used in 1997-98

you did not have an accounting date in 1998-99

your business ceased in 1998-99

boxes 3.1 to 3.3  Make sure you complete these boxes for each set of Self-employment Pages you complete.

boxes 3.4 to 3.5  Enter in boxes 3.4 and 3.5 the details of the period to which the information in boxes 3.11 to 3.13, or 3.14 to 3.60 and, where you have a balance sheet, 3.93 to 3.109, relate. Make sure you have read the section headed ‘Your basis period for 1998-99 above before continuing.  Work out your basis period to decide the periods of account for which you need to provide details.

box 3.5A Tick box 3.5A if you are not required to provide details from any of your accounts for this year. Leave boxes 3.11 to 3.70 and, 3.93 to 3.109 blank but complete boxes 3.71 to 3.92, and box 3.120.

box 3.6  Tick box 3.6 if details in boxes 3.1 and 3.3 have changed since your last Tax Return.

box 3.7  Tick box 3.7 if there is a gap between the end of your previous accounting period and the beginning of this one.  Explain why in the ‘Additional information’ box on Page SE1.

boxes 3.8A and 3.8B  If you accounting date has changed, ask the Orderline for Help Sheet IR222 How to calculate your taxable profits and work through it before completing the rest of these Pages.

box 3.9  If your business started after 5 April 1996, enter the start date.  If your accounting date has changed since then, ask the Orderline for Help Sheet IR222: How to calculate your taxable profits.

box 3.10  If you sold or closed down your business between 6 April 1998 and 5 April 1999, enter the date it ceased in box 3.10.  If this is not the same as the date in box 3.5 you must complete another set of Self-employment Pages.

Income and expenses - annual turnover below £15,000

If your annual turnover (excluding any balancing charges) is below £15,000 for a full year, you may fill in the special, shortened income and expenses section on Page SE1 (boxes 3.11 to 3.13) instead of boxes 3.14 to 3.60 on Page SE2.

But you must fill in one section or the other and complete boxes 3.62 to 3.70 if you have any balancing charges, and boxes 3.61 to 3.69 if you are claiming capital allowances.

box 3.11  Enter your turnover and any other taxable business receipts in box 3.11.  You will also need to include the normal selling price of all goods taken out of the business for your personal use, or for your family or friends, minus any sum that you paid into your business for the goods you took. This is because any sum paid into the business should already be included in the turnover figure, like other sales. Include any balancing charges (from box 3.70).

box 3.12  Enter your allowable business expenses in box 3.12.  Make sure you do not include in your expenses any items that are not allowable against tax. (The table will help you decide.)  Include any capital allowances (from box 3.69).

Income and expenses - annual turnover of £15,000 or more

If your annual turnover is £15,000 or more, you must fill on boxes 3.14 to 3.60 on Page SE2.

Value Added Tax

boxes 3.14 and 3.15  If you are not registered for VAT, your sales figure will not include any VAT.  Expenses in boxes 3.17 to 3.51 should include VAT.  There is no need to tick either box 3.14 or 3.15.

If you are registered for the VAT Agricultural Flat Rate Scheme, include any flat rate additions charged to customers in your sales figures. Expenses should include VAT.  There is no need to tick either box 3.14 or box 3.15.

If you are registered for VAT, you may enter details of your business income and allowable expenses either all net of VAT or all inclusive of VAT.  Where you adopt the latter approach, then either your net payment to Customs and Excise should be included as an expense in box 3.50, or any net repayment you receive from Customs and Excise should be included as a taxable receipt in the entry in box 3.37.  Tick either box 3.14 or box 3.15 to show whether entries in boxes 3.16 to 3.51 include or exclude VAT.

If you registered for VAT during the period, your expenses up to that date should include VAT regardless of whether later sales and expenses are recorded VAT inclusive or exclusive.  Tick box 3.14 and include the following details in the ‘Additional information’  box on Page SE4:

a note that you are registered for VAT during the period

the date of the registration

whether sales and expenses from the registration date are VAT inclusive or exclusive.

Similar action is required if your VAT registration was cancelled during the period, except that the details to appear in the ‘Additional information’ box should refer to the date of deregistration and whether sales and expenses before that date are VAT inclusive or exclusive. Expenses from the deregistration date should include VAT.

If you are registered for VAT and goods you supply are zero rated (so that your sales figure does not include any VAT), tick either box 3.14 or box 3.15 to show whether entries in boxes 3.17 to 3.51 include or exclude VAT.

If you are registered for VAT, but treated by Customs and Excise as partly exempt, for the purposes of calculating your taxable profits, business expenditure includes any input tax that is not claimable.  Where you complete boxes 3.16 to 3.51 on a VAT inclusive basis, entering your net payment to, or net repayment from, Customs and Excise, in boxes 3.50 and 3.37 respectively, will reflect this.  However, if you complete the boxes on a VAT exclusive basis please ensure that your expenses figures include any relevant input tax not claimed for VAT purposes.

The calculation of the net payment to (or repayment from) Customs and Excise may have included VAT on capital items you purchased during the year; for example, on assets or rights that are of lasting use to the business and which you do not buy or sell as part of your ordinary trading operations.  These might include business premises, plant, machinery, vehicles and trade rights.  If you enter details of your income and expenses inclusive of VAT on the Self-employment Pages, make a note of the VAT on those capital items in the ‘Additional information’ box on Page SE4.  Add that amount to the net payment to Customs and Excise which you include as an expenses in box 3.50, or deduct it from the net repayment you include as a taxable receipt in box 3.37.

If you are in any doubt about the correct treatment of VAT on the Self-employment Pages, ask your Tax Office or tax adviser.  Contact your local Customs and Excise Office for more general guidance about VAT issues.

Sales/business income (turnover)

box 3.16  Enter the amount of your turnover in box 3.16. If it includes income from which tax has been deducted (excluding deductions made by contractors on account of tax) enter in box 3.120 the total tax deducted between 6 April 1998 and 5 April 1999.

Business expenses

boxes 3.17 to 3.50  You should include all your business expenses in boxes 3.33 to 3.35 and 3.38 to 3.50.

Some of the amounts you enter in boxes 3.33 to 3.50 may not be allowable for tax purposes.  Enter any disallowable amounts in boxes 3.17 to 3.32 and the total of these boxes in box 3.53.

Disallowable amounts may be expenses that are not allowable at all for tax (such as entertainment expenses and depreciation of fixed assets) or the disallowable part of expenses (such as motor expense, if your vehicle is used for private as well as business mileage).

Example 1

Your total motor expenses included in box 3.42 were £3,000 and one-third of your mileage is private.  You can only claim two-thirds of the cost against tax, that is £2,000.  Enter the private use proportion of £1,000 in box 3.24.

Some small businesses can calculate car expenses using a fixed rate per business mile rather than actual costs.  Details and conditions are in Help Sheet IR222 If any of the amounts in boxes 3.33 to 3.35 and 3.38 to 3.50 are recoverable under an insurance, include them in the disallowable expenses to be entered in boxes 3.17 to 3.32 unless they are already in box 3.16 or box 3.37.

Use the Table below. It provides further information on how to fill in the boxes.

Table of business expenses

This table will help you decide what business expenses to include in boxes 3.33 to 3.50.  It also gives some examples of expenses which cannot be claimed in working out business profits for tax purposes.

Disallowable expenses

Cost of sales

box 3.17  Fuel expenses attributable to non-business use of vehicles

Construction industry subcontractor costs

box 3.18  Any payments made relating to non-business work.

Other direct costs

box 3.19  Depreciation of fixed plant.

Employee costs

box 3.20  Your own wages or salary and your drawings from your business.  Your own pension payments and other benefits.  Your own National Insurance Contributions

Premises costs

box 3.21 Non-business part of premises costs used partly for business use.  Costs of acquiring premises.

Repairs

box 3.22 Non-business part of repairs, renewals and general maintenance of premises and machinery used partly for business.  Costs of alternation, improvements or replacement to business premises and machinery.

General administrative expenses

box 3.23  Non-business part of costs used partly for business, payments to political parties.  Most payments to clubs, charities or churches.

Motor expenses

box 3.24  Non - business motoring. Travel between home and business.  Costs of buying vehicles (but capital allowances can be claimed).  Parking and other fines.

Travel and subsistence

box 3.25  Meals (except the reasonable cost of meals on overnight business trips).

Advertising, promotion and entertainment

box 3.26  All entertaining and hospitality, except the costs of entertaining staff, and gifts (not food or drink) of up to £10 per person per year which advertise your business.

Legal and professional costs

box 3.27  Costs of settling tax disputes, legal costs of buying fixed assets (these are treated as part of the cost of the fixed asset).  Costs and fines or penalties for breaking the law.

Bad debts

box 3.28  General bad debts reserve.  Debts that were not taxed when they arose, for example, because they relate to a sale of a fixed asset.

Interest

box 3.29  Repayment of the loan or overdraft.

Other finance charges

box 3.30  Repayment of the loan or overdraft.

Depreciation and loss/(profit) on sale

box 3.31  Generally, depreciation and losses on assets are not allowable for tax, and profits on assets are not taxable receipts.  Any figure in box 3.49 should be cancelled by putting the same figure in box 3.31.  However, to the extent that any of these items are attributable to assets held under finance leases a different treatment may be appropriate.  If you are in any doubt about the correct treatment, ask your Tax Office or tax adviser.

Other expenses

box 3.32  The non-business part of expenses in box 3.50. Ordinary, everyday clothing even if bought specially for business use.

Total expenses

Cost of sales

box 3.33  If the business involves the resale or consumption of raw materials, enter here the cost of the goods used; that is, purchases plus opening stock/work-in-progress minus closing stock/ work-in-progress.  So, for example, subcontractors in the construction industry should include here the cost of any materials supplied. And taxi drivers, minicab drivers etc. and those in the road haulage industry should enter fuel expenditure in this box rather than elsewhere.

Businesses providing services commonly adjust their business profits to reflect work-in-progress at the start and end of the period of account.  If an adjustment of this sort is appropriate, make it here; otherwise leave the box blank. If the figure is negative, enter it in brackets.

Construction industry subcontractor costs

box 3.34  Include all payments to subcontractors in the construction industry.  Enter the amount before deduction of tax if any payments have been made to uncertificated subcontractors .

Other direct costs

box 3.35  Expenses deducted to arrive at gross profit, for example, discounts allowed, commissions payable, carriage and in manufacturing businesses, the costs of producing goods sold such as direct labour costs, depreciation of fixed plant, machine hire, small tools and consumables. If the business provides services, it may incur rechargeable expenses, which are deducted to arrive at a figure of gross profit.

Employee costs

box 3.38  For example, salaries, wages, bonuses, pensions, benefits, employer’s NIC etc. for permanent, temporary and casual employees, and other staff-related costs such as canteen expenses and recruitment agency fees etc.  Any subcontract labour costs, including locum fees, not included elsewhere should be included here.

Premises costs

box 3.39  For example, rent, business rates, water rates, light, heat, power, property insurance, security and other similar expenses.  If accounts contain an amount for ‘use of home’, include that figure here.

Repairs

box 3.40  For example, repairs and renewals, general maintenance of business premises and machinery.

General administrative expenses

box 3.41  For example, telephone, facsimile, postage, stationery and printing costs, courier services, together with general office expenses, the costs of trade or professional journals and subscriptions etc., costs of insurance not included elsewhere and other similar recurring costs which arise in running the business.

Motor expenses

box 3.42  For example, insurance, servicing, repairs, Vehicle Licence, petrol or diesel, hire and leasing charges, parking charges, AA/RAC membership.

Travel and subsistence

box 3.43   For example, all travel costs other than those included in motor expenses, such as rail, air and taxi fares, together with hotel accommodation costs and subsistence or similar costs.

Advertising, promotion and entertainment

box 3.44  For example, the ordinary day to day costs of advertising and promoting the business goods or services, such as newspaper advertisments, mailshots and the distribution of free sample of the goods dealt in.  Entertainment.

Legal and professional costs

box 3.45  For example, accountant’s, solicitor’s, surveyor’s, architect’s, stocktaker's and other similar costs, together with professional indemnity insurance premiums and the like.

Bad debts

box 3.46  The amount of money included in turnover but remaining unpaid at the accounting date that you consider will never be recovered and have decided to write off this year.  If, unexpectedly, you do recover the amount in a later year, make sure you include it in box 3.37 in that later year’s Tax Return.

Interest

box 3.47  Interest on bank and other loans (including overdrafts).

Other finance charges

box 3.48  For example, bank charges, credit card charges, hire purchase interest, and leasing payments, together with other similar costs not included elsewhere.

Depreciation and loss/(profit) on sale

box 3.49  Add together depreciation and losses on sales of assets, and deduct profits on sales of assets that are included in your accounts, and enter the resulting figure in the box.  Where the profit on disposal of an asset exceeds the total of any losses on disposal and depreciation added together, show such a figure in brackets.  A figure in brackets is to be deducted when you add up your total expenses.

If you sold assets at a profit, you should consider whether you need to enter a gain in the Capital Gains Pages.

Other expenses

box 3.50  Add up all the expenses not included elsewhere and enter the total figure.

Other income/profits

box 3.37 Enter in box 3.37 any business income (except Business Start-up Allowance sometimes known as Enterprise Allowance, which goes in box 3.87) you did not include as turnover In box 3.16.  Examples might include rental income, interest from a business bank or building society account and wayleaves.  If you are including this income in a different place on your Tax Return, make sure you deduct it at box 3.58.  For example, bank interest included on page 3 of your Tax Return should not be included in the net business profit or loss shown in box 3.60.

Additional information

Use the ‘Additional Information’ boxes on Pages SE1 and SE4 if you want to explain any of your figures in more detail.  For example:

particulars of any significant or unusual items (either income or expenditure) included in your figures, or

details or receipts or expenditure connected with your business which for any reason are not included in your figures, or

an explanation of any tax adjustment to your net profit where the reason is not apparent from these figures, or

an explanation of any items not included in your accounts information, but which affect your taxable profits, such as spreading of literary profits.

details of any articles gifted under the Millennium Gift Aid Scheme, and to which charities. Relief is automatically given in the computation of trading profits by treating such gifts as disposals of stock and plant at nil other than the usual market value.

This may avoid unnecessary enquiries being made.  Further help is available in Help Sheet IR229: Information from your accounts.

Tax adjustments to net profit or loss

See the section on authors and artists if you claim ‘backwards’ or 'forwards spreading’ of profits.

box 3.53  Enter in box 3.53 the total of disallowable expenses in boxes 3.17 to 3.32.

box 3.54  You should also make adjustments for goods taken out of the business for your personal use or for your family or friends.  Enter in box 3.54 the normal selling price of all goods taken out for such use, minus any sum you paid into your business for the goods and which you have already included paid for them and included in your turnover in box 3.16.

box 3.58  Use box 3.58 for any adjustments (deduct from a profit or add to a loss) for any amounts you took into account in arriving at your net profit or loss, but which are either not taxable receipts or are not taxable as profits from your trade or profession .  Any taxable income in box 3.58 must be included in the appropriate part of your Tax Return.

Foreign tax

If your business income includes amounts that have been taxed abroad, you may be able to claim a credit against your UK tax bill.  To do so, you should fill in the Foreign Pages.  (Ask the Orderline for a copy if you do not have one).  This will usually be the most beneficial way to claim relief for the foreign tax paid.

However, if you do not wish to claim tax credit relief, you may instead deduct the foreign tax in working out your taxable profit or loss.  Enter in box 3.58 the amount of foreign tax paid on the foreign income included in the Self-employment Pages.  Remember to exclude this tax from the Foreign Pages.

If you are claiming overlap relief this year for an amount on which you claimed tax credit relief in an earlier year, you will need to ask the Orderline for Help Sheet IR260: Overlap if you want to calculate your tax.  Otherwise, enter details of the amount claimed in the ‘Additional information’ box.

Capital allowances and balancing charges

boxes 3.61 to 3.70  In working out your taxable profits you must not deduct:

the cost of buying, altering or improving fixed assets, or

depreciation or any losses that arise when you sell them.

Instead, you can claim tax allowances called capital allowances.  These are deducted in working out your taxable profits and should be included in box 3.57 (or box 3.12).  An adjustment, known as a balancing charge, may arise when you sell an item, give it away or stop using it in your business. Balancing charges are added to your taxable profits and should be included in box 3.55 (or box 3.11).

You can claim capital allowances for the cost of:

plant and machinery such as vehicles, tools, ladders, computers and business furniture which belongs to you. Do not claim for things it is your trade to buy and sell - these should be claimed as business expenses.

agricultural buildings, industrial buildings and certain other buildings.

patents, certain specialist types of ‘know-how’, scientific research, mineral extraction and dredging. Your tax adviser will claim these for you, if they apply.

If you buy on hire purchase, you can claim capital allowances on the original cost of the item; the interest or other charges count as business expenses and should be deducted at box 3.48.

You cannot claim for anything you have bought solely for private use, or the cost of the land even if it is used for your business.

You should complete boxes 3.61 to 3.70 in each set of Self-employment Pages you complete.  This is because separate capital allowances calculations are required for each of your accounting periods. If you are not sure what to include, ask the Orderline for Help Sheet IR222 How to calculate your taxable profits.

The example below may help you (and there is more information in IR222: How to calculate your taxable profits).

Example 1

Joe starts up in business as a computer consultant on 1 July 1996. He decides to draw up his accounts to 31 December each year. His first accounts are for the 6 months to 31 December 1996. When he starts up in business he buys computer equipment for £2,000 and a Vauxhall car for £6,000. The computer equipment goes into the general ‘pool’ of expenditure and the car goes into the 'car pool’ (cars have to be kept separate). He also transfers his Renault car into the business. When it is transferred its market value is £4,000. He uses the Renault privately and estimates that 50% of the use is private. The capital allowances on the Renault have to be calculated separately (from the Vauxhall) because it will be used privately.

The Capital allowances which are given each year are writing down allowances (WDAs) unless first year allowance (FYA) is available. The writing down allowances (WDAs) on the Renault are restricted to allow for the private use but it is the full WDA that is deducted in arriving at the writing down value (WDV) to carry forward.

In the year ended 31 December 1998, Joe buys a new computer and printer for £5,000, on 1 June 1998, and sells his old printer for £100. The new computer and printer qualify for a special kind of capital allowance, a first year allowance (FYA) at the rate of 50%.

Joe decides to retire to Spain and closes down the business on 31 July 1999. He sells the computer equipment for £3,800. He keeps the Vauxhall, whose market value is £2,000, and scraps the Renault. Since the business has ceased the are no WDAs but a balancing charge or balancing allowance has to be calculated for each pool. There is a balancing charge if the disposal value is more than the WDV brought forward. If it is less, there is a balancing allowance.

General	Car	Renault	Allowances

pool	pool	due

Accounting period

ended 31 December 1996

Additions	2,000	6,000	4,000

WDA @ 25% x 6/12	   250	 	   750	   500 x 50% (private use) = £250	£1,250

---------	---------	---------

WDV carried forward	1,750	 	5,250	3,500

Accounting period

ended 31 December 1997

WDA @ 25%	   438	1,313	   875	x 50% (private use) = £438	£2,189

---------	---------	---------

WDV carried forward	1,312	3,937	2,625

Accounting period

ended 31 December 1998

sales 	   100

---------

expenditure qualifying for WDA	1,212

additions qualifying for FYA	5,000

WDA @ 25% of 1,212	   303	   985	    656	x 50% (private use) = £328}

FYA  @ 50% of 5,000	2,500	   }	£4,116

---------	---------	---------

WDV carried forward	3,409	2,952	1,969

(1,212 - 303 + 5,000 - 2,500)

Accounting period

ended 31 December 1999

Disposals	3,800	2,000	nil

---------

balancing charge	   391

(3,800 - 3,409)

---------	---------

balancing allowance	   952	1,969	£2,530

(952 + 1,969 - 391)

Adjustments to arrive at taxable profit or loss

You should only calculate your taxable profit or loss for 1998-99 once, even if you are providing details from more than one set of accounts for this year.  Use the ‘Adjustments to arrive at taxable profit or loss’ section in the set of Self-employment Pages for your most recent set of accounts. If you carried on the business in partnership during any part of your basis period, do not complete boxes 3.71 to 3.91 in the Self-employment Pages, but instead complete boxes 4.1 to 4.25 in the Partnership Pages.

boxes 3.71 and 3.72  Enter the dates your basis period for 1998-99 begins and ends in boxes 3.71 and 3.72.  Basis period is explained here.

box 3.72A  If you are unable to complete the income and expenses section of these Pages because it is impossible to prepare the figures to arrive at your taxable profit before the latest date for sending in your Tax Return, tick box 3.72A and provide an estimate of your taxable profit in box 3.88.  Read the notes in your Tax Return Guide and then tick box 22.3 on page 8 of your Tax Return, explaining in the ‘Additional information’ box why you cannot provide final figures.  Give a date by which you expect to be able to do so.

box 3.72B  If you are a foster carer or adult carer, or you carry on a trade or profession wholly overseas you may only need to fill in a limited number of boxes in the Self-employment Pages.  Check the notes on particular trades to see if this applies to you.  If it does, tick box 3.72b to indicate why you have left some sections blank.

boxes 3.73 and 3.74  Copy your profit or loss from box 3.13 or box 3.60, whichever is appropriate, to box 3.73 (enter a loss in brackets).  If you ticked box 3.5A, enter ‘0’ in box 3.73 and include the appropriate amount of any profit returned last year in your entry in box 3.74.

If your basis period is not the same as the period covered by your accounts, calculate the profit or loss of the basis period by adding together and/or dividing the profits or losses of the periods for which you have accounts.  Enter in box 3.74 any amount that needs to be added to, or deducted from, the figure in box 3.73. Help Sheet IR222: How to calculate your taxable profits explains how to calculate the adjustment.

If the adjustment means you have to deduct a figure at box 3.74, enter the figure in brackets and remember to subtract it in arriving at your total taxable profits.

Overlap relief

boxes 3.75 to 3.77

Overlap profit and relief

If your annual accounting date is a date other than 5 April then overlaps in your basis periods may occur:

in the first three years after your business starts up, or

in a year in which there is a change of accounting date.

You may be able to claim overlap relief for the profit (the overlap profit) which arises in any overlap period.

Overlap relief may be due for 1998-99 if:

you closed down or sold your business in 1998-99, or

you changed your accounting date.in 1998-99 and your basis period, as shown in boxes 3.71 and 3.72, exceeds 12 months.

Enter in box 3.75 any unused overlap profit (including any unused transitional overlap profit) brought forward from 1997-98; in box 3.76 any overlap profit used in 1998-99; and in box 3.77 any unused overlap profit carried forward to 1999-2000.

Ask the Orderline for Help Sheet IR222: How to calculate your taxable profits which explains how to calculate overlap profits and to claim overlap relief.

box 3.78  If you are a farmer or market gardener, you may be able to claim to average two years’ profits.  Ask the Orderline for Help Sheet IR224: Farmers and market gardeners, which explains this. The amount of the adjustment to enter here is the amount by which the profit for the higher of the two years is reduced by the claim. This entry does not change the amount of any loss to include in box 3.80.

boxes 3.79 and 3.80  If box 3.73 and the adjustments in boxes 3.74 to 3.78 result in a profit, enter this in box 3.79 and ‘0’ in box 3.80.

If the result is a loss, enter this in box 3.80 and ‘0’ in box 3.79  unless you have claimed farmer’s averaging.

If the result is a loss and you have claimed farmer’s averaging, enter the profit resulting from the claim in box 3.79 and the loss in box 3.80. If you have made a loss, you may be able to claim tax relief for your loss.  If you want information on losses, ask the Orderline for Help Sheet IR227 Losses.

Time limits:  Some loss claims must be made by 31 January 2001.  You should ensure that any claims you may wish to make are made within the time limit prescribed.  Late claims cannot normally be accepted.

box 3.81  If you wish to offset your 1998-99 loss against other income of 1998-99, enter the amount you are claiming to offset in box 3.81 (also see Help Sheet IR227: Losses).

box 3.82  If you want to offset the 1998-99 loss against income of an earlier year, enter the amount of the loss in box 3.82.  If you have already claimed to offset this loss, you should still include it in box 3.82, and provide details in the ‘Additional information’ box on Page SE4.

box 3.83  Enter in box 3.83 any losses sustained in 1998-99 that you claim to carry forward against later profits.

boxes 3.84 and 3.85  Enter in box 3.84 any losses sustained in the same business in earlier years, which you claim to carry forward against later profits, and have not already used.

You can use that loss to offset any profit shown at box 3.79.  Enter in box 3.85 the amount you are deducting up to the figure in box 3.79.

box 3.87  Enter any amounts not included elsewhere in the Self-employment Pages but which are needed to calculate your taxable profits, for example, any Business Start-Up Allowance (sometimes called Enterprise Allowance) you received in the year to 5 April 1999.

box 3.88  Enter the total of boxes 3.86 and 3.87.

Class 4 National Insurance Contributions

Self-employed people must pay Class 4 contributions on profits from any trade, profession or vocation unless they are ‘excepted’.  The contributions are a percentage of taxable profits for the tax year between lower and upper profit limits.

box 3.89  You are excepted from paying Class 4 contributions for 1998-99 if you are:

a man aged 65 or over or a woman aged 60 or over at 6 April 1998 (this includes a person whose birthday fell on 6 April 1998), or

aged under 16 on 6 April 1998 if the Inland Revenue National Insurance Contributions Office has granted you ‘exception’ ( to apply for ‘exception’  ask for form CA2835U available from the Inland Revenue National Insurance Contributions Office), or

not resident in the UK for tax purposes during the 1998-99 (contact your Tax Office or tax adviser if you do not know whether this applies to you).

It is possible for certain other people to be excepted from paying Class 4 contributions.  If you require further information, please contact the Inland Revenue National Insurance Contributions Office.  If you think you may be excepted because you are:

a trustee, or

a diver or diving supervisor,

you should ask your Tax Office or tax adviser.

Sometimes, where both Class 1 and Class 4 contributions could be due, Class 4 contributions may not be payable.  In these circumstances the Inland Revenue National Insurance Contributions Office may agree that your Class 4 contributions may be ‘deferred’ until such time as your overall contributions can be determined.  Only the Inland Revenue National Insurance Contributions Office can agree to deferment.  Leaflet CA72, available from the Inland Revenue National Insurance Contributions Office, gives further details.

If you are excepted or your contributions are deferred:

tick box 3.89, and

enter ‘0’ in boxes 3.90 and 3.91, and

explain in the ‘Additional information’ box that you are excepted or deferred, and give the reason.

boxes 3.90 to 3.91  If you have one business, use the Working Sheet below to work out your figures to go in boxes 3.90 and 3.91.

If you have more than one business, do not use the Working Sheet.  Instead, ask the Orderline for Help Sheet IR220: More than one business.

Working Sheet for Class 4 NICs (one business only)

Taxable profit for 1998-99  A  £  from box 3.88

Adjustments to profits chargeable to (NICs (see note* below) B  £ copy to box 3.90

Profit for NICs  C £  box A minus box B

Exempt threshold  D  £ 7,310

Amount chargeable  (maximum £17,910 in box E)      E  £  box C minus box D

Class 4 NIC due   (maximum £1,074.00 in box F) F  £ box E x 6%

If you do not want to calculate your tax, you do not have to complete box F or copy the figure to box 3.91.  I will do it for you.

* Trading losses of this business from 1997-98 and earlier years that have not yet been set against profits chargeable to Class 4 NIC, may be brought forward and set against the Class 4 profits of the same business for 1998-99.  (This is because losses that are allowable for tax are also treated as losses arising for the purposes of Class 4 NIC.  They may be allowed for Class 4 in the same ways as losses are allowed for tax).

* Interest can be deducted in calculating Class 4 profits if it was incurred for the purposes of your business but has not been deducted in arriving at your taxable profits.  Include

any such interest from 1997-98 and earlier years that has not been set against previous Class 4 profits

any such interest paid in 1998-99.

* Losses arising from Furnished Holiday Lettings are not allowable for Class 4 NIC purposes.

Subcontractors in the construction industry

box 3.92  If you are a subcontractor in the building industry, you may have received some payments under the Construction Industry Tax Deduction Scheme.  If you have, enter in box 3.92 the total of the deductions made on account of tax from payments made to you during the period 6 April 1998 to 5 April 1999.

The tax deductions should be shown on SC60s, which you should have received from the contractors for whom you worked, and these forms should be sent with your Tax Return.  If you have not received SC60s, ask the contractor(s) you worked for to provide them.  If you cannot get an SC60, please give details of the dates and the amounts you were paid, the tax deductions and the name and address of the contractor(s) in the ‘ Additional information’ box.

If you have already claimed repayments of SC60 deductions during the year, still enter the total amount of SC60 deductions for the year in box 3.92 and send any outstanding SC60s for the year with your Tax Return.  Please enter in box 17.1 on page 7 of your Tax Return, the amount of any refund of SC60 deductions, or any SC60 deductions set against other liabilities.

Summary of balance sheet

boxes 3.93 to 3.109  If you have accounts, and they include a balance sheet, copy the entries to the appropriate boxes.  If you do not have a balance sheet, or your turnover was less than £15,000, leave these boxes blank.

Make sure that you have transferred all the figures to the summary, and that each is included once only.  Do not include any figures not appearing in your balance sheet.

You should use your judgement to transfer the figures form your accounts to the most appropriate boxes.  Depending on the circumstances of your business, certain elements in the balance sheet may appear either as assets or as liabilities.  For example, a bank account with business funds in it will be an asset while an overdrawn account will be a liability,  For the former, enter the balance in box 3.97.  For the latter, enter the balance in box 3.101.

Other elements that might be affected in this way are most commonly the Capital Account balances and the net profit or loss.  Where a balance on the Capital Account is overdrawn, or the business made a net loss in the year, you should enter the amount in brackets.

The figure of net profit or loss appearing in your balance sheet should be the same as that entered in box 3.52 for the same period.

The figure for net business assets (box 3.104) should be the same as the figure for the balance of your Capital Account at the end of the period (box 3.109).

Tax deducted from trading income

box 3.120 Enter in box 3.120 any tax deducted from trading income (excluding deductions made by contractors on account of tax) between 6 April 1998 and 5 April 1999.

Particular trades etc.

Authors and artists

There are various reliefs available to authors and artists who may find that the pattern of their profits is irregular.  These reliefs even out the profits by spreading receipts over several years.  Your Tax Office or tax adviser will be able to provide details.

If you claim ‘backwards spreading’, enter the reduction in your profits for this year in box 3.58, tick box 22.5 on page 8 of your Tax Return and give details in the ‘Additional information’ box on that page of the amount spread back to last year and, if appropriate, the year before.

If you claim ‘forwards spreading’ of sums receivable this year enter the reduction in your profits for this year in box 3.58.  Additions to your profits for this year as a result of forwards spreading claims made in previous years should be made in box 3.54.  Give details in the ‘Additional information’ box on Page SE4.

Farmers and market gardeners

You will need Help Sheet IR224: Farmers and market gardeners from the Orderline which explains:

the special rules for averaging profits over two years in some circumstances

the herd basis for calculating profits which can be used by production livestock farmers

capital allowances on agricultural buildings and works.

Methods of farm stock valuation acceptable to the Inland Revenue are explained in Help Sheetb IR232: Farm stock valuation.

Foster carers and adult carers

If you have an arrangement with your Tax Office for calculating your taxable profit, complete the following boxes in the Self-employment Pages (leaving the rest blank):

boxes 3.1 to 3.10

box 3.88 to show your profits

boxes 3.89 to 3.91 for your Class 4 NIC,

unless your Tax Office has told you otherwise.

Professions and vocations on a 'cash' basis

If you are carrying on a profession or vocation you may have used a 'cash' or 'conventional' basis to calculate your profits last year. Examples are:

bringing in receipts only when received, and/or expenses only when paid, so that there are no debtors and/or creditors

bringing in receipts only when bills have been issued, rather than when the work has been completed

not bringing in anything on account of work in progress.

If you calculated your profits this way last year then you can use the same method this year. Most people who have used this method of calculating profits will not be allowed to do so for accounting periods beginning after 6 April 1999 and no one apart from certain barristers or advocates can have started using it after 17 March 1998.

Trades and Professions wholly carried on abroad

If you carry on a trade or profession wholly overseas you will still need to complete these Pages.  But in certain circumstances you may only be taxed on remittances you make to the UK.  Ask the Orderline for the Non-residence etc. Pages if you think the remittance basis might apply to you.  If it does, you need only complete the following boxes, where relevant, in the Self-employment Pages (leaving the rest blank):

boxes 3.1 to 3.10

boxes 3.71 and 3.72 to show your basis period

box 3.72B

box 3.88, and

tick box 3.89

If you paid foreign tax on the profits of this trade and wish to claim credit against your UK tax liability, ask the Orderline for the Foreign Pages.

Glossary

Balancing charges  Withdrawal of some or all of the capital allowances previously given.  They arise when fixed assets stop being used in your business.

Basis period  The period used to identify the profits taxable in any particular tax year.

Capital allowances  Allowances against tax for the cost of certain fixed assets.

Fixed assets   Assets such as buildings, plant and machinery, vehicles, etc. which you use in the business but do not buy and sell as part of your ordinary trading operations.  For example, if you are a plumber, your van and your tools are fixed assets but your pipes, boilers, etc. are not (they are stock).  The cost of buying fixed assets is called capital expenditure.

Overlap profit and overlap relief  Overlap profits arise when basis periods overlap so that the same profits are taxable in two different tax years.  Overlap relief deducts the overlap profits in a later tax year so that over the life of your business you do not pay tax on more profits than you earn.

Stock Raw materials used in your business and goods bought for resale, which you have on hand.

Trade Any commercial operation supplying goods or services to a customer for profits is likely to be regarded as a trade.  If you are in doubt whether you carried on a trade, profession or vocation during 1998-99, you should ask your Tax Office or tax adviser.

Trade creditors Money you owe other businesses for goods or services you have received, but which remain unpaid at your accounting date.

Trade debtors Money you are owed for goods you have sold or work you have done that is included in turnover, but remains unpaid at your accounting date.

Turnover is all the money earned by your business before deducting any business expenses.  It includes receipts in cash or in kind for goods sold or work done, commission, fees receivable, tips, insurance proceeds for stock and loss of profits, etc.  But it does not include Business Start Up Allowance (or Enterprise Allowance) which should be included separately in box 3.87.  Also, do not include amounts received from the sale of capital items, that is, assets which are of lasting use to the business, such as business premises, plant, machinery and vehicles.

Turnover should be included in your accounts when it is earned, even if you do not receive the money until later.  Amounts you have earned but not received by the accounting date - your trade debtors - should therefore be counted as turnover.  This will include goods you had delivered or services you had completed by the accounting date, even if you had not issued a bill by then.  But make sure you do not count money you received which was included as turnover in an earlier period when it was earned.

Work-in-progress  Partially manufactured stock you have on hand, or partially completed work on contracts under which you provide your service.

Filling in the Self-employment Pages  Providing details of income and expenses  Provisional figures  Other estimates (including valuations)  Business details  Your basis period for 1998-99  Income and expenses - annual turnover below £15,000  Income and expenses - annual turnover of £15,000 or more  Value Added Tax  Sales/business income (turnover)  Business expenses  Other income/profits  Additional information  Table of business expenses  Tax adjustments to net profit or loss  Capital allowances and balancing charges  Adjustments to arrive at taxable profit or loss  Class 4 National Insurance Contributions  Subcontractors in the construction industry  Summary of balance sheet  Tax deducted from trading income  Particular trades  Glossary


Self-Employment Q3

Fill In the Self-employment Pages if you carried on a trade, profession, or vocation as a self-employed person.

If you traded with someone else, in partnership, fill in the Partnership Pages instead. (If this applies to you, remember to tick the 'Yes' box in Question 4.)

There are separate Pages for the special circumstances of Lloyd's Underwriters.


Share Schemes
Share Schemes Q2

Fill In the Share Schemes Pages if you have:

been granted a share option, or exercised a share option, in connection with your employment (but not under an Inland Revenue approved share option scheme), or

exercised a share option under an Inland Revenue approved share option scheme, but the conditions for tax relief were not satisfied, or

received something for giving up, or for not exercising, a share option, or

acquired shares in connection with your employment (but not under an Inland Revenue approved profit sharing scheme), or

acquired shares by reason of your employment and subsequently

received 'special benefits' by virtue of those shares, or

restrictions have been removed from those shares, or

(for shares in certain subsidiaries) have sold them, or have held them for seven years.

acquired shares on or after 17 March 1998 by reason of your employment and subsequently

any risk of forfeiture of the shares is lifted or expires, or

those shares have converted to another class of shares.

Do not fill in the Share Schemes Pages if:

you want to return dividend  income - this goes on page 3 of your Tax Return, or

you have exercised an option under an Inland Revenue approved savings related share option scheme, unless:

you exercised the option within three years of its being granted, and

you did so because the company you work for was sold from the group or was taken over.


Share Schemes Notes
Notes on Share Schemes

CONTENTS

Filling in the Share Schemes Pages

Employee share schemes

Approved share schemes

Approved profit sharing schemes

Share options

Approved savings-related share option schemes

Approved discretionary share option schemes

All share option schemes

Cancellation or release of options

Income Tax paid on the grant of your option

Unapproved share option schemes

Grant of a share option

Exercise of a share option

Income Tax paid on the grant of your option

Shares acquired

Shares acquired from your employment

Shares subject to risk of forfeiture

Shares as benefits

Post-acquisition charges

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for share schemes are available from the Orderline.

IR16: Share acquisitions by directors and employees. Explanatory notes

IR95: Approved profit sharing schemes. An outline for employees

IR97: Approved Save As You Earn share option schemes. An outline for employees

IR101: Approved Company Share Option Plans. An outline for employees

IR216: Shares as benefits

IR217: Shares acquired: post-acquisition charges

IR218: Shares acquired: Operation of Pay As You Earn (PAYE)

IR219: Shares acquired from your employment

IR287: Employee share schemes and Capital Gains Tax

Filling in the Share Schemes Pages

These Notes will tell you in what circumstances you have to pay tax on share options or shares you get free or cheaply by reason ofyour employment. Each taxable occasion is a 'taxable event'. You must complete a copy of Page S2 of the Share Schemes Pagesfor each event. Ask the Orderline for further copies, or you canuse photocopies. (If you use a photocopy, please put your name and tax reference at the top.)

You only need to fill in one copy of Page S1 of the Share Schemes Pages - it is a summary of all your taxable events for the year. Forexample, you may exercise options in an approved savings related scheme twice in one year, over shares in two different companies. In this case:

fill in a copy of Page S2 for each event

enter one company namein  box 2.1 on Page S1 and the other in the 'Additional information' box

tick box 2.2 if tthe shares in either company are unlisted

add up the taxable amounts and put the total figure in box 2.3.

Gather together the material you need such as:

copies of share option certificates

copies of exercise notices

any correspondence or other explanatory information received from your employer about the share transaction

information on the market value of the shares at the relevant dates

records of the amount of Income Tax paid or tax accounted for under PAYE on any taxable event.

If you do not have this information, the company whose shares are involved or your employer may be able to help.

The amount of information you need to give on the Share Schemes Pages depends on the type of employee share scheme you benefit from, or the circumstances in which you receive shares or benefits relating to them. The notes below give details about tax rules and tell you which boxes you should complete.

If you have only exercised an option under an approved savings-related scheme, see page SN2 of these Notes.

The following pages enable you to work out the taxable amount of benefits under your employee share or share option scheme.

Tick the relevant boxes on Page S1 of the Share Schemes Pages if any shares are 'unlisted'. 'Unlisted' shares means all shares not listed on a recognised Stock Exchange.

Remember, the Share Schemes Pages do not cover the Capital Gains Tax which might be due when you sell shares (you should ask the Orderline for the Capital Gains Pages, if you disposed of assets during the year (including shares) worth more than £13,600 in total or your chargeable gains (including gains from shares) were more than £6,800). For further information, ask the Orderline for Help Sheet IR287: Employee share schemes and Capital Gains Tax.

Do not include dividends from shares received through employee share schemes. These should be included on page 3 of your Tax Return.

Where tax has been paid to the Inland Revenue under the PAYE system on a taxable event included in these Pages, ask the Orderline for Help Sheet IR218: Shares acquired: Operation of Pay As You Earn (PAYE).

Employee share schemes

Some employee share schemes are approved by the Inland Revenue, others are not. The tax rules differ according to whether or not the scheme is approved.

Approved share schemes

There are three types of approved share schemes. If certain conditions are met, you will not be taxable on:

the receipt of free shares

the grant of an option to buy shares

the exercise of an option to buy shares

under approved employee share schemes.

(Remember, though, you will still be taxable on any dividends and you might have to pay Capital Gains Tax when you sell your shares.)

The notes below tell you when you will be taxable.

Approved profit sharing schemes Share options

Shares given to you under an approved profit-sharing scheme will be taxed only if they are not kept in the Scheme Trust for three years. In this case, tax will normally be deducted under PAYE. The trustees of the profit-sharing scheme, or your employer, will let you have details of the amount on which tax has been charged and how much tax has been deducted. These amounts should not be included in the Share Schemes Pages. Instead, include them in boxes 1.8 and 1.11 in thethe employment Pages when you complete them.

Share options

Approved savings-related share option schemes

You need to include information about an option under one of these (Save As You Earn) schemes in the Share Schemes Pages only if you have exercised the option:

within three years of receiving it, and

because the company you work for was sold or taken over.

In this case you will be taxable on the difference between the market value of the shares at the time the option is exercised and the amount paid for the shares.

Example 1

1.1.97 You agree to save £100 per month for five years and you are granted an option over 3,000 shares in the parent company. The option price is £2 per share.

1.1.99 The parent company sells the company you work for to another group. You are able to exercise the option up to the amount you have saved so far, through the savings scheme.

1.3.99 You exercise the option using the £2,700 (27 months at £100) saved so far and buy 1,350 shares at £2 per share. The market value of the shares is £3 per share.

The taxable amount is:

market value of shares bought	£3 x 1,350	=	£4,050

minus price paid for shares	£2 x 1,350	=	£2,700

taxable amount	£1,350

If you exercised an option in these circumstances, complete:

boxes 2.1 and 2.2 on Page S1, and boxes 2.32 and 2.33 on Page S2, and

boxes 2.34, 2.35, 2.36, 2.37 and 2.40 (in the ‘Exercise’ column)

Then use Working Sheet 1 to calculate the taxable amount.

Working Sheet 1

Market value per share (box 2.40) 	A £

Number of shares bought on exercise (box 2.36)	B £

box A x box B

Total market value of shares bought	C £

Option price per share (box 2.37)	D £

box D x box B

Total price paid for shares	E £

box C minus box E

Taxable amount (copy to box 2.3)	F £

If you have not exercised your approved scheme option but have received something for giving up the option or for not exercising the option, do not fill in the boxes set out above. Instead refer to the section 'Cancellation or release of options' on page SN3.

Approved discretionary share option schemes

Approved discretionary share option schemes include:

approved executive share option schemes, and

approved company share option plans.

You need to include information about an option under one of these schemes in the Share Schemes Pages only if you have exercised the option, and:

when you exercised the option the scheme was no longer approved, or

when you exercised it, it was less than three years, or more than 10 years, after the date it was granted to you, or

you exercised it less than three years after the date on which you exercised an option under any approved discretionary share option scheme for which Income Tax relief was given.

In this case you will be taxable on the difference between the market value of the shares at the time you exercised the option and the amount paid for the shares.

Example 2

1.1.94 You are granted an option over shares in the company you work for.

1.1.96 You are granted a second option over 2,000 shares in the company. The option price is £3 per  share.

1.3.97 You exercise the first option.

1.3.99 You exercise the second option and buy 2,000 shares at £3 per share. The market value of the shares is £5 per share. The exercise of the first option gets relief from Income Tax. The exercise of the second option does not get tax relief because it is within three years of the exercise of the first option, and so it  needs to be included in the Share Schemes Pages.

The taxable amount is:

market value of shares bought	£5 x 2,000	=	£10,000

minus price paid for shares	£3 x 2,000	=	£  6,000

taxable amount	£ 4,000

If the exercise of an option under this scheme is taxable, fill in:

boxes 2.7, 2.8 page S1, boxes 2.32, 2.33 on Page S2, and

boxes 2,34, 2.35, 2.36, 2.37, 2.38 and 2.40 (in the ‘Exercise column).

Then use Working Sheet 2 to calculate the taxable amount.

Working Sheet 2

Market value per share (box 2.40)	A £

Number of shares bought on exercise (box 2.36)	B £

box A x box B

Total market value of shares bought	C £

Option price per share (box 2.37)	D £

box D x box B

Total price paid for shares	E £

Amount paid for option (box 2.38)	F £

box C minus box E minus box F

Taxable amount (copy to box 2.9)	G £

If you have not exercised your approved scheme option but have received something for giving up the option, or for not exercising the option, do not fill in the boxes set out above. Instead, refer to the next section.

All share option schemes

Cancellation or release of options

If you receive something in return for:

transferring your option, or

cancelling your option, or

releasing your option, or

otherwise not exercising your option,

you will have to pay Income Tax on the cash or value you receive. Leaflet IR16: Share acquisitions by  directors and employees, available from the Orderline, gives more details.

You will be taxable on what you receive, whether or not the option was granted under an approved scheme.

Example 3

1.10.97 You are granted an option over 1,000 shares in the company you work for. You pay £1 for the option.

1.2.99 You receive £2,500 in return for the option being cancelled.

The taxable amount is:

amount received for release of option	=	£2,500

minus amount paid for option	=	£        1

taxable amount	£2,499

If any of the above circumstances apply to you, complete:

boxes 2.4 and 2.5 (approved savings-related share options), or

boxes 2.10 and 2.11 (approved discretionary share options), or

boxes 2.19 and 2.20 (unapproved share options)

boxes 2.32 and 2.33

boxes 2.34, 2.38 and 2.41 (in the 'Cancellation/Release' column).

Then use Working Sheet 3 to calculate the taxable amount.

Working Sheet 3

Amount received (box 2.41)	A £

Amount paid for option (box 2.38)	B £

box A minus box B

Taxable amount	C £

Then enter the taxable amount C at:

box 2.6 (approved savings-related share options), or

box 2.12 (approved discretionary share options), or

box 2.21 (unapproved share options).

If PAYE has been operated on any of the amount received in box A above, you will also need to enter the amount on which PAYE has been operated in box 2.31B.

 box B

Income Tax paid on the grant of your option

If you paid Income Tax on the grant of your option, the amount paid can reduce the amount of Income Tax to pay (if any) on the taxable amount C in Working Sheet 3 on page SN3. The tax credit relief cannot exceed the tax to pay on the taxable amount C.

If you do not want to calculate your tax, enter the amount of Income Tax paid on the grant of your option as tax credit relief in the 'Additional information' box on Page S1.

If you do want to calculate your tax, you must decide how much tax is payable on the taxable amount C. To do this, refer to page 3 of the Tax Calculation Guide, 'Calculating tax due for 1998-99 after allowances and reliefs'. If you need help, ask your Tax Office or tax adviser.

If the Income Tax paid on the grant of your option is less than the tax to pay on the taxable amount C, enter the amount of Income Tax paid on the grant of your option as tax credit relief in the 'Additional information' box on Page S1 and in box W45 in the Working Sheet in the Tax Calculation Guide. (If you need one of the other calculation guides, enter the tax credit relief in box G62 (Capital Gains) or box L67 (Lump Sums etc.) or box F67 (Lump Sums and Capital Gains).

If the Income Tax paid on the grant of your option is equal to, or greater than, the tax to pay on the taxable amount C, enter the tax to pay on the taxable amount C as tax credit relief in the 'Additional information' box on Page S1 and in box W45 (or box G62 or box L67 or box F67) in the Working Sheet in the Tax Calculation Guide.

If you have completed the Foreign Pages, the tax credit relief figure should be added to the figure copied from  from box 6.9 of he Foreign Pages to box W45 (or box G62 or box L67 or box F67).

Unapproved share option schemes

If the scheme under which it was granted was not approved you may be taxable on both:

the grant of a share option, and

the exercise of a share option.

Grant of a share option

You need to include the grant of a share option on Page S1 of the Share Schemes Pages only if:

you can exercise the option to buy shares more than ten years after the date it was granted to you, and

the option price (at which you can buy the shares) is less than the market value of the shares at the date the option was granted to you.

In this case you will be taxable on the value of the option minus the price, if any, that you paid for it. The minimum value placed on the option by the special tax rules is the difference between the option price and the market value of the shares. You should use this figure unless you think the option had a higher value. The amount of tax you pay on the grant of your option can be deducted from the tax you have to pay (if any) when your option is exercised, or when you receive something in return for:

transferring your option, or

cancelling your option, or

releasing your option, or

otherwise not exercising your option.

You will need to keep a record of the amount of tax paid on the grant of your option to complete the Share Scheme Pages of the Tax Return for the year in which you exercise your option, or receive something in return for transferring, cancelling, releasing or otherwise not exercising your option. Leaflet IR16: Share acquisitions by directors and employees, available from the Orderline, gives more details.

Example 4

1.10.98 You are granted an option over 1,000 shares in the company you work for. The option entitles  you to buy the shares between 1.10.2001 and 30.9.2010 (three to twelve years later). The market value of the shares is £3 each. The option price is £2 per share. You pay £1 for the option.

The taxable amount is:

value of option 1,000 x £1 (£3 less £2)	=	£1,000*

minus paid for option	=	£        1

taxable amount	£  999

* this is the minimum value placed on the option at 1.10.1998.

If this applies to you complete:

boxes 2.13, 2.14, on Page S1, boxes  boxes 2.32, 2.33 on Page S2, and

boxes 2.34, 2.36, 2.37, 2.38 and 2.39 (in the 'Grant' column).

Then use Working Sheet 4 to calculate the taxable amount.

Working Sheet 4

Market value per share (box 2.39)	A £

Option price per share (box 2.37)	B £

box A minus box B

C £

Number of shares (box 2.36)	D £

box C x box D

Value of option*	E £

box E minus box F

Amount paid for option (box 2.38)	F £

Taxable amount (copy to box 2.15)	G £

* This is the minimum value placed on the option. If you think the value of the option was higher enter your valuation at box E.

Exercise of a share option

You need to include the exercise of any option from unapproved schemes on Page S1 of the Share Schemes Pages.

In this case you will be taxed on the difference between the market value of the shares at the time you exercised the option and the amount you paid for the shares (including the cost, if any, of the option).

value of option 1,000 x £1 (£3 less £2)	=	£1,000*

minus paid for option	=	£        1

taxable amount	£  999

Example 5

1.10.97 You are granted an option over 1,000 shares in the company you work for. The option price is £2 per share. You pay £1 for the option.

1.2.99 You exercise the option and buy 1,000 shares at £2 per share. The market value of the shares is £5 per share.

The taxable amount is:

market value of shares bought £5 x 1000	=	£5,000

minus price paid for shares £2 x 1000	=	£2,000

£3,000

minus amount paid for option	£         1

taxable amount £2,999

If you have exercised an option under an unapproved scheme complete:

 boxes 2.16, 2.17  on Page S1, boxes 2.32, 2.33 on Page S2,

and

boxes 2.34, 2.35, 2.36, 2.37, 2.38 and 2.40 (in the 'Exercise' column).

Then use Working Sheet 5 to calculate the taxable amount.

Working Sheet 5

Market value per share (box 2.40)	A £

Number of shares (box 2.36)	B

box A x box B

Total market value of shares bought	C £

Option price paid for shares (box 2.37)	D £

box D x box B

Total price paid for shares	E £

Amount paid for option (box 2.38)	F £

box C minus box E minus box F

Taxable amount	`	G £

Enter the taxable amount G in box 2.18. If PAYE has been operated on this exercise already, you will also need to enter the amount on which PAYE has been operated in  box 2.31B.

Share options - residence issues

If you have been granted or exercised an option, there are some occasions when the general rules do not apply.

If as a consequence of:

your residence status, and

the place you performed the duties of your employment,

you are not taxed in the UK on all the income from your employment (Help Sheet IR211: Employment - residence and domicile issues, available from the Orderline, gives further details), any option granted to you by reason of that employment may be subject to special rules. For options granted to you in such circumstances, you still need to complete Working Sheet 4 on page SN4. For options exercised by you in such circumstances, you need to follow the guidance in Help Sheet IR216: Shares as benefits. Further details are also in leaflet IR16: Share acquisitions by directors and employees. Both IR216 and IR16 are available from the Orderline.

Income Tax paid on the grant of your option

If you paid Income Tax on the grant of your option, the amount paid can reduce the amount of Income Tax to pay (if any) on the taxable amount G. The tax credit relief cannot exceed the tax to pay on the taxable amount G.

If you do not want to calculate your tax, enter the amount of Income Tax paid on the grant of your option as tax credit relief in the 'Additional information' box on Page S1.

If you do want to calculate your tax, you must decide how much tax is payable on the taxable amount G. To do this, refer to page 3 of the Tax Calculation Guide, 'Calculating tax due for 1998-99 after allowances and reliefs'. If you need help, ask your Tax Office or tax adviser.

If the Income Tax paid on the grant of your option is less than the tax to pay on the taxable amount G, enter the amount of Income Tax paid on the grant of your option as tax credit relief in the 'Additional information' box on Page S1, and in box W45 in the Working Sheet in the Tax Calculation Guide. (If you need one of the other calculation guides, enter the tax credit relief in box G62 (Capital Gains), box L67 (Lump Sums etc.) or box F67 (Lump Sums and Capital Gains).

If the Income Tax paid on the grant of your option is equal to, or greater than, the tax to pay on the taxable amount G, enter the tax to pay on the taxable amount G as tax credit relief in the 'Additional information' box on Page S1 and in box W45 (or box G62 or box L67 or box F67) in the Working Sheet in the Tax Calculation Guide.

If you have completed the Foreign Pages, the tax credit relief figure should be added to the figure copied from box 6.9 of the Foreign Pages to box W45 (or box G62 or box L67 or box F67).

If you have not exercised your option, but have received something for giving up the option or for not exercising the option, do not fill in the boxes set out above. Instead refer to the section 'Cancellation or release of options' on page SN3.

Shares acquired

You will be taxed on shares (or interests in shares) you get free or cheaply by reason of your employment.

Shares acquired from your employment

boxes 2.22 to 2.24 Shares can be acquired from your employment in a variety of circumstances. If you have received shares, or interests in shares, free or cheaply from your employment, ask the Orderline for Help Sheet IR219: Shares acquired from your employment to help you to complete Pages S1 and S2 of the Share Schemes Pages. If PAYE has been operated you may also need Help Sheet IR218: Shares acquired: Operation of Pay As You Earn (PAYE), from the Orderline.

Shares subject to risk of forfeiture

boxes 2.22 to 2.30 If you receive shares from your office or employment which can become forfeit if certain conditions are not met, you may be taxed when:

you receive the shares, if the risk of forfeiture can continue more than five years after the date of receipt, or

the shares are disposed of before the risk of forfeiture is lifted, or

the conditions are met and the risk of forfeiture is lifted.

If this applies to you, ask the Orderline for Help Sheet IR219: Shares acquired from your employment to help you to complete the Share Schemes Pages. If PAYE has been operated you may also need Help Sheet IR218: Shares acquired: Operation of Pay As You Earn (PAYE), from the Orderline.

Shares as benefits

boxes 2.25 to 2.27 If you acquire shares for less than their market value, and the benefit from doing so is not otherwise chargeable to Income Tax, the amount of the undervalue is treated as a loan. If you acquire 'partly paid' shares you are treated as if you had received an interest-free loan equal to the difference between the market value of fully paid shares and the sum actually paid. If this applies to you, ask the Orderline for Help Sheet IR216: Shares as benefits.

If your employer has enabled you to sell shares for more than their market value, the benefit to you will be included on your P11D

or other information supplied by your employer. You should have entered the figure  in box 1.22 of your Employment Pages.

Post-acquisition charges

boxes 2.28 to 2.30

boxes 2.28 to 2.30 If you acquire shares, or an interest in shares, by reason of your employment you may be taxed later when:

rights or restrictions attached to any shares are altered, or

shares in certain subsidiary companies are kept for seven years, or if sold earlier, when the shares are sold and they have increased in value since you acquired them, or

'special benefits' are received by virtue of your ownership of shares

shares convert to another class of shares because of conversion rights which come from your office or employment.

If this applies to you ask the Orderline for Help Sheet IR217: Shares acquired: post-acquisition charges.

Filling in the Share Schemes Pages  Employee Share Schemes  Approved share schemes  Approved profit sharing schemes  Share options  Approved savings related share option schemes  Approved discretionary share option schemes  All share option schemes  Cancellation or release of options  Income Tax Paid on the grant of your option  Unapproved share option schemes  Grant of a share option  Exercise of a share option  Income Tax Paid on the grant of your optionI  Shares acquired  Shares acquired from your employment  Shares subject to risk of forfeiture  Shares as benefits  Post-acquisition charges


Split Button

Split Button - Click this button to move clients to and from a separate TaxReturn  database known as SPLIT.MDB.


Splitting The TaxReturn Database

This facility enables selected clients to be moved to and from a separate TaxReturn database known as SPLIT.MDB. This new database may then be physically copied on to a floppy disk or other removable media and transferred to another computer e.g. a laptop machine. Alternatively this process may be used to maintain groups of clients in separate databases, possibly to allocate them to an individual partner or employee.

If you have installed TaxReturn on a network splitting the Tax Return Database will function only if a single workstation is using the program. If anyone else is running the program clicking the Split Tax Return Database button brings up a warning screen.

If a recent back up has not been taken clicking the No button automatically runs the Backup/Restore Tax Database screen. Clicking on the Yes button enables you to continue with this routine.

If both TaxReturn and PartnershipReturn have been installed on your PC please remember that the databases for each program are integrated. These databases must be backed-up simultaneously and you will be warned if you attempt to back up the TaxReturn database alone.

Clicking on the Yes button confirming that a current back up exists brings up the Export Clients tab on the Split Tax Database screen.

Select the clients whom you wish to export by highlighting them on the Client Grid and then transfer to the List of clients to export by clicking the Add Clients button. Any clients transferred in error may be removed from the list by highlighting them on the List of clients to export and clicking the Remove Clients button.

When you have selected all the clients you wish to move click the Export button. SPLIT.MDB, the new database, will be automatically created in the PTP directory/folder containing the program and TAX99/PTR99 MDB and LDB files. If the database SPLIT.MDB already exists a warning appears.

If the SPLIT.MDB database does not already exist (or on clicking the Yes button) the SPLIT.MDB database is created. A horizontal  thermometer type display indicating the progress of the database creation appears at the bottom of the Split Tax Database screen.

The SPLIT.MDB database may then be copied on to another drive (internal or external) by using Explorer in Windows 95 or File Manager in Windows 3.1 and 3.11.

In order to preserve integrity of your client data, any client exported to SPLIT.MDB is automatically locked and cannot be opened (please refer to unlock facility) until that client is imported back into the original database when the client record is automatically unlocked.

The client record screen has been altered to incorporate a Status box, which clearly shows if the return for the selected client has been locked and moved to split database.

To import a SPLIT.MDB database into the program click the Import Clients tab on the Split Tax Database screen which brings up Select the Split Database File screen.

When you have found the required SPLIT.MDB database click on the OK button and the Import Clients screen is displayed. This is used in a similar fashion to the Export Clients facility previously described.

Upon clicking the Import button the Select Database File screen appears and this operates in the same way as the database creation procedure in Export Clients.

As previously mentioned clients’ returns that have been exported to the SPLIT.MDB database are automatically locked. You may however wish to access a locked client record e.g. in an emergency or where a copy of the record was made purely for reference purposes and no changes have been made to the original record. Clicking the Locked Clients tab brings up this screen providing a visual check of the clients whose data has been exported. Clients to be unlocked or deleted are selected in a similar fashion to the Export Clients facility previously described.

Returns for clients who have been exported to the SPLIT.MDB database may not normally be opened. If you wish to override the safety measure highlight the client(s) you wish to unlock and click the Unlock button. The following screen requests verification before proceeding.

If you have permanently transferred a client or group of clients to another PC and wish to remove the record(s) from the original database highlight the client(s) you wish to remove and click on the Delete button. Before deleting the selected data you are asked to confirm the action.

We cannot over-emphasise the importance of maintaining a back up of all your current client data. For this reason we make no apology for repeating the following.

You must make regular copies of the database files to floppy disks by using the standard backup system provided in Windows. Alternatively use some other external media in order to protect your data from a complete machine failure. Media backup devices are now available for less than £100 and are easily fitted to most makes of computer.

To minimise the impact of losing all your data due to fire etc. we cannot recommend too strongly the need to keep regularly updated copies of important information off site e.g. at home.

\\\

Before making a backup network users must always ensure that everyone has quit the program.

Warning

You should avoid splitting from your database those tax returns for clients linked to PartnershipReturn as splitting from the TaxReturn database removes the link between the two programs.


Supplementary Pages

Step 2

Fill in the supplementary Pages that apply to you.

If I have sent you any that do not apply, leave them blank

If you use photocopies, please enter your name and tax reference on each copy.

Click on  the Supplementary Pages  Notes you require

Employment

Share Schemes

Self Employment

Partnership (short)

Partnership (full)

Land and Property

Foreign I

Foreign II

Trusts

Capital Gains I

Capital Gains II

Non Residence

Lloyd's Underwriters


Tax Office Button

Tax Offices and Firm's Details Button - Click this button to enter details of your firm, make changes to tax office addresses or add new tax offices. For more information see Tax Offices and Firm's Details.


Tax Office Maintenance
Tax Offices, Firm's Details, Configuration and ELS

Tax Offices

Click the Tax Office/Firm Details button to select a tax office.

To add a new tax office click the Add button and enter the tax district number and address directly into the boxes provided on the window. When satisfied that the entries are correct click the Save button. Should you decide not to proceed click the Cancel button to return to the previous window.

To change a tax office address or number first select the tax office from the list displayed in the grid. You may scroll the list by clicking on the scroll bar on the right hand side or by dragging the scroll box with the mouse. You may also use the up/down arrow and page keys to scroll the list.

The list is initially displayed in tax district number order but you may click the Sort by Town button to display the list alphabetically by town. Clicking the button a second time reverts to displaying by district number.

Once you have found the required tax office click the entry in the grid. The system will display the full name and address and you may then type over the details. Once you have made your changes click Update to save them. If you try to move the highlight bar to another tax office before doing so the system will ask you if you wish to save the changes or to discard them.

To delete a tax office select the office as described above and then click Delete. The tax office will be removed on your confirmation.

Occasionally tax offices merge or close and the need to change the tax office record for a number of clients arises. Using the Move Clients facility situated at the bottom right hand corner of the screen assists in making such changes.

Firstly enter in the Move from District No. box the number of the old tax district. Then in the Move to District No. box enter the number of the new district. The No. of  Clients to Move box automatically shows how many clients in your database are affected by the change and the process is completed by clicking on the Move Clients button. Should a non-existent tax district number be entered the following screen appears.

Firm's Details

Click on the Firm Details tab to bring up the screen.

Once this screen is completed, in all cases, the agent’s name will appear in the additional information box on page 8 of the Return Form SA 100.

Configuration and ELS

Check the Program Start-up Password box to select whether you wish to use the password facility or otherwise.

In repayment cases click in the Repayment claim box the circle appropriate to either box 19.1 or box 19.2. The remaining entries on page 7 will be automatically completed in accordance with the selection made.

Checking the relevant box(es) allows you to choose whether you wish to be warned if there are uncompleted supplementary pages or schedules before printing the return and/or printing the calculation.

Enter your EDI details in the EDI Information box taking care that you select the correct ELS Transmission Type.


Tax Return

Everybody must complete pages 2 to 8 of the Tax Return.

You may also have to fill in supplementary Pages to give details about some types of income and gains.

I have included the supplementary Pages I think you need after page 8 of your Tax Return. You must make sure you have the right Pages.

Answer the Questions on page 2 of your Tax Return to find out.

The notes Q1 etc. will help.


Technical Information

DAMAGED TAX DATABASE

You will be warned should your database become corrupt (this would normally only occur due to a power failure or some other reason preventing you from closing Windows normally). Clicking the appropriate radio button will enable you to decide whether to allow the system to either attempt to repair the damaged database or to overwrite it with the one selected from the list (see Backing up and Restoring the Tax Database).

NB Please note that this program uses the standard Windows True Type Fonts.


The Taxpayer's Charter

You are entitled to expect the Inland Revenue

To be fair

by settling your tax affairs impartially

by expecting you to pay only what is due under the Law

by treating everyone with equal fairness

To help you

to get your tax affairs right

to understand your rights and obligations

by providing clear leaflets and forms

by giving you information and assistance at our enquiry offices

by being courteous at all times

To provide an efficient service

by settling your tax affairs promptly and accurately

by keeping your private affairs strictly confidential

by using the information you give us only as allowed by the law

by keeping to a minimum your costs of complying with the law

by keeping our costs down

To be accountable for what we do

by setting standards for ourselves and publishing how well we live up to them

If you are not satisfied

we will tell you exactly how to complain

you can ask for your tax affairs to be looked at again

you can appeal to an independant tribunal

your MP can refer your complaint to the Ombudsman

In return, we need you

to be honest

to give us accurate information

to pay your tax on time

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any  rights of appeal.


Transfer Data Button

Transfer Data Button -  All existing client information, with the exception of figures, may be transferred from your TaxReturn97  database to the TaxReturn 98  database. This is achieved by clicking on the Transfer Data Button. If you have TaxReturn97  data you must do this before adding new clients to TaxReturn98.


Transferring Data

All existing client information, with the exception of figures, may be transferred from your previous TaxReturn  database to the current TaxReturn  database. This is achieved by clicking on the Transfer Data button. If you have the previous year’s TaxReturn  data you must do this first.

Schedules may be produced for most sections of the Return Form providing a valuable audit trail. In most instances use of the scheduling facility is not optional as it is generally necessary to enter data into the program via the schedule mode. Access to schedules is indicated by a button depicting several fanned pages and is selected by clicking this button.

After you have transferred data from the previous year you will notice that eye buttons have replaced certain of the fanned pages buttons. This provides an at a glance indication that schedules containing data brought forward from the previous year are present.

Clicking a fanned pages/eye button with the right-hand mouse button toggles between the two styles allowing you to set a visual indication as to which schedules contain data or those schedules you wish to highlight e.g. those containing incomplete data and to which you need to return.


Trusts

CONTENTS

Filling in the Trust etc. Pages  Income from trusts and settlements  Beneficiaries  Settlors  Income from estate of deceased persons  Specific legacies  Residuary beneficiaries  Limited interests  Absolute interests  Discretionary interests  Foreign estates  Successive interest in residue  Foreign tax paid

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more details information about particular tax rules are available from the Orderline.  There is one for trusts.

IR270: Trusts and settlements - income treated as the settlor’s

Filling in the Trusts etc. Pages

Fill in the Trusts etc. Pages if you received any income in 1997-98 from a trust, settlement or the estate of a deceased person.  These Notes tell you what to do.

Gather together the material you need, such as statements of amounts paid from the estate of a deceased person (prepared by the personal representative)

Income from trusts and settlements

Beneficiaries

boxes 7.1. to 7.6  If you are the beneficiary of a bare trust, that is one where you have an absolute right to the income and capital from the trust or settlement, do not include this income on the Trusts etc. Pages.  This income is treated as belonging to you and not to the trustees, and should be included in the pages of your Tax Return that deal with the types of income concerned.  If you had an absolute right to income but not capital from a trust or settlement:

do not enter any scrip dividends or foreign income dividends whether from UK companies or from UK authorised unit trusts or open-ended investment companies.  These should be included in boxes 10.21 to 10.29 on page 3 of your Tax Return.  If the voucher shows only a total for dividends bearing non-repayable lower (20%) rate tax, include the totals in boxes 10.21 to 10.23

do not enter income from foreign sources.  This should be included on the Foreign Pages

enter in boxes 7.1 to 7.3 income on which tax has been paid at the basic (23%) rate.  Enter in box 7.1 the actual income to which you are entitled, in box 7.2 the Income Tax deducted, and in box 7.3 the income before tax (the ‘taxable amount’)

enter in boxes 7.4 to 7.6 income from which tax has been deducted, or which has a tax credit, at the lower (20%) rate.  Enter in box 7.4 the actual income to which you are entitled, enter in box 7.5 the tax deducted or the tax credit and enter in box 7.6 the income before tax (the ‘taxable amount’).

The trustee will be able to tell you which types of income have been received on your behalf.

If you did not have an absolute right to income from a trust or settlement and the trustees are resident in the UK for tax purposes, enter in box 7.1 the actual income you received, enter in box 7.2 the Income Tax deducted and enter in box 7.3 the income before tax.  You can get these figures from the tax voucher provided by the trustees.  If you wish to claim relief under Extra Statutory Concession B18, contact:

Financial Intermediaries and Claims Office (FICO)

St John’s House

Merton Road

Bootle

Merseyside

England

L69 9BB

Telephone 0151 472 6000

If you did not have an absolute right to income from a trust or settlement, and the trustees are not resident in the UK for Income Tax purposes, no entry should be made on the Trusts etc. Pages.  Instead, fill in the Foreign Pages.   The exception to this is if you wish to claim relief under Extra Statutory Concession B18.  In this case contact the Financial Intermediaries and Claims Office (FICO) at the address in the preceding paragraph.

Settlors

boxes 7.1 to 7.3  A settlement includes a trust, covenant, disposition, arrangement or transfer of assets. If you have directly or indirectly provided funds for a settlement, its income may be treated as yours for tax purposes.  This may apply if:

you or your spouse can benefit immediately or in the future from the capital or income of the settlement, or

capital or income of the settlement is paid to, or for the benefit of, your unmarried child or stepchild while that child is under the age of 18, or

the settlement is a covenant for payments to charity (this covenant must not be for longer than three years), or

you or your spouse have received a loan or repayment of a loan from the trustees of the settlement.

If you think one of these situations may apply to you, please ask the Orderline for Help Sheet IR270: Trusts and settlements income treated as the settlor’s

If trust or settlement income is treated as yours, you should enter the actual income in box 7.1, the Income Tax deducted from it in box 7.2 and the income before tax in box 7.3.

Income from estates of deceased persons

Specific legacies

You do not pay tax on specific legacies of assets or money.  Do not include these on the Trusts etc. Pages.  If the asset is one that produces income (for example a bank account, or property which is let) and you are entitled to that income from the date of the person’s death, it should be included in the part of your Tax Return that deals with the type of income concerned.  Rent from a property which is let, for example, should be included in the Land and Property Pages of your Tax Return.  If you received interest on an unpaid legacy, or a legal rights claim in a Scottish estate, include it in boxes 10.12 to 10.14 on page 3 of your Tax Return.

Residuary beneficiaries

Special rules apply to income from a deceased person’s estate which is paid to beneficiaries who have an interest in the residue.  The residue is the amount remaining after the personal representatives have provided for all legacies and expenses of the estate.  (The personal representative is the executor or administrator of the deceased person.)

Residuary beneficiaries are entitled to get from the personal representatives a statement setting out the amount of any payments to them treated as income and the tax treated as paid on it.  That information will enable you to complete the Trusts etc. Pages as described below.  You should enter the name of the estate and the total amount paid to you in the ‘Additional information’ box on page T2

Limited interests

box 7.7 to 7.18  If you only have an interest in the income of the residue (for example, if you are a life tenant or liferenter) show the amounts paid to you from the estate in 1997-98 in:

box 7.7 if it has been taxed at the basic (23%) rate, or

box 7.10 if it has been taxed at the lower (20%) rate.

IF the administration of the estate was completed during the year and amounts were payable to you, but were unpaid at that time, they should also be included in:

box 7.7 if they have been taxed at the basic rate, or

box 7.10 if they have been taxed at the lower rate,

unless your interest is in a foreign estate (see the next column).  The tax should be entered in box 7.8 or 7.11 as appropriate and the amount of income before tax in box 7.9 or 7.12.

Income taxed at the lower rate will be separately identified in the statement prepared by the personal representatives.

Absolute interests

If you have an interest in the income and capital of the residue, you are treated as receiving an amount of income.  This is based on your share of the estate income, after deducting expenses chargeable to income.  If you received payments in 1997-98 from an estate, your income will be either the payments you have received in 1997-98, or the income you have received for all the years (if it has not already been taken into account in earlier years), whichever is the lower amount.  If the administration of the estate ended in 1997-98, you should be treated as having received both the income arising in that year and any estate income which has not already been treated as your income for earlier years.

The personal representatives will supply you with a statement showing the amount of income that should be included on your Tax Return.  The statement for a UK estate will show whether the income has been taxed at the basic rate or at the lower rate of tax and where appropriate will show that the tax at either or both rates is not repayable.  Enter the net amount of:

income taxed at the basic rate tax in box 7.7

income taxed at the lower rate tax in box 7.10

income taxed at lower rate when the tax is not repayable in box 7.13

income taxed a basic rate when the tax is not repayable in box 7.16

Enter the amounts of tax shown on the statement in:

box 7.8 for basic rate tax

box 7.11 for lower rate tax

box 7.14 for non-repayable lower rate tax

box 7.17 for non-repayable basic rate tax.

Enter in boxes 7.9, 7.12, 7.15 and 7.18 the taxable amounts (net amount plus tax paid) shown on the statement under each of these headings.

Income that accrued during the lifetime of the deceased person but which was paid at their death may have been taken into account as part of their estate for the purposes of Inheritance Tax and as estate income for Income Tax purposes.  If you are treated as having received income from an estate where this happened, and you are liable to tax at the higher rate, there is a special tax relief available which has the effect of reducing the amount of income that you are treated as having received from the estate.  If you think this applies to you, contact your Tax Office or tax adviser.

Discretionary interests

You may have an interest in residue that arises because the personal representatives have exercised their discretion in your favour.  If so, you should enter the total amount paid to you in 1997-98 in boxes 7.7 to 7.18.

Foreign estates

A foreign estate is one where the income of the estate has not borne full UK tax because the personal representatives are not resident and not ordinarily resident in the UK or because the deceased person died domiciled outside the UK and overseas income arose to the estate.  If you have received income from such an estate, you should show the whole amount both in box 7.7 and in box 7.9.  No entry should be made in box 7.8 for tax deducted.  However if the foreign estate has been charged to UK Income Tax, the amount of income entered in both boxes 7.7 and 7.9 will need to be reduced proportionately by the following amount:

net amount of income has borne UK tax       x     total estate income before UK tax

total estate income less UK tax

You should subtract the above amount from the figure to be entered in box 7.7 and 7.9

Successive interest in residue

Successive interests in residue can arise because, for example, an interest is disclaimed or varied by the original beneficiary.  The later interest in residue is treated as having existed from the date of death.  This ensures that each beneficiary is taxed on the share of the estate income that is actually paid to them.  Therefore, when completing boxes 7.7 to 7.18, you should include the whole estate income that is paid to you even if it relates to periods before you held the interest in residue.

Foreign tax paid

box 7.19  If you have received income that is chargeable to UK tax but which has also been taxed in a foreign country, you may be entitled to claim credit for the foreign tax paid in calculating your UK tax liability.  this is known as ‘tax credit relief’.

Tax credit relief will usually be beneficial, but if you do not want to claim it you can deduct the foreign tax paid on your income instead.  But you cannot claim tax credit relief and a deduction for the same item of income.

Enter in box 7.19 the total foreign tax paid for which you are not claiming tax credit relief.

If you want to claim tax credit relief, fill in the Foreign Pages, and leave box 7.19 blank.

Filling in the Trust etc. Pages  Income from trusts and settlements  Beneficiaries  Settlors  Income from estate of deceased persons  Specific legacies  Residuary beneficiaries  Limited interests  Absolute interests  Discretionary interests  Foreign estates  Successive interest in residue  Foreign tax paid


Trusts etc.
Trusts etc. Q7

Fill In the Trusts etc Pages if you:

were a beneficiary of a trust or settlement, or

were a settlor of a trust or settlement whose income is deemed to be yours, or

had income from the estate of a deceased person.

But if you are the beneficiary of a bare trust do not include income from it on the Trusts etc. Pages. Put it in the pages of your Tax Return that deal with the type of income concerned.


What is in the rest of your Tax Return

"What makes up your Tax return" will help you fill in page 2 of your Tax Return.

"How to fill in pages 3 to 8 of your Return" provides box by box guidance to help you complete pages 3 to 8 of your Tax Return.

"Paying your tax" includes information on this subject.


What makes up your Tax Return

Tax Return

Employment Q1

Share Schemes Q2

Self-employment Q3

Partnership Q4

Land and Property Q5

Foreign Q6

Trusts etc. Q7

Capital Gains Q8

Non Residence Q9


What next

Gather together information about your financial circumstances for 1998-99. For example, if you are an employee you will need your P60 or payslips and information provided by your employer if you have any benefits. Also you will need any building society statements, dividend vouchers and other financial records. Do not send these with your Tax Return; keep them safe.

You are now ready to fill in your Tax Return. The section "Filling in your Tax Return" will tell you what to do, and the rest of the Guide will help you fill in the boxes. If you need more help ask your Tax Office or tax adviser.

If after sending me your Tax Return, you find that you have made a mistake, let me know at once. Similarly you should correct any provisional figures as soon as you can.You will only be penalised if your Tax Return is incorrect through fraud or negligence or if there is unreasonable delay in providing corrected figures once they are known to you. The penalties can be up to 100% of the difference between the correct tax due and the amount that would have been due on the basis of the figures you returned. You could also be prosecuted.

When the Tax Office is closed, phone the Helpline on 0645 000 444 for general advice (a text phone service is available on this number). It is open each evening and at weekends, except (Christmas Day). Calls are charged at the local rate. If you want to call from abroad use the International Access code followed by 44541 555445.

Remember, you are responsible for the accuracy of your Tax Return


What the Inland Revenue does

When I get your completed Tax Return I will process it based on your figures, to work out how much you owe, or how much the Inland Revenue owes you. If I see any obvious mistakes - for example in the arithmetic - I will put them right and tell you what I have done.

I will send you my calculation of your tax if you have asked the Inland Revenue to do it for you. If you have calculated your tax, I will let you know if it is wrong.

Later, I will send you a statement of your account with the Inland Revenue. This will explain how to pay any tax due - see the notes on "Paying your tax".

Once your Tax Return has been processed it will be checked. I have until 31 January 2001 to do this (later if you send your Tax Return late). I may make enquiries about your figures and ask you to send me the records from which you took them. I will also check your figures against any details received from other sources, such as your employer or bank.

In its dealings with you, the Inland Revenue is governed by the Taxpayer's Charter.

"How to complain" explains how to complain if you are dissatisfied with the way the Inland Revenue handles your tax affairs.

Was your Tax Return issued after 31 July 1999?


What you have received

Your new Tax Return asks for details of your income and capital gains. With it I have sent two guides; this one to help you fill in your Tax Return, and another to help you calculate your tax bill (if you want to).

Everybody gets the first 8 pages of the Tax Return and there are other 'supplementary' Pages for some types of income and gains. For example, there are Pages for employment income, and for self-employment income. Based on the information available to me I have included any Pages I think you need at the back of your Tax Return.

It is your responsibility to make sure that you complete the right supplementary Pages.

Ignore any I have sent you that do not apply.

You must send the ones you need to complete back to me on time with the rest of your Tax Return. Otherwise you will be liable to an initial automatic penalty of £100, and further penalties for continued delay.

Supplementary Pages for some types of income and gains are bound into the back if they apply to you.

If you have a tax adviser, you may be able to send your Tax Return electronically using the Electronic Lodgement Service. Ask your tax adviser for details.


What you should do first

First, fill in page 2 of your Tax Return. This tells you which supplementary Pages you must complete. The section "What makes up your Tax Return" will help.

Next, if you need any supplementary Pages phone the Orderline. It can provide any of the supplementary Pages, leaflets or Help Sheets mentioned in this Guide.

Decide if you want me to calculate your tax for you. If so, make sure that your completed Tax Return reaches me by 30 September 1999. It will save you time and effort if you leave it to me.

If you miss the deadline of 30 September you need to calculate your own tax and make sure your completed Tax return reaches me by 31 January 2000.

Do not delay doing your Tax Return. You do not have to wait for the deadline shown on the front of the Tax Return. Tackling it earlier means you will have more time to get help if you need it. Sending it earlier does not mean you have to pay tax any sooner.

If you are not sure what to do, please ask for help before you start to fill in your Tax Return.

Orderline is open from 8am to 10pm every day (except Christmas Day) on 0645 000 404. Calls are charged at the local rate. You can also order by fax on 0645 000 604, or by e-mail (saorderline.ir@gtnet.gov.uk), or in writing to P0 Box 37, St Austell PL25 5YN.

If you live or work abroad, order using International Access code followed by 44541 555664 (fax 44541 555778)


Word Processing

The Word Processing window in TaxReturn is a full featured word processor which provides the additional benefit of being able to directly insert client data fields within the document. Quick access to all the main commands are provided via the two tool bars displayed at the top of the window with the same commands and some additional functions being available through the menu bar.

Bubble help will automatically display against each of the tool bar buttons if the mouse pointer is left to rest over the button for about a second.

The facility to load a standard letter as a template when writing client correspondence is accessed through the File Menu.


Inland Revenue Help Sheets

IR201	IR202	IR203	IR204	IR205(S)

IR206	IR207	IR208	IR209	IR210

IR211	IR212	IR213	IR214	IR216

IR217	IR218	IR219	IR220	IR222

IR223	IR224	IR227	IR229	IR231

IR232	IR250	IR251	IR260	IR261

IR262	IR263	IR270	IR279	IR280

IR281	IR282	IR283	IR284	IR285

IR286	IR287	IR288	IR289	IR290

IR291	IR292	IR293	IR294	IR295

IR296	IR297	IR298	IR299	IR300

IR301	IR302	IR303	IR304	IR310

IR320	IR321	IR325	IR330	IR340

IR380	IR391


IR211

Employment - residence and domicile issues

The boxes on your Employment Pages enable you to calculate total emoluments received from that employment during the year ending 5 April 1999.  Complete as appropriate, following the guidance in the Notes on Employment.  However, in consequence of your residence status (see Non-residence etc. Pages), and

the place where the duties of your employment were performed (see Note 1 on page 4)

you may not be liable to UK Income Tax on the whole amount in the year ending 5 April 1999.  This Help sheet enables you to calculate the amounts received from that employment in the year ending 5 April 1999 which are not liable to UK Income Tax in the year ending 5 April 1999 and which must be entered in box 1.31 on the Employment Pages.

Part 1

If your employer has obtained a direction regarding the proportion of your earnings on which PAYE was to be operated, you should ensure that all of the cash emoluments from the employment have been included in boxes 1.8 to 1.10, and not only those on which PAYE has been operated.

Throughout this Help Sheet the phrases ‘earlier year’ and ‘later year’ will be used.  These refer to:

‘earlier year’ - a tax year which ends before 6 April 1998

‘later year - a tax year commencing after 5 April 1999.

If an earlier year you were:

paid emoluments overseas which were not liable to UK Income Tax unless they were remitted (See Note 2 on page 4) to the UK, and

during this year you have remitted some or all of those sums to the UK, and

those sums do not appear on your Employment Pages

enter the amount remitted in box 1.     1 £

Copy the figure from box 1 to box 1.10 of your Employment Pages.

If you are in receipt of ‘foreign emoluments’ (Note 4 on page 4) and you wish to claim a deduction for '‘corresponding payments'’(see Note 5 on page 4), enter the amount of the deduction in box 3.  Relief for loan interest is given in terms of tax and restricted by 10%.  Calculate the figure for inclusion in box 2 by multiplying loan interest by 15%, for example, £10,000 x 15% = £1,500.  State which corresponding payments you are claiming in the 'Additional information' box on Page E2 of the Employment Pages.      2 £

Loan interest should be entered in box 15.2 of the Tax Return.  Other corresponding payments should be entered in box 1.35 of the Employment Pages.

Add together the figures from boxes 1.8, 1.9, 1.12 to 1.23 and 1.27 on your Employment Pages.  Deduct boxes 1.32 to 1.34 and box 2 above.

Enter the total in box 3.    3 £

If any earnings entered in the Employment Pages for the year ending 5 April 1999 were received in a foreign country and you were prevented from bringing them to the UK by law, government action or a shortage of foreign currency in that country, you may be able to leave those earnings out of this Tax Return.  If you think that this applies to you, ask your Tax Office or tax adviser for help.

Enter in box 4 earnings left out of account.  4 £

If you qualify for split year treatment, see page NRN3 of the Notes on Non-residence etc., and have ticked box 9.6 you have different residence status for periods within the year.  You should use a separate copy of this Help Sheet for each period in the year when you residence status was different.  If you have not performed duties in the UK, other than incidental duties, prior to arrival or after departure, you need only report income for the period of residence.  When using work days in calculation, for example at boxes 17 and 18, remember to refer only to the period of residence.

If any of the amount in box 3 has been earned in an earlier year or will be earned in a later year, enter the amount relating to the earlier or later year in box 5.  You will need to complete Part 3 of the Help Sheet.   5 £

Part 2 refers to your residence and/or domicile status and the place(s) where the duties of your employment were performed during the year ending 5 April 1999.  The instructions below tell you which section in Part 2 to complete.

Enter in box 6 the amount in box 3 minus any amount entered in box 5.  6 £

If on the Non-residence etc. Pages you ticked boxes 9.1 and 9.3 (residence and ordinarily resident), go to Part 2 Section A.  If you ticked boxes 9.1 and 9.4 (resident by not ordinarily resident) go to Section C.  Boxes prefixed by ‘0’ refer to Non-residence etc. Pages.

Part 2

A  Resident and ordinarily resident but not domiciled in the UK

You should only complete this section if you are:

resident and ordinarily resident in the UK (you ticked boxes 9.1 and 9.3), and

not domiciled in the UK (you ticked box 9.5), and

your employer was resident outside and not resident in the UK, and

you performed the duties of the employment wholly outside the UK.

Enter in box 7 the amount from box 6, if any, which was not remitted to the UK during year ending 5 April 1999 (see Notes 1 and 2 on page 4).  7 £

Go to Part 3 if appropriate.  If not go to Part 4.

B  Resident but not ordinarily resident

(you ticked boxes 9.1 and 9.4)

B1.  If you performed the duties of the employment wholly outside the UK, enter in box 15 any amounts not remitted to the UK during year ended 5 April 1999.  Go to Part 3 if appropriate.  If not go to Part 34.  If you performed the duties of the employment partly in and partly outside of the UK go to B2.

B2.  If you received all of your earnings in the UK during year ended 5 April 199 enter zero in box 15.  Go to Part 3 if appropriate.  If not go to Part 4.

B3. If you received part of your earnings in the UK during the year ended 5 April 1999 go to B4.

B4.  Enter in box 8 the days you worked outside the UK during year ended 5 April 1999 in respect of this employment (see Note 6 on page 4).   8   days

Enter in box 9 the total number of days you worked in pursuit of this employment in the year ended 5 April 1999.   9   days

Enter in box 10 the figure from box 6 multiplied by box 8 divided by box 9.   10  £

Go to B5.

B5.  Enter in box 11 the figure from box 6 minus the figure in box 10.   11  £

B6.  Enter in box 12 the amount received in the UK duirng year ended 5 April 1999 (see Note 2 on Page 4).   12  £

If box 12 is greater than 11, subtract box 11 from box 12 and enter the result in box 13.  Otherwise enter zero in box 13.    13 £

B7.  Add together box 11 and box 13.  Enter the total in box 14.   14  £

B8.  Enter in box 14, box 6 minus box 14.    15  £

Go to Part 3 if appropriate.  If not go to Part 4.

C.  Not resident in the UK

(You ticked box 9.2)

C1.  If you were not resident for the whole of 1998-99 and:

you performed all of the duties of the employment outside the UK, you are not required to complete the Employment Pages for this employment.  (See page 6, Question 1 Employment of the Tax Return Guide and page NRN8 of the Non-residence etc. Notes).

you preformed some of the duties of the employment outside the UK, go to C2.

you performed all of the duties of the employment in the UK, enter nil in box 16.    16  £

Go to Part 3 if appropriate.  If not, go to Part 4.

C2.  If you duties were performed partly in the UK:

enter in box 17 the number of days worked outside the UK in the year ended 5 April 1999 in respect of this employment.   17   days

enter in box 18 the total number of days you worked in pursuit of this employment in the year ended 5 April 1999.    18   days

enter in box 19 the figure from box 6 multiplied by box 17 divided by box 18.    18  £

Go to Part 3 if appropriate.  If not go to Part 4.

Part 3

Payments earned in an earlier or later year

This part should only be completed if you entered a figure in box 5.

You must now establish your residence and domicile status for the earlier or later year.  Do this by completing a copy of the Non-residence etc. Pages, answering questions with information which applies to the earlier or later year. Go to paragraphs 1 to 7, as appropriate to your residence or domicile status and the place(s) where your duties were/will be performed.

If for the earlier/later year you have/will claim ‘split-year treatment’ (and ticked box 9.6) and so have different residence status for different periods within the year, it will be necessary to apportion working days and emoluments between the periods and calculate liability for each period using the appropriate sections below.

Residence and ordinarily resident but not domiciled in the UK

1. Complete if you were/will be resident and ordinarily residence but not domiciled in the UK in the earlier or later year when the emoluments were/will be earned and:

the earnings were/will be Foreign Emoluments (see Note 4 on page 4), and

the duties of the employment were/will be carried out wholly outside the UK, and

some or all of the earnings have been remitted (see Note 2 on page 4) to the UK during the year ended 5 April 1999.

Enter in box 20 the amount of those earnings which have been remitted to the UK during the year ended 5 April 1999.   20  £

Go to Part 4.

2.  If you were/will be resident and ordinarily resident but not domiciled in the UK in the earlier or later year when the emoluments were/will be earned, and

some or all of the duties of the employment were/will be carried out in the UK.

enter in box 21 the full amount of the earnings from the employment received (see Note 2 on page 4) in the year ended 5 April 1999.   21 £

Go to Part 4.

Resident but not ordinarily resident in the UK

3.  Complete If you were/will be resident but not ordinarily resident in the UK in the earlier or later year when the emoluments were/will be earned, and

the earnings are in respect of duties performed/to be performed overseas (see Note 1 on page 4), and

the earnings have been remitted (see Note 2) to the UK during year ended 5 April 1999.

Enter in box 22 the amount of those earnings which have been remitted to the UK during the year ended 5 April 1999.   22 £

Go to Part 4

4.  Complete if you were/will be resident but not ordinarily resident in the UK in the earlier or later year when the emoluments were/will be earned, and

the earnings are for duties performed/to be performed in the UK, and

you have received those earnings during the year ended 5 April 1999.  Enter in box 23 the amount of those earnings which have been received (see Note 2) during the year ended 5 April 1999.   23 £

Go to Part 4.

5.  Complete if you were/will be resident but not ordinarily resident in the UK in the earlier or later year when the emoluments were/will be earned, and:

the earnings are in respect of duties performed/to be performed partly in the UK and partly overseas.  Follow the steps set out below.

Enter in box 24 the days you worked/will work in the UK in the earlier or later year in respect of this employment.   24  days

Enter in box 25 the total number of days you worked/will work in pursuit of this employment in the earlier or later year.   25   days

Enter in box 26 the figure from box 5 multiplied by box 24, and divided by box 25.  26  £

If the amount received in the UK exceeds the figure in box 26 enter the excess in box 27.   27  £

If the amount received is less than the figure in box 26 enter zero in box 27.

Not resident but ordinarily resident or not resident and not ordinarily resident

6.  Complete if you were/will be not resident but ordinarily resident or not resident and not ordinarily resident and you received earnings in year ended 5 April 1999 in respect of duties performed in the UK in the earlier or later year.

7.1.  If you performed/will perform the duties of the employment wholly in the UK, enter the earnings received in box 28 and go to Part 4.  If not go to 7.2.   28 £

7.2  If you performed/will perform the duties of the employment partly in the UK and partly overseas, follow the steps set out below.

Enter in box 29 the days you worked/will work in the UK in the earlier or later year in respect of this employment.  29  days

Enter in box 30 the total number of days you worked/will work in the earlier or later year in respect of this employment.   30    days

Enter in box 31 the figure from box 5 for this employment multiplied by box 29 divided by box 30.   31  £

Go to Part 4.

Part 4

Transfer of information to Employment Pages.

1.  Add together the boxes 20, 21, 22, 23, 26, 27, 28 and 31 and enter the total in box 32.  32  £

Subtract box 32 from box 5 and enter the result in box 33.    33  £

2.  The figures from boxes 33, 7, 15, 16, 19 or box 4 as appropriate should be added together and the total entered in box 34.   34  £

3.  Go to the Employment Pages and enter in box 1.31 the figure from box 34.

Notes

1.  Duties can be treated as performed wholly outside the UK even when some of the duties are in fact performed in the UK, so long as the UK duties are incidental to the performance of the overseas duties.  If you want to know what is meant by ‘incidental duties’ see paragraphs 6.7 and 6.8 of our information leaflet IR20: Residents and non-residents.

2.  Earnings are regarded as having been remitted if they were received in the UK in the year, or transmitted, or brought to or enjoyed in the UK in any way.  If you are provided with benefits-in-kind by your employer for use in the UK, those benefits will be part of your remitted emoluments.  See page NRN6 of the Notes to the Non-residence, etc. Pages for further explanations of ‘remitted’ to or ‘received’ in the UK.

3.  Where you received earnings abroad in an earlier year but could not bring them to the UK before this year because of government action or a shortage of foreign currency in the country where you received the earnings, you may be able to spread the tax liability back to the earlier year concerned.  If you think this may apply to you, ask your Tax Office or tax adviser for help.

4.  Foreign Emoluments are the emoluments of a person who is not domiciled in the UK from an employer who is resident outside of and not resident in the UK.  This does not include the emoluments of a person who is resident in the UK from an employer who is resident in the Republic of Ireland.

5.  Corresponding payments.  The Board of Inland Revenue has discretion to allow certain payments made by an employee out of foreign emoluments in circumstances corresponding to those which would have reduced his or her liability to UK Income Tax; for example, contributions to an overseas pension scheme.

If you think you qualify for a deduction, ask your Tax Office or tax adviser for advice.

6.  Days worked overseas are those days which have been spent outside the UK substantially performing the duties of the employment.  This may include travelling where the journey is itself part of the duties.

7.  Income remitted to the UK which has already been taxed in another country.  Add to the amount of income chargeable in the UK the amount of foreign tax attributed to that income.  If you have difficulties you should contact your Tax Office.

Example

Foreign income  £1000

Foreign tax £400

Net foreign income  £600

Income remitted to UK £300

Foreign tax to be added:

Income remitted  £300

plus foreign tax (300/600 x 400)  £200

£500

Claims for tax credit relief should be made on the Foreign Pages.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR212

Tax equalisation

This Help Sheet is intended to assist professional advisers and employer who are preparing Tax Return for tax equalised individuals.  The following assumptions have been made:

the Tax Return of tax equalised individuals will be prepared by the employer or advisers engaged by the employer

advisers or employers have experienced of preparing tax computations for foreign national employees working in the UK.

The Help Sheet does:

briefly describe tax equalisation

provide amended instructions for certain boxes on the Employment Pages

set out agreements reached by tax practitioners and the Inland Revenue regarding the treatment of tax equalised foreign national employees working in the United Kingdom.

The Help Sheet does not:

explain how to ‘gross-up- from a net emoluments position, or

apportion emoluments between UK and overseas duties, or

allocate emoluments to the Cases of Schedule E, or

calculate the figure in box 1.31 of the Employment Pages.

Definition

Tax equalisation takes various forms and is therefore difficult to define precisely.  The term is used in this Help Sheet to describe the arrangements between an employer and a foreign national employee who comes to the UK to work.  Under the terms of an agreement the employee is entitled to specified net cash emoluments and non-cash benefits.  The employer undertakes to meet UK Income Tax arising from the emoluments and provide a professional adviser to deal with the individual’s UK tax affairs.

The Employment Pages amended instructions for tax equalised individuals

boxes 1.1 to 1.5  Individuals assigned to perform duties for a UK employer while remaining employed by an overseas employer should:

enter details of the UK company which is benefiting from their services in boxes 1.1 to 1.5 and

enter details of the off-shore principal employer in the 'Additional information' box on Page E2.

box 1.8   Ignore the descriptor for this box on Page E1.  Enter:

the aggregated of cash emoluments plus

grossed up tax on cash and no-cash benefits

For tax equalised employees the figure reported is unlikely to be the same as the P60 pay figure.

box 1.9  Ignore the descriptor for this box on Page E1.  Enter chargeable amounts of emoluments received in 1998-99 though earned in an earlier or later year.   See Agreement (4) below.  If you come to an agreement with your Tax Office you may include this income in box 1.8.

box 1.10  Ignore the descriptor for this box on Page E1. Enter in box 1.10 any emoluments paid in an earlier year which are only liable to Income Tax under Case III of Schedule E if they are ‘received n’ the UK and in 1998-99 there were remittances to the UK.

boxes 1.12 and 1.23  should be completed as advised on pages EN3 - EN6 of the Notes on Employment.

box 1.31.  Amounts entered in box 1.31 may be an aggregate of:

emoluments outside the scope of Schedule E

emoluments potentially chargeable under Schedule E Case III which were not remitted to the UK in 1998-99

box 1.35  This may be used by individuals who are in receipt of foreign emoluments to claim relief for ‘corresponding payments’.  Payments which are relieved in terms of tax may be claimed at Question 15 on the Tax Return. An accompanying note should be made in the 'Additional information' box of Page E2 setting out details of the payments.

Agreements

1.  Continuation of full in-year gross-up

Full in-year gross-up computations may be prepared and used on the Tax Return for individuals who are contractually entitled to net cash and non-cash emoluments and to have UK tax liability met by the employee.

2.  P11D filing date

Where an employer has entered into an agreement with the Inland Revenue under Regulation 102 SI 1993 No. 744, the ‘Modified PAYE Agreement’, forms P11D need not be filed under 31 January of the year following the Tax Return year, subject to the agreement of the employees.

3.	Schedules of P11Dinformation

An employer may agree with their Tax Office to submit P11D information in schedule form.  The schedules should follow the layout of the form P211D and use the same box numbers.  A certificate should be provided stating that the particulars are full and truly stated according to the best of their knowledge and belief. The Inland Revenue will not accept a copy of the Employment Pages boxes 1.12 to 1.23 as a substitute P11D.

4.   Performance Bonuses

The Inland Revenue has accepted that an Inspector may enter into an operation agreement with a taxpayer or adviser to:

accept cash or receipts basis for the treatment of bonuses, as opposed to apportioning bonuses over the performance period, or

accept accounting period bonuses or a calendar year bonuses as being co-terminus with a fiscal year, or

apportion only years of arrival and departure, with mid-assignment years being taxed on receipts basis.

Agreement is conditional upon whatever basis is agreed being applied consistently.

5.  Global Settlements

The Inland Revenue no longer operates arrangements which allow an employer to offset employees’ under and over payments and remit a single balancing payment.  However, where a number of employees are all underpaid, the employer may remit one sum together with a schedule showing the Unique Taxpayer References of the taxpayers who are to be credited.

6.  Payments on Account

The Inland Revenue has agreed that employees covered by an arrangement under Regulation 102 SI 1993 No. 744, the ‘Modified PAYE agreements’, under which the employer deducts and accounts for PAYE on a gross up of both cash and no-cash benefits, need not make Payments on Account.

But in other circumstances there my be payment son account due for a year.  where, in a tax equalisation case, an employer pays the Payments on Account due for any year on behalf of the employee, and full in-year gross up is used (see paragraph 1 above) then:

there are no PAYE implications where the employer pays the Payments on Account, and

the Payments on Account made for the year should not be entered at box 1.12 of the Employment Pages and grossed up tax on the payments on accounts should not be entered at box 1.8,

but the Payments on Account made for the year should be set-off at box E60 of the Tax Calculation Working Sheet.

7. Double Taxation Treaty Exemption

Claims for double taxation exemption should be made using the forms attached to the Help Sheets IR302 or IR304, as appropriate.  The exempt amount should not be entered on the Tax Return or supplementary Pages.  Help Sheets IR302 and IR304 require a declaration of the amount of income which is claimed to be treaty exempt.  The Inland Revenue has agreed to accept a best estimate of exempt income. However, where a claim is made in respect of a Students/Business Apprentices Article, precise figures are required so that a comparison can be made with the accepted levels published in Statement of Practice 4/1986.

8. Associated Employments

An individual who holds a number of employments which are not ‘associated’ for the purposes of paragraph 2(3) Schedule 12 and S416 ICTA 1988, need only complete Employment Pages in respect of employments from which:

he/she receives emoluments in the year and remits them to the UK, or

he/she remits emoluments to the UK which were received in an earlier year.

However, where employments are ‘associated’ Employment Pages should be completed for all of them although the amount of detail required may vary.  You should contact the Tax Office for advice.

9.  Tax Return for years of arrival and departure

In the year of arrival and assignee is likely to be Not Resident (NR) before coming to the UK and Resident and Ordinarily Resident (R/OR) or Not Ordinarily Resident (NOR) thereafter.  In the year of departure this order will be reversed: R/OR or R/NOR to the date of departure and NR thereafter.  Only report emoluments arising:

after the date of arrival, or

before the date of departure

on the Employment Pages.  The following exceptions apply:

if in the year of arrival, but prior to assignment, the foreign national has worked in the UK, emoluments arising from those UK duties should be included on the Employment Pages

if in the year of departure following permanent emigration the individual works in the UK, emoluments arising from those UK duties should be included on the Employment Pages.

Associated Points

Foreign Tax Credit

Where a claim for foreign tax credit is made in respect of a state whose fiscal year is different from that of the UK, you should apportion the overseas income and the foreign tax to arrive at the amounts falling into the UK reporting year.

Cessation of Employment or Permanent Emigration

Where an employee completes his assignment and permanently leaves the UK during the reporting year, form P85 should be sent to the Tax Office.  You may request a Tax Return so that in-year settlement can be computed.  If Returns for the year are not available, a copy of the previous year’s form, annotated with the correct dates, may be filed.  Updated computer generated forms may be used.  There is no statutory obligation for the Tax Return to be sent back before the normal filing date for the year.

Contact with the Inspector

Agreement should be reached with the local Inspector before Tax Returns prepared on the basis of an Agreement or practice described above are filed.  Any technical view taken or basis used in the Tax Return which diverges from that set out in the appropriate Notes should be described in the 'Additional information' box.


IR213

Payments in Kind - Assets Transferred

This Help Sheet tells you when to use a figure which is higher than the second-hand value (that is the market value at the date of transfer to you).  In completing box 1.12 in the Employment Pages of your Tax Return and what figure you should then put in that box if:

you were a director, or your earnings from your employment were at the rate of £8,500 or more a year, and

you (or a member of your family or household) bought, or were given, an asset by reason of your employment.

If you were given shares or share options by a reason of your employment, ask the Orderline for the Notes on Share Schemes.

For the purposes of the Help Sheet, assets are divided into two groups.  These are:

Group 1

Assets which have not been used or fallen in value* since acquisition or production by the transferor.

Group 2

Assets (other than cars, vans and mobile telephones) which have previously been provided as benefit s9 whether to your, or to some other director or employee).

If the asset was in group 1 above, enter the cost to the transferor minus what you paid for it, in box 1.12.

If the asset was in group 2 above, and it was first provided before 6 April 1980, enter the second-hand value (that is, the market value at the date of transfer to you) minus what you paid for it, in box 1.12.

If the asset was in group 2 above and it was first provided on or after 6 April 1980, use the Working Sheet to work out the figure to enter in box 1.12.

*  To decide whether an asset has fallen in value, you must compare its market value at the time of transfer to you with its market value immediately after the transferor acquired or purchased it, not with its cost to the transferor.

Working Sheet

Market value of asset when first provided as a benefit  A£

minus

Total amount charged to tax (on you or anyone else) since first provided  B£

Difference  C3

Second-hand value of the asset (market value at date of transfer to you)  D£

The greater of C and D  E£

minus

The amount you paid for asset  F£

Enter this figure in box 1.12 on the Employment Pages of your Tax Return  G£

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR210

Assets provided for private use

This Help Sheet tells you how to work out the figure to enter in box 1.22 on the Employment Pages of your Tax Return.  If, by reason of your employment, you have been provided with an asset for private use.

If, by reason of your employment, an asset other than living accommodation, a car, van or mobile telephone is put at your disposal (or used wholly or partly for your purposes) it is taxable on the basis set out below.  The cash equivalent to include in the enter in box 1.22 is:

the annual value of the asset’s use, plus

expenses (other than the cost of acquiring it) incurred in connection with it that would not have been incurred but for the provision of the benefit.

Definition of the ‘annual value of the asset’s use’

If the asset provided to you is land, the ‘annual value of the asset’s use’ is the greater of:

the gross rateable value when the property was last rated, and

any rent paid by the provider.

If the asset provided is not land, the ‘annual value of the asset’s use’ is equal to 20% * of its market value when it was first used to provide a benefit, unless the provider paid rent for it that was more than that amount.  In the latter case the rent paid replaces the lower figure as the ‘annual value of its use’.

Where the asset was first provided, or stopped being provided, part-way through the tax year, or was used by someone else, the ‘annual value of the asset’s use’ is reduced proportionately.

*  10% if the asset was first used to private a benefit before 6 April 1980

Example

On 06.0.98 a company buys a cabin cruiser on the open market for £25,000.

It immediately makes this available for the sole use of a director and the director’s family throughout the tax year 1998-99.  In the same year the company spends £2,400 on insurance, fuel, maintenance, servicing and mooring charges for the cabin cruiser.  It also paid £4,500 interest on a loan obtained to purchase the cruiser.  The director pays the company £1,500 for his use of the cruiser.

Calculation of the benefit

The amount the director has to include in box 1.22 of the benefit from the cabin cruiser being made available for his and his family’s use is:

Annual value of use of the cabin cruiser at 20% of its market value of £25,000     £5,000

Plus running costs borne by the employer  £2,400

£7,400

Minus ‘made good’ by the director  £1,500

Benefit £5,900

Notes on the example

In the example the ‘market value’ of the cabin cruiser is taken as £25,000, as this was the open market price paid by the company immediately before it was first applied as a benefit.

If the company had leased the cabin cruiser for £6,000 a year from 06.04.98, £6,000 would have been substituted for the ‘annual value of the use of the cabin cruiser’ (£5,000), shown above.

If the company had leased the cabin cruiser for less than the ‘annual value’ of £5,000 the lease rent would have been disregarded.  The calculation would have remained as shown in the example above - based on the annual value of £5,000.

The interest paid on the loan to buy the cabin cruiser does not enter into the benefit calculation.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR201

Vouchers, credit cards and tokens

This Help Sheet gives you information to help you fill in box 1.13 in the Employment Pages of your Tax Return.

Box numbers in this sheet refer to boxes in your Employment Pages.

This Help Sheet tell you about vouchers and credit cards provided to you by your employer, or by some other person by reason of your employment.  If your employer pays bills from your personal credit card you will need to include the amount in box 1.12.

What are vouchers?

Vouchers are items, including tickets, stamps, passes and other documents, you are able to exchange for money, goods or services or use for travel, including for example:

gift vouchers

vouchers or stamps for money

season tickets

tokens used to get goods from machines.

What are credit cards and tokens?

Credit cards and tokens include:

cards issued by credit card companies

charge cards

retailers account cards

and any other card, token, document or item you can use to get money, goods or services, either on credit or by someone else settling the account.  In the rest of this Help Sheet all types of credit cards and tokens are called credit cards.

How are vouchers and credit cards taxed?

You pay tax on the value of vouchers and credit cards.  But there are exceptions and these are explained overleaf.  The rules for working out that value depend on what sort of voucher, credit cards or token you get.

Cash vouchers

A voucher you can exchange for a sum of money greater than, equal to, or not substantially less than it cost the person who provided it, is called a cash voucher.  You pay tax on the money you got or could have got in exchange for the voucher.

You should have paid tax under PAYE on any cash vouchers.  So the P60 or P45 figures you have entered in boxes 1.8 and 1.11 should include the value of cash vouchers and the tax deducted.  If so, do not enter them again in box 1.13

Other vouchers

For any other voucher, you pay tax on the expense incurred by the person who provided it. This expense may have been on the voucher itself, or on the money, goods or services for which you could exchange or use it for, or both.  You should include the total of the expense in the tax year.

Example 1

Your employer pays £300 for a ticket to Paris for you and your partner and gives you vouchers for a hotel and meals.  Your employer tell you he paid £200 to the hotel for your room and meals.  You should include £500 in box 1.13.

Example 2

Your employer gives you two tickets for a concert with a face value of £25 each.  Your employer actually paid £20 each.  You should include £40 in box 1.13.

Credit cards and tokens

You pay tax on the expense of providing any money, goods, or services you get by using a credit card or token. You do not pay tax on any annual subscription for the card itself or any interest charged by the credit cards company which your employer pays.

Example 3

Your employer gives you a company credit cards.  You use it to get meals and accommodation.  Your employer pays £1,500 for the meals and accommodation plus £50 interest, and £12 annual subscription.  You should include £1,500 in box 1.13.

Payments you make

Any payments you make to your employer (or whoever provided the voucher or credit cards) for the voucher or use of the card reduce pound for pound the amount you pay tax on.  The figure your employer has given you should be the net amount.

Example 4

Cost to employer of tickets and hotel vouchers £500

Employee pays employer for tickets £300

Net amount to include in box 1.13 £200

Business expenses

You may be entitled to a deduction if you used a voucher or credit cards to pay for:

expenses incurred in performing the duties of your job, or

expenses of travelling to a temporary workplace you have to attend to perform your duties, or

an allowable professional fee or subscription.

The Notes of Employment (for boxes 1.32 to 1.35) tell you when a deduction is due. Enter the total value (before any deduction) in box 1.13 and claim the deduction for allowable expenses in boxes 1.32 to 1.35.

Figure to be entered in box 1.13

Add up the taxable amounts (before making any allowable deductions for expenses, fees and subscriptions) for all the vouchers and credit tokens you received and enter the total in box 1.13.

Example

Cost to employer of non-transferable meal vouchers (for 200 days)  £400

Minus 15p per day £30

£370

Other vouchers

Minus the amount paid by you to your employer £300

£200

Goods and services obtained by credit cards provided by employer* £1,000

Total to enter in box 1.13 £1,570

•	£450 was for allowable business expenses.  The deduction for these should be claimed in boxes 1.32 to 1.35

Vouchers and credit cards you do not have to include on your Tax Return.

Meal vouchers which are non-transferable are taxable only to the extent that their value exceeds 15p for each working day for which they are issued.

Do not include vouchers or credit cards if your employer has a dispensation for them.  Your employer does not have to show them on your P11D.  See the notes on boxes 1.32 to 1.35 in your Notes on Employment.

Some vouchers and certain credit cards are not taxable.  You should exclude from the total any vouchers and use of a credit card:

for car fuel for a company car where you pay tax on the fuel scale charge.  However, you must enter in box 1.13 the cost of fuel bought by credit card or voucher for any other car, such as your own car.

for fuel for a company van

for any other goods or services in connection with a car on which a car benefit charge arises (see the notes on box 1.16 in your Notes on Employment)

for a car parking space at or near your place of work

for some entertainment or hospitality: this is exempt only if

the voucher or credit card was not provided by your employer (or someone connected with him or her), and

your employer (or someone connected) did not procure the entertainment for you, and

it was not a reward for services performed or to be performed by you

for  a small gift by a third party (less than £150 in total in the year) or for an annual Christmas or other party costing less than £75 a head

for free or subsidised canteen meals on a reasonable scale provided by your employer to staff generally

for travel under arrangements which have existed since 25 March 1982 and which are for travel on passenger transport services run by your employer.  Some other travel vouchers are not taxable (for instance if you work for a company that runs passenger transport services and you get a pass to travel on another company’s buses or trains under reciprocal arrangements).  Ask your Tax Office or tax adviser if you are in doubt. You may still have to pay on the benefit in kind of the travel if you earn £8,500 or more a year.


IR202

Living accommodation

This Help Sheet helps you fill in box 1.14 in the Employment Pages of your Tax Return.  If you are provided with living accommodation by reason of your employment.

Box numbers mentioned in this Help Sheet refer to boxes in the Employment Pages and the Working Sheets on pages 2 and 3 will help you work out the amount to enter in box 1.14.

Your income from employment includes the value of any living accommodation you or your relations get by reason of your employment.  That value is made up of a basic taxable amount, plus an additional amount if the accommodation cost more than £75,000.

What is living accommodation?

Living accommodation is any accommodation that you can live in, whether you live there all the time or only occasionally. It includes houses, flats, houseboats, holiday homes and apartments.

Living accommodation does not include hotel rooms or board and lodgings, where you are dependent on someone else for cooking, cleaning or laundry, etc.  But look at the notes for boxes 1.12 and 1.22 in the Notes on Employment to decide if you need to make an entry in either box for hotel, board or lodging expenses etc.

Is there a choice to live in or live out?

If:

you can choose between taking living accommodation offered by your employer or getting a higher cash wage and arranging your own living accommodation, and

the extra wages you could get are more than the value of the living accommodation you enter in box 1.14

enter the excess in box 1.12.  Use the boxes below to calculate the amount to be entered in box 1.12.

If the extra wages are less than (or the same as) the value of the accommodation, just fill in box 1.14.

Amount of extra wages* you could have got  A £

Value of accommodation ** to be entered in box 1.14 B £

Amount to be entered in box 1.12 (enter ‘0’ if less than zero)  C £  A minus B

•	Enter the amount of extra wages for the year or, if the living accommodation was not provided to you for the whole year, the amount for the period it was provided.

**  Before any deduction for part of the living accommodation used exclusively for the duties of your job (see Step 6 in the Working Sheet on page 2).

Cash allowances and rent paid

If you get an accommodation or rent allowance or have your rent paid for you, do not put it in box 1.14.  Put it in box 1.12 instead.

Is my living accommodation exempt from tax?

Some living accommodation provided is exempt from tax.  The rules for exemption are that:

the living accommodation is necessary for the proper performance of the duties of your job, or

you are in a kind of employment where it is customary for living accommodation to be provided and the living accommodation enables you to perform your duties better, or

you face a special treat to your security because of your job, and you live in the living accommodation as a part of special security arrangements in force to protect you.

Most company directors cannot claim exemption under the first two categories.  Ask the Orderline for booklet 480 : Expenses and Benefits - A tax guide if you want more details about this.

The main occupations which satisfy the rules for exemption are:

agricultural workings living on farms or agricultural estates

lock-gate and level-crossing gate keepers

caretakers who live on the premises for which they are responsible

stewards and green keepers who live on the premises they look after

managers of public houses who live on the premises

wardens of sheltered housing who live on the premises

police officers and Ministry of Defence police

prison governors, officers and chaplains

clergymen and ministers of religion, unless engaged on administrative duties only

members of HM Forces

members of the Diplomatic Service

managers of newspaper shops that have paper rounds

managers of traditional off-licences, that is those with opening hours equivalent to a public house

head teachers and other teachers at boarding schools who have pastoral responsibility, if the accommodation is at, or near to, the school

veterinary surgeons who live close to the practice in order to respond regularly to emergency calls.

managers of company and caravan sites living on, or near to, the premises

stable staff of racehorse trainers, who live on the premises and certain key workers who live close to the stables.

If you want more details, as your Tax Office.

Working Sheet to calculate the taxable value of living accommodation that costs less than £75,000

If you have the living accommodation, and it has a rateable value and it cost less than £75,000 and you do not share it with any other employees, Steps 1 to 7 show you how to work out the basic taxable amount.

If the living accommodation cost more than £75,000, and you wish to check the figure for the additional charge your employer has given you (or to claim a deduction for business use from that amount), then following Steps 8 on page 3.

Ask your employer for information about the cost of the living accommodation.  If you share the living accommodation with other employees, or if it does not have a rateable value, or if you need further information, consult booklet 480: Expense and Benefits - A Tax Guide available from the Orderline or ask your Tax Office or tax adviser for help.

Step 1

Find out if the person who bears the cost of providing you with the living accommodation (this will usually be your employer but may have been someone else) pays rent for the property.

Enter the yearly rent in Box A

For example, your employer may pay rent of £2,500.  If so, enter £2,500 in box A

A£

Step 2

Find out what the gross rateable value was when the property was last rated.  If the property s in Scotland multiply this figure by 100/270.  Enter this in box B.

For example, a property in England may have had a rateable value of £500. If so, you would enter £500 in box B. (If the property was in Scotland and it had a rateable value of £1,350 you would again enter £500 in box B 100/270 x £1,350 = £500

B£

Step 3

Take the higher of the amounts in boxes A and B and enter it in box C*

In the example this would be the £2,500 rent paid. If your employer had owned the property and not paid rent you would have to take £500.

C£

Step 4

If you pay any money for the living accommodation (to the person mentioned at Step 1), enter in box D the total you paid for the year but if the amount in box C is less than what you pay, copy the amount in box C to box D.

D£

Step 5

Subtract box D from box C.  Enter the result in box E.

For example, if you paid £15 a week to your employer throughout the year you would subtract £780 (£15 multiplied by 52) from £2,500.  You would enter £1,720 in box E

E£

Step 6

If any part of the living accommodation is set aside exclusively for the duties of your job then multiply the amount in box C (or box E if appropriate) by the fraction that the part makes of the whole accommodation.  This is the business use amount.

For example, if one room is a study you use all the time for work, and that room is 1/7 of the whole living accommodation, then the business amount is - 246 (!,720 divided by 7)

Business use amount £

Step 7

Subtract the business use amount (if any) from boxes C or E, as appropriate.

This is the basic taxable amount.

In the example the basic taxable amount would be £1,474 (£1,720 minus £246)

Basic taxable amount £

Enter the basic taxable amount in box 1.14 in your Employment Pages unless the living accommodation cost more than £75,000.  If so, there may be an additional charge.   Follow Step 8 on page 3 if you wish to check the figure your employer have given you or work it out for yourself.

•	If the living accommodation was provided to you for part of the tax year only, take an appropriate proportion of the higher figure.  For instance, if the accommodation was first provided to you on 6 October 1998, the appropriate proportion would be:

•	182/365 x £2,500 = £1,246

•

Working Sheet to calculate the taxable vale of living accommodation that cost more than £75,000.

Step 8

Use this section to check the amount of the additional charge that may arise* if the living accommodation cost more than £75,000.

Enter in box F either:

the cost of the living accommodation (including the cost of improvements** made to it since it was acquired), or

if you first occupied the living accommodation after 30 march 1983, and your employer*** held an interest in it throughout a period beginning six years before your first occupied the living accommodation, the market value of the accommodation at the date you first occupied it plus the cost of any subsequent improvements.**

Cost of the living accommodation (including cost of improvements)**  F£

Payments made by you towards that cost or the grant of a tenancy  G£

Subtract box G from box F.  Enter the result in box  H£

Enter in box J the figure in box H minus £75,000  J£

Multiply the figure in box J by the official rate of interest at 6 April 1998 (7.25%)  K£

If the living accommodation was provided for part of the tax year only, enter here the number of days it was provided          days

Divide the number of days by 365.  Multiply the result by the figure in box K and enter this in box L   L£

Enter in box M the rent you pay for the living accommodation    M£

Enter in box N the amount of any rent that you have already included in box D   N£

Subtract the figure in box N from the figure in box M.  Enter the result in box P   P£

Subtract the figure in box P from the figure in box K (if the accommodation was provided for the whole tax year)

or

Subtract the figure in box P from the figure in box L (if the accommodation was provided for only part of the tax year).

Enter the result in box Q    Q£

If part of the accommodation is set aside exclusively for your job, multiply the figure in box Q by the fraction you used at Step 6 to work out the business use amount.  This is the business use amount

Business use amount £

Subtract the business use amount from the figure in box Q.  This is the additional taxable amount

Additional taxable amount £

Enter the basic taxable amount from Step 7  £

Add the additional taxable amount to the basic taxable amount.  Enter the total in box 1.14 in your Employment Pages   £

*  There is no additional charge if the basic charge is based on a full open market rent.

**  Do not include improvements made in the 1998-99 tax year.

***  Or whoever provided the accommodation to you, or a connected person.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

•


IR203

Car benefits and car fuel benefits

This Help Sheet gives you information to help you fill in the boxes 1.16 and 1.17 on the Employment Pages of your Tax Return.  The notes below refer, by letter to boxes you will need to fill in on the Working Sheet on page 3.  The box numbers below refer to boxes on the Employment Pages.  You will need to fill in a separate Working Sheet for each car made available to you in the year 1998-99.

Page 4 contains an example of how to fill in the Working Sheet.

Car ‘cash equivalent’

A   enter the price of the car and the price of any optional accessories that were available with the car when it was first provided to you.  Ask your employer for the details you need to fill in box A (box B).  ‘Price’ for the purpose of the car benefit charge will usually be the total of :

the manufacturer’s importer’s or distributor’s list price of the car

the published price for the day before the date of the car’s first registration including VAT, car tax (where appropriate) and delivery charges including number plates.  But if the car is one which was manufactured to run on road fuel gases (compressed natural gas - CNG, r liquid petroleum gas - LPG) from new, exclude from list price the amount which is solely attributable to equipment necessary to allow the car to run on CNG or LPG.  This will normally mean that you use the price of the equivalent petrol model.

and

the list price of optional accessories (excluding those optional accessories shown below)

the price published for any accessories with the car when the car was first made available to you including VAT, car tax (were appropriate) and the fitting and delivery charges.

Exclude from the optional accessories in A:

any mobile telephone

any accessory designed solely for use by a disabled person

if you are a disabled person entitled to an ‘orange badge’ at the time the car was first made available to you, other equipment which was made available for use with the car because it enabled you to use the are in spite of the disability for which you were entitled to the ‘orange badge’.

the cost of converting the car to run on CNG or LPG

and any accessory which

you own yourself, or

is necessarily provided for use in the performance of the duties of your employment, or

is never fixed to the car (for example, maps, rugs).

There are separate rules for cars with no ‘list price’ and ‘classic cars’ - see booklet IR 113: Income tax and company cars from 6 April 1994: a guide for employees or booklet 480, Expenses and benefits - a Tax Guide for details.

B  Price of accessories added after the car was first made available to you.  If any accessories were added to the car after the car was first made available to you (either in 1998-99 or previous years) the price of those accessories must be entered in box B.  The price of an accessory for this purpose includes VAT, car tax (were appropriate) and the fitting and delivery charges.  The price of these additional accessories will be on the P11D.

Exclude from box B

any mobile telephone

any accessory designed solely for use by a disabled person

if you are a disabled person entitled to an ‘orange bade’ at the time the car was first made available to you, other equipment which was made available for use with the car because it enabled you to use the car in spite of the disability for which you were entitled to the ‘orange badge’

the cost of converting the car to run on CNG or LPG

and any accessory or set of accessories which

was available with the car when the car was first made available to you (already included at A), or

had a price of less than £100, or

was added before 1 August 1993 if the car was available to you before that date, or

you own yourself, or

is necessarily provided for use in the performance of the duties of your employment, or

is never fixed to the car (for example maps, rugs), or

replaced as previous accessory and is not superior to the accessory it replaced, or

was added after the car was first made available and then removed before 1998-99

D  Capital contributions.  Enter the amount of any lump sum payments you made toward the cost of buying:

the car, or

the accessories included in boxes A or B

The maximum capital contribution which is allowable as a deduction is £5,000, even if you contributed more than that amount during this or earlier years.

E  This figure is the price of the car for tax purposes - not the price paid for the car.  It is used to calculate the car benefit cash equivalent on which you will pay tax.  It will be the same figure each year that you have the car, unless accessories are added to the car in later years (see B above).  The price of the car for tax purposes is limited to a maximum of £80,000.

G   Business mileage discounts are given depending on the level of your business travel in the car.  Business travel means travelling which you were necessarily obliged to do in the performance of your duties or travel to a temporary workplace you had to attend to perform your duties (see the notes for box 1.32 in your Notes on Employment) .  If you had more than one car available for private use at the same time, the ‘first car’ is the car which you used for the greatest amount of business travel.  The 2,500 and 18,000 mile limits are annual amounts.  If the car was unavailable for part of the year, as explained at K on page 2, the mileage limits are reduced on a time basis.

Example

If a car was only available for the first 73 days in the tax year, the business mileage limits are reduced to 500 and 3,600 miles, for that period (73/365 x 2,500 or 18,000 respectively).  See also the note about replacement cars below.

In this example the car benefit charge for the car is reduced by one third for 500 or more business miles and by two thirds for 3,600 or more.

If there is a change of car during the tax year, the limits must be reduced proportionately for each car.  They are then applied separately to the business miles you have driven in each car. Sometimes this will mean that there is, for example, a one third reduction applied to the benefit charge for one car and a two thirds reduction for the other.

K  Time apportionment.  The benefit charge is reduced on a time basis in proportion to the number of days when the car was unavailable to you or members of your family or household.  It is treated as unavailable on any day:

before it was first made available to you, or

after it finally stopped being available to you, or

if that day fell in a continuous period of 30 days or more throughout which it was not available to you.

Note:  This is a test of availability of the car, not whether it was used.  A car may not be used for a continuous period of 30 days but it may still be available to an employee during that period.  There is no time apportionment for periods of less than 30 days during which the car was not available .  See next column for the treatment of ‘replacement cars’ in this situation.

M  Payments for private use.  If as a condition of the car being available for your private use, you are required to make payments for that private use, the amount that you paid in or in respect of the year is deducted.  Enter the amount you paid for the private use of the car in box M.

N  Car benefit charge.  This is the amount on which you will pay tax for the benefit of this car.  You should add the amount in this box to any other box N figures for other cars which you were provided with in the year and include the total in box 1.16.

Car fuel scale charge

A fuel scale charge will apply if you are provided with fuel for private use in a car which is made available to you, unless you make good the cost of all the fuel used for private journeys in the year. The amount of the fuel charge depends on the car’s engine size and the type of fuel.  A separate fuel scale charge applies for each car, except replacement cars (see below).  The fuel scale is time apportioned if the car was unavailable for part of the year s described in K above.

If your employer provided fuel for car for business travel only, or if you made good the whole of the cost of the fuel used for private travel, enter ‘0’ in box  Q on the Working Sheet.

The car fuel scale charges

Cylinder capacity (cc)  Cars with petrol engines*   Cars with diesel engines

1,400 or less  £1,010  £1,280

more than 1,400 but not more than 2,000  £1,280  £1,280

more than 2,000  £1,890  £1,890

Cars without a cylinder capacity (for example, with rotary engines) all have a car scale charge of £1,890

•	includes also other non-diesel fuels, for example, LPG

Q  The car fuel benefit charge.  This is the amount on which you will pay tax for the fuel provided for private use in this car.  You should add the amount in this box to any other box Q figures for other cars for which you were provided with fuel for private use in the year and include the total in box 1.17.

Replacement cars

If your normal car was unavailable for a continuous period of few than 30 days and during that time you were provided with a replacement car (for example, because your normal car was undergoing repairs), then you will not be charged to tax for the replacement car, provided the replacement car:

was of a similar quality to your normal car, or

was not made available to you as part of an arrangement to provide you with the benefit of materially better car.

When this applies:

the business mileage which you travelled in the replacement car is treated as though it was travelled in your normal car - so include that mileage in your calculation at box G

any payment which you were required to make for the private use of the replacement car is treated as though it was a payment for the private use of your normal car - so include the amount at box M

there will not be a fuel scale charge for the replacement car in addition to the fuel scale charge for the normal car.

Summary

Complete a separate calculation for each car which was made available to you or members of your family or household during the year, unless the car was a replacement car (see above) or the car qualified as a ‘pool car’ for tax purposes.

References to the availability of a car for an employee includes availability of the car for members of his or her family or household.  Include in box 1.22 of your Employment Pages the benefit of any chauffeur provided by reason of your employment.

Further details and examples are available in booklet IR133: Income tax and company cars from 6 April 1994 : a guide for employees or booklet 480, Expenses and benefits - a Tax Guide available from the Orderline

Remember if you had more than one car in the 1998-99 tax year you will need to add up figure sin boxes N and Q respectively in all the Working Sheets you have completed (one for each car) before filling in boxes 1.16 and 1.17 of your Employment Pages.

Working Sheet

Make  Model

Available for full year?  YES/NO

Date first available    Date last available

Price of the car  £

Price of optional accessories  £

total car and accessories (from P11D)  A£

Price of accessories added after car was first made available to you (from P11D)  B£

C£  A + B

Capital contributions you made towards the cost of the car or accessories (maximum £5,000)  D£

Price of the car for 1998-99 (maximum) £80,000)   E£    C minus D

The car benefit charge

Full benefit charge (35% of price of car for the year)  F£  35% ox E

G£   see table aside

Business mileage discount

business mileage discount first car additional car(s)

less than 2,500  no discount  no discount

2,500 but less than 18,000  1/3 x F  no discount

18,000 or more 2/3 x F  1/3 x F

H£  F minus G

Age discount for cars four or more years old on 5 April 1999: 1/3 x H (zero if less than four years)   I£

J£  H minus G

Time apportionment for unavailability.  Number of days unavailable *        K£   /365 x J

L£  J minus K

Payments made for private use of the car  M£

Car benefit charge for 1998-99  N£  L minus M

The car fuel benefit charge

Car fuel (petrol, road fuel gas or diesel)         Engine size       cc

Car fuel scale charge (see page 2)  O£

Time apportionment for period car unavailable

Number of days unavailable *          P£    /365 x O

Car fuel benefit charge for 1998-99   Q£   O minus P

Enter the figure in box N in box 1.16

Enter the figure in box Q in box 1.17

*  If time apportionment is applicable, you must use the same number of days unavailable for car and fuel.

Example

In August 1996 Joe Soap had a new company car made available to him.  It was an Acme Roadrunner 1.8, and the list price was £14,500 plus delivery charges of £500.  Joe had asked for air conditioning to be fitted and his employer agreed, provided that Joe paid the £1,000 that this cost.  In order 1996 Joe asked for the stereo system to be upgraded, and agreed to pay the extra cost of £500.

Joe pays £100 per month to his employer in return for the private use of the car.  His employer provides fuel for both business and price use. In 1998-99 Joe drove 1,000 business miles in the car before parting with it on 31 July 1998.  He took delivery of a new car the next day.  Joe’s Working Sheet for the Acme Roadrunner for 1998-99 is shown below.

Working Sheet

Make Acme   Model  Roadrunner

Available for full year?  NO

Date first available 6/4/98   Date last available 31/7/98

Price of the car  £15,000

Price of optional accessories  £1,000

total car and accessories (from P11D)  A£16,000

Price of accessories added after car was first made available to you (from P11D)  B£500

C£16,500  A + B

Capital contributions you made towards the cost of the car or accessories (maximum £5,000)  D£1,500

Price of the car for 1998-99 (maximum) £80,000)   E£15,000    C minus D

The car benefit charge

Full benefit charge (35% of price of car for the year)  F£5,250  35% ox E

G£1,750   see table aside

Business mileage discount

business mileage discount first car additional car(s)

less than 2,500  no discount  no discount

2,500 but less than 18,000  1/3 x F  no discount

18,000 or more 2/3 x F  1/3 x F

H£3,500  F minus G

Age discount for cars four or more years old on 5 April 1999: 1/3 x H (zero if less than four years)   I£ zero

J£3,500  H minus G

Time apportionment for unavailability.  Number of days unavailable *   248     K£2,378   /365 x J

L£1,122  J minus K

Payments made for private use of the car  M£400

Car benefit charge for 1998-99  N£722  L minus M

The car fuel benefit charge

Car fuel (petrol, road fuel gas or diesel)  petrol       Engine size   1800    cc

Car fuel scale charge (see page 2)  O£1,280

Time apportionment for period car unavailable

Number of days unavailable *       248   P£870    /365 x O

Car fuel benefit charge for 1998-99   Q£410   O minus P

Enter the figure in box N in box 1.16

Enter the figure in box Q in box 1.17

*  If time apportionment is applicable, you must use the same number of days unavailable for car and fuel.

Joe had the car for 117 days in the tax year 1998-99.  To qualify for a one-third discount he had to drive at least 801 business miles (2,500 x 117/365)

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR204

Lump sums and compensation payments

The two Working Sheets in this Help Sheet tell you how to deal with lump sums that derive from an employment.  They tell you what figures to enter in boxes 1.24 to 1.30 in the Employment Pages of your Tax Return.

This Help Sheet covers

payments (excluding pensions) and benefits given:

on a termination of employment

on a change of employment terms

on or after retirement or death - but only from an unapproved scheme.  (An unapproved retirement benefits scheme is a scheme set up by your (ex) employer to provide retirement or death benefits.  It does not include a scheme approved by the Revenue.

after termination of employment as a result of an agreement at termination

contributions by your employer to an unapproved retirement benefits scheme.

Different rules apply to these different items and the Working Sheets direct you through them.  If you are in any doubt, ask your Tax Office or tax adviser.

Start with Working Sheet 2

You will not need to look at Working Sheet 1 unless a lump sum relates to an employment that involved ‘foreign service’.  ‘Foreign service’ is the item for which you were employed but  were not resident and ordinarily resident in the UK.  If this applies, Working Sheet 2 will direct you.

If you need more advice, ask your Tax Office or tax adviser, or ask for leaflet IR20 ‘Residence and non-residence’ from the Orderline.

Filling in the Working Sheet

Completing Working Sheet 2 involves four steps

Step 1  Enter all the lump sums, benefits, contributions and so on relevant to the year ended 5 April 1999 (regardless of whether tax has been deducted under PAYE).

Step 2  Next, the sums should be divided up so that the right rules can be applied to the different types.

Step 3  Make adjustments for the various deductions that reduce the tax to pay on the sums.  You may find it useful to have your Employment Pages to hand, as you will be asked to copy figures to it as you go.  However, make sure you finish all the Working Sheet boxes.

Step 4  Calculate taxable figures.  Transfer these figures to your Employment pages.

Working sheet 1: foreign service

First fill in boxes G to K in Working Sheet 2.

Full exemption: box L Working Sheet 2

You get full foreign service exemption if:

75% of your service was foreign service, or

the last 10 years were foreign service and the total service was more than 10 years, or

the total service was more than 20 years and 50% was foreign service (including any 10 of the last 20 years).

If this applies to you:

ignore the rest of this Working Sheet

return to box L and enter the sum from box J there.  Only enter in box L that sum which is from the employment in which you had ‘foreign service’.  Then continue filling in Working Sheet 2.

If this full exemption does not apply, you may be entitled to a foreign service reduction. See below.

Foreign service reduction: box N of Working Sheet 2

If full exemption does not apply, but you have some foreign service, you still qualify for some relief.

Enter, in box A the figure from box J of Working Sheet 2 which is the employment with foreign service

A£

B£30,000

C£   box A minus box B

Enter the total service in the employment in months  D

Enter the number of months of foreign service (the definition is in the column opposite) in the employment    E

Box C x box E and dividend by box D    F3

Copy the figure in box F to box N on Working Sheet 2 on page 3, then fill in the rest of that Working Sheet starting at box M.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Working Sheet 2

Enter in box G the total lump sum(s), benefits, contributions and so on received (following the guidelines in Step 1 overleaf), whether or not tax was deducted under PAYE.  Any non- cash benefits need to be valued: the section of the booklet 480 ‘Expenses and Benefits’ dealing with terminations, available from the Orderline, provides guidance.  Do not include here any such benefits received while still an employee - see instead boxes 1.12 to 1.23 of the Employment Pages.  Leave out sums for retirement benefit schemes that are:

approved by the Inland Revenue

statutory schemes (for example, Local Government Pension Schemes and the Principal Civil Service Pension Scheme)

foreign government schemes

Leave out:

payments for counselling services provided in connection with termination of employment where they are exempt from tax; your Tax office or tax adviser can provide further information if needed

reimbursed legal costs paid direct to your solicitor as part of a termination settlement dealing only with compensation for loss of employment.

For members of Her Majesty’s forces only, also leave out:

any terminal grant, gratuity or other lump sum paid to you under Royal Warrant, Queen’s Order or Order in Council

G£

Now divide the figure in box G into three parts.

1.	Enter in box H any part of the sum in box G which is:

part of the salary from employment (for example, salary due on termination and included in a lump sum)

for a holiday entitlement

a payment in lieu of notice (unless there was no entitlement to it in any terms of your employment or there was no custom of making such payments by the employer. For example, if any of your contractual terms allowed the employer to terminate your employment without notice if a payment was made you should include it in box H)

a bonus - that is, an extra payment for services you have in the employment

any other sum or benefit made available because of an entitlement in your contract.  But do not include redundancy payments and benefits (that is, payments made as compensation for the loss of a job due to a reduced need for employees in the business) provided that the contractual term or scheme refers specifically to redundancy

compensation for changes in terms and conditions of employment (such as the removal of a benefit).  If the changes are very wide ranging, box J may apply --your Tax Office can advice if necessary

expected as a result of service as an employee for example, the employer may always make his payment when someone leaves and so it is expected

for a restrictive covenant (that is, an undertaking given which restricts your conduct, such as agreeing not to compete with your (ex) employer).

H£   Enter this figure in box 1.27 unless it is zero.

2	Enter in box 1

contributions made by your employer to an unapproved retirement benefits scheme, and

receipts from an unapproved retirement benefits scheme (but not pensions, which belong in box 11.10 in your Tax Return).  If you are not also a member of an approved scheme this sum may be free of tax.  Ask your Tax office about Statement of Practice 13/91

I£

3  Enter in box J the figure in box G, minus the figure in box H minus the figure in box I  J£


IR205(S)

Foreign Earnings Deduction : Seafarers

This Help Sheet helps you decide if you qualify for foreign earnings deduction.  If you do, it enables you to calculate your qualifying period and the deduction to be entered in box 1.37 of the Employment Pages of your Tax Return.

You can qualify for the foreign earnings deduction as a seafarer if:

you perform all your duties on a ship, or

you perform most of your duties on a ship, and the other duties are incidental to the duties on the ship.

The word ‘ship’ is not defined in tax law, but ‘offshore installations’ used in the offshore oil and gas industry are specifically identified and are not regarded as ‘ships’ for the purposes of the Foreign Earnings Deduction.  The following list of ‘offshore installations’ is given as a guide only:

fixed production platforms

floating production platforms

floating storage units

mobile offshore drilling units (both semi-submersibles and jack-ups)

flotels

If you work on an offshore installation, you are not regarded as a ‘seafarer’ for the purposes of Foreign Earnings Deduction and so cannot claim the Deduction.

The employment duties of a seafarer are regarded as being performed outside the UK if they are carried out on a vessel that is engaged on a voyage or part voyage which begins or ends outside the UK.  For this purpose, the UK section of the North Sea is treated as part of the UK.  If you had more than one employment in the qualifying period, you may only claim Foreign Earnings Deduction for those in which you performed duties outside the UK.

A ‘qualifying period’ is made up mainly of days when you are absent from the UK.  You are absent from the UK on a particular day if you are outside the UK at midnight at the end of that day. Non-work days spent outside the UK may be counted as days of absence.  A return visit to the UK can also count towards the ‘qualifying period’ if:

no single return visit lasts for more than 183 consecutive days, and

the total number of intervening days you have spent in the UK is not more than one-half of the total number of days from your first day abroad to the last day of the period you spent abroad after that return visit.

Intervening days in the UK may only be counted if they occur between periods of absence.  You cannot, for example, make a claim for a period of 365 days which consist of 183 days abroad followed by 182 days in the UK.

The Working Sheet on page 3 will show you if you have a ‘qualifying period’ of 363 days or more.  Follow the steps set out below showing you how to complete the Working Sheet.

Leaflet IR?? : Seafarers, available from the Orderline, provides more information

How to complete the working sheet

Step 1  Enter in column A the dates you left the UK

Step 2  Enter in column B the dates you returned to the UK

Step 3  Work out columns C and D

Step 4 Is any entry in column D greater than 183?  If ‘yes’ go to Step 5.  Otherwise go to Step 6

Step 5  Treat the rows in the table above the entry in column D as a separate table.  Rule off and start again.  Treat the rows below the entry as a new table.  Apply Steps 6 to 10 to each ‘separate table’.

Step 6  Work out column E, F, G and H

Step 7  If there are any ‘Yes’ entries in column H go to Step 8.  If there are no ‘yes’ entries in column H, look at the last number in column E.  If that number is 365 or more, you have a qualifying period of 365 days or more which runs from the date in column A at the start of your table to the last date in column B.  If the number is less than 365, no foreign earnings deduction is due.  Ignore Steps 8, 9 and 10.

Step 8  Are there any ‘no’ entries above the first ‘yes’?  If there are, go to Step 9.  If not, restart the table two rows lower and continue as if you have a new table (for example, if you arrived at this point with a table starting at A1, ignore rows 1 and 2 and start again at A3, and so on.). Go back to Step 6.

Step 9  Go to the last ‘no’ entry above the first ‘yes’ in column H.  Look at the number in column E on the same row.  If the number is less than 365, to go Step 10.  If the number is 365 or more, you have a qualifying period for the foreign earnings deduction running from the start or your table to the date in column B in the row you have been looking at in this step.  To see whether there are any further qualifying periods, go to Step 10.

Step 10  Restart the table two rows lower and continue as if you have a new table (for example, if you arrived at this point with a table starting at A1, ignore rows 1 and 2 and start again at A3, and so on.)  Go back to step 6.

Finally look at all the qualifying periods you have worked out using Steps 6 to 10.  (They may overlap.)  Enter in box 1.37 the total of the amounts received during the year ended 5 April 1999 which:

were from an employment where you worked wholly or partly overseas, and

were earned during the qualifying period(s) calculated, minus

any superannuation contributions, allowable expenses, and capital allowances deductible from the amounts earned during the qualifying period.

More than one employment

If you had more than one employment during the qualifying period, and the employments were with the same employer, or with employers who were associated with each other, the foreign earnings deduction may be restricted.  If you think this may apply to you, ask your Tax Office or adviser for help before completing box 1.37.

Records

You should retain your discharge book and all other documents which support your claim.  Do not send them with your Tax Return, but you may be asked to provide them at a later date.

Working Sheet for box 1.37

A  B  C  D  E  F  G  H

Date of departure

Date of return

Days out of UK

Days in UK

Running total of all days

Column E x ½

Running total of UK days

Is Column G greater than Column F YES/NO

1	/  /  1

2  /  /  B2 minus A1    C2   2

3  /  /  A3 minus B2   D3 + E2    D3    3

4  /  /  B4 minus A3    C4 + E3   E4 x F1   G3>F4?  4

5  /  /   A5 minus B4  D5 + E4   D5 + G3   5

6  /  /  B6 minus A5   C6 + E5   E6 x F1!   G5 >F6?    6

7	/  /  A7 minus B6  D7 + E6  D7 + G5  7

8  /  /  B8 minus A7   C8 + E7   E8 x f1   G7 >F8?  8

9  /  /      A9 minus B8  D9 + E8   D9 + G7  9

10  /  /  B10 minus A9   C10 + E9  E10 x F1   G9 > F10?  10

11  /  /  A11 minus B10  D11 + E10    D11 + G9  11

12  /  /   B12 minus A11   C12 + E11   E12 x F1   G11 > F12?  12

13   /  /    A13 minus B12   D13 + E12   D13 + G11  13

14  /  /  B14 minus A13    C14 + E13    E14 x F1   G13 > F14?   14

15   /  /  A15 minus B14  D15 + E14  D15 + G13   15

16  /  /  B16 minus A 15   C16 + E15  E16 x F1   G15 > F16?   16

17  /  /  A17 minus B 16   D17 + E16   D17 + G15  17

18  /  /   B18 minus A17   C18 + E17   E18 x F1   G17 > F18?  18

19   /  /    A19 minus B18  D19 + E18   D19 + G17    19

20  /  /   B20 minus A19   C20 + E19  E20 x F1    C19 > F20?  20

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR206

Capital allowances for employees and office holders

This Help Sheet helps you fill in boxes 1.23 and 1.35 of the Employment Pages in your Tax Return to show your capital allowances and balancing charges.

What are capital allowances and balancing charges?

Capital allowances are deduction from your taxable income. They are an allowance for the depreciation of assets or equipment that you have to provide to carry out your duties as an employee.  Capital allowances are included in box 1.35 of the Employment Pages of your Tax Return.

Balancing charges are an addition to your taxable income. They sometimes arise when you sell assets or equipment on which you previously claimed capital allowances, or if you stop using them for your work.  Balancing charges are entered in box 1.23 (with expenses payments received) in the Employment Pages of your Tax Return.

This Help Sheet tell you how to work out your capital allowances and balancing charges for items other than motor cars.  You can use the Working Sheets to calculate the figures you will need. The examples on pages 6 and 7 show you what to do.

If you want to claim capital allowances for a motor car which you use for work ask the Orderline for leaflet IR125: Using your own car for work.

Which expenses qualify?

Capital allowances will normally be available on the cost to you of assets or equipment it is necessary for you to provide in carrying out your duties as an employee.  Generally speaking, anything you use in your work that has a useful life of at least two years may qualify for an allowance.  Typical examples are office equipment such as desks and filing cabinets.

Assets and equipment are regarded as ‘necessary’ if you could not do your job without them.  They must be things that each and every person doing your job would have to provide.

How are capital allowances calculated?

For 1998-99 there are two kinds of capital allowances:

‘first year allowances’ can be claimed on the cost of assets and equipment bought in 198-99

‘writing down allowances’ can be claimed

on the cost of assets and equipment which you acquired in 1998-99 and on which you have not claimed first year allowances, and

on the value brought forward (the ‘written down value’) of items on which you claimed capital allowances for 1997-98.

First year allowances

Provided that your employment continued after 5 April 1999 you can claim a first year allowance on the cost of assets and equipment (but not motor cars) bought in 1998-99.  The allowance due is a percentage of the cost of the item in question.  The percentage o be used depends on when the item was bought, and where it is to be used, as follows:

Date when item purchased (all dates inclusive)

Rate of first year allowance

Items acquired by small and medium sized businesses for use primarily in Northern Ireland

6.4.98 to 11.5.98  50%

12.5.98 to 5.4.99 100%

Items acquired for use elsewhere

6.4.98 to 1.7.98  50%

2.7.98 to 5.4.99  40%

If the asset is used only partly for work the first year allowance is reduced accordingly.

Example 1

On 6 October 1998 Jane starts a new job and has to spend £600 on a word processor to enable her to do her work.  She uses the word processor 10% for private purposes and 90% for work.  The word processor is not used in Northern Ireland.  Jane claims a first year allowance for 1998-99 as follows:

Cost of word processor   £600

First year allowance (40%)   £240

Allowance due = business proportion (90% x £240)  £216

(Value to carry forward to 1999-2000 (£600 - £240)  £360)

Note: the full 40% first year allowance is due (subject to the restriction for private use) even though Jane’s employment started part way through the tax year.

If the asset is wholly for work, the value carried forward (if any) should be included in the ‘pool’ of assets and equipment on which writing down allowances will be claimed for 1999-2000 onwards (see the notes on Working Sheet 2 on page 3).

If the assets is used partly for work, the asset stays out of the pool and writing down allowances for 1999-2000 onwards will be calculated separately (see the notes on Working Sheet 3 on page 3).

First year allowances - other points to note

You do not have to claim first year allowances.  If you wish, you can claim writing down allowances instead.  You can also claim first year allowances on part of the qualifying expenditure and writing down allowances on the rest.

Provided that your employment continued after 5 April 1999, you can claim a first year allowance for 1998-99 even if you sell the items in question on or before 5 April 1999.  In that case, any unrelieved balance (£360, in Example 1 on page 1) does not have to be carried forward in full to 1999-2000.  You can take it into account in calculating a writing down allowance (or balancing allowances) for 1998-99 (see notes on Working Sheets 2, 4 and 5).

The 100% first year allowance for assets and equipment acquired for use primarily in Northern Ireland will be withdrawn if, within 2 years of the date of purchase, and while you or a person connected with you still own the item in question

the primarily use to which the item is put is a use outside Northern Ireland, or

it is held for use otherwise than primarily in Northern Ireland.

You must let the Tax Office know if either of these things happens after you have made your Tax Return.  If the 100% first year allowance has to be withdrawn you will be able to claim the appropriate ‘elsewhere’ rate of first year allowance, or a writing down allowance, instead.

Working Sheet 1 - First year allowances

If your employment continued after 5 April 1999, use Working Sheet 1 to calculate your first year allowance for assets or equipment bought in 1998-99.  If you want to claim first year allowance for more than one item:

all the items that you use wholly for work and which attract the same rate of first year allowance can be included on the same Working Sheet  A£

each item that you se only partly for work must be entered on a separate copy of Working Sheet 1  B£

Cost of item(s) bought in 1998-99  C£

First year allowance due (see Note 1)

Business proportion of box B (see Note 2)  D£   box A minus box B

Copy the figure in box C to box 1.35

Value to carry forward (see Note 3)

(keep for next year’s Employment Pages)

Note 1: see the notes on page 1 of this Help Sheet for the appropriate rates.

Note 2: if the asset is used wholly for business, the figures in boxes B and C will be the same.

Note 3: if the asset is used wholly for business, the value carried forward will be included in your ’pool’ for 1999-2000 (there is more about pooling in the notes about writing down allowances).  If the asset is used only partly for work the value stays out of the pool and writing down allowances for 1999-2000 will be calculated separately.

Writing down allowances

Except where first year allowances have been claimed (see above), the cost of assets or equipment that you use wholly for your employment is added together to form a ‘pool’ of allowable expenditure.  Writing down allowances are given for each tax year of continuing employment at a rate of 25% of the unrelieved expenditure in the ‘pool’ at the end of the year (see Working Sheet 2).

Some items must be kept out of the pool, and you have to work out a separate capital allowance (or balancing charge) for each item.  Things that require a separate calculation are:

any assets or equipment that you use only partly for work

any assets or equipment on which you have made an election for ‘short life asset’ treatment.

There is more information about ‘short life assets’ on page 5.

Time apportionment (writing down allowances only)

If you started your employment during the tax year the writing down allowances for the first year must be apportioned on a time basis.  For example, if you stared a new employment on 6 June you would claim 10/12 ths of the 25% allowance.

Note that if you buy an asset or an item of equipment part way through the tax year you are still entitled to the full 25% writing down allowance as long as you were in the same employment throughout that year.  But see the note on Working Sheet 3 about a ‘private use’ adjustment, for items used only partly for work.

Working sheet 2 - ‘Pool’ of assets and equipment used wholly for work.

Use Working Sheet 2 to calculate your writing down allowance for assets or equipment that you use wholly for work (but not ‘short life assets’).  Use Working Sheet 2 if your employment continued after the end of the tax year.  If your employment ended during the year, use Working Sheet 4 instead.

The calculation in Working Sheet 2 is based on the ‘pool’ of unrelieved expenditure at the end of the year.  This is made up of :

any balance of unrelieved expenditure brought forward from 1997-98 plus

the cost (including VAT) of any additional items bought in 1998-99 on which you have not claimed a first year allowance, minus

the proceeds (sale or market value) from any equipment that you disposed of in 1998-99.

The writing down allowance due is 25% of the value of the ‘pool’ at the end of the year (calculated as above).

If during the year you start or stop using an item of equipment for your work, without actually buying or selling it, writing down allowances are calculated as if you had bought or sold the item on the date when you started or stopped using it.  The amount used in the calculation of your allowances for such items is the ‘market value’ of the item at the date when you started or stopped using it for your work.  That is, the amount that you could have got for it if you had sold it in the open market on that date.

If you have to use a ‘market value’ figure, say how you arrived at it in the 'Additional information' box.

Working Sheet - Writing down allowances: ‘Pool’ of assets and equipment used wholly for work

If your employment continued after the end of the tax year, use this Working Sheet to calculate your writing down allowance on items for which a first year allowance has not been claimed.  If your employment ended in the year, use Working Sheet 4 instead.

Pool value brought forward from 1997-98  A£

Cost of assets or equipment bought in 1998-99 (or market value, if you started using for work an item bought in an earlier year) (see Note 1)  B£

Sale proceeds of items sold in the year (or market value of items that you have stopped using for work without selling them) (see Note 2).  If the sale proceeds or value of any item are more than the original cost of that item, see Note 3   C£

Note: if C is more than A + B do not use this Working Sheet.  Use Working Sheet 4 instead.

Value available for allowances  D£  box A 9 box B minus box C

writing down allowances due (copy to box 1.35)   E£  box D x 25%

Pool value carried forward (keep for next year’s Employment Pages)  F£  box D minus box E

Note 1:  if an item on which you have claimed a first year allowance in 1998-99 is sold on or before 5 April 1999, and if you have used it solely for your work deduct the first year allowance from the original cost and add the balance (if any) to your pool for 1998-99.

Note 2:  you must include the sale proceeds (if any) of items on which you claimed a first year allowance in 1998-99.

Note 3:  if the sale proceeds or value of any item are more than the original cost of that item to you or anybody connected with you, enter the original cost instead.  Help Sheet IR293: Chattels and Capital Gains Tax explains how Capital Gains Tax may apply to these items.

Working Sheet 3: Writing down allowances - other assets and equipment

Use Working Sheet 3 to work out your writing down allowance for any asset or item of equipment that is not included in Working Sheet 2 and on which you did not claim a first year allowance. These may be:

assets or equipment that you use only partly for your work

any asset or equipment on which you have made an election for ‘sort life asset’ treatment (see page 5).

Remember that the cost of these items is not ‘pooled’. You have to calculate a separate capital allowance (or balancing charge) for each separate item.

The calculation follows the pattern of Working Sheet 2, but there is an extra step for items used only partly for work.  For those items, the 25% writing down allowance is reduced in proportion to the business use of the item.  For example, if a particular item was used three-quarters of the item for business and one-quarter privately, you would claim three-quarters of the 25% allowance.

Working Sheet 3 - writing down allowances: Other assets and equipment

Make a separate calculation for each separate item that is not included in the ‘pool’ in Working Sheet 2 and which you are still using for work at the end of the tax year, and on which you did not claim a first year allowance in 1998-99.  If, at or before the end of the tax year, you:

ceased employment, or

sold the asset or item of equipment, or

stopped using it for your work,

use Working Sheet 5 instead.

Value brought forward from 1997-98, or cost if item bought in 1998-99, or market value if you started using for work an item bought in an earlier year  A£

Writing down allowance (see Note 1)  B£   box A x 25%

Business use proportion of B (see Note 2) (Copy C to box 1.35)  C£

Value to carry forward (keep for next year’s Employment Pages)  D£  box A minus box B

Note 1:  remember that if your employment started during the year you must not claim the full 25% allowance.  See the note on page 2 on ‘Time apportionment.’

Note 2:  if the asset is used wholly for business, the figures in boxes B and C will be the same.

Balancing Allowances

A ‘balancing allowance’ is a special kind of capital allowance.  A balancing allowance may be due:

for assets and equipment in the ‘pool’ if your employment ceased during the year

for other asset(s) or item(s) of equipment if during the year

your employment ceased or,

you sold the item in question or,

you stopped using it for work, but did not sell it.

In these cases the 25% calculation in Working Sheets 2 and 3 does not apply.  Instead the allowance due is:

the balance of the expenditure brought forward from the previous year minus

the sale proceeds (or market value if you did not sell them) of the item(s) at the date of cessation, or when you stopped using them for your work.

Use Working Sheet 5 to calculate a balancing allowance for other items (making a separate calculation for each item).

For assets that were used only partly for business purposed, the balancing allowance is reduced to the business proportion as described in the Note for Working Sheet 3.

If the disposal value is greater than he value brought forward, calculate a balancing charge as described below.  Use Working Sheet 4 or 5 for balancing charges as well as balancing allowance.

Balancing charges

A ‘balancing charge’ is an addition to your taxable income.  It arises when the disposal value of an item (or items) is greater than the value brought forward.  This can happen:

if your employment ceased in the year, or

if an asset is sold, or

if you stop using an item in your work, but do not sell it.

Use Working Sheet 4 to calculate a balancing charge for items in the ‘pool’.

Use Working Sheet 5 to calculate a balancing charge for other items (making a separate calculation for each one).

You may have capital allowances (or balancing allowances) on some Working Sheets and balancing charges on others.  If this happens, do not net them off.  Instead, separately enter the amount of the balancing charges in box 1.23 and the amount of the capital allowances (or balancing allowances) in box 1.35.

Working Sheet 4 - ‘Pool’ assets and equipment:  Balancing allowances and balancing charges

Use this Working Sheet if your employment ended at or before the end of the tax year, or if you used Working Sheet 2 and the amount C is more than amount (A + B0.

Pool value brought forward from 1997-98  A£

Cost of assets or equipment bought in 1998-99, on which first year allowances have not been claimed (or market value, if you started using for work an item bought in an earlier year) (see Note 1)  B£

Sale proceeds of items sold in the year (or market value of items that you have stopped using for work without selling them) (see Note 2).  If the sale proceeds or value of any item are more than the original cost of that item, see Note 3)    C£

If (A + B) is more than C, enter the difference in box D.    D£

Copy the figure in box D (a balancing allowance) to box 1.35

If C is more than (A + B) enter the difference in box E    E£

Copy the figure in box E (a balancing charges) to box 1.23

Note 1:  if an item on which you have claimed a first year allowance in 1998-99 is sold on or before 5 April 1999, and if you have used it solely for your work , deduct the first year allowance from the original cost and add the balance (if any) to your pool for 1998-99.

Note 2:  you must include the sale proceeds (if any) of items on which you claimed a first year allowance in 1998-99.

Note 3:  if the sale proceeds or value of any item are more than the original cost of that item to you or anybody connected with you, enter the original cost instead.  Help sheet IR293: Chattels and Capital Gains Tax explains how Capital Gains Tax may apply to these items.

Working Sheet 5 - Other assets and equipment: balancing allowances and balancing charges

Use a separate Working Sheet for each separate asset or item of equipment that is not included in the ‘pool’ in Working Sheet 2 or 4, and which was no longer being used for your work at the end of the tax year.

 Value brought forward from 1997-98, or cost if item bought in 1998-99, or market value if you started using for work an item bought in an earlier year.  See Note 1 if the item is one on which you claimed a first year allowance for 1998-99.   A£

Sale proceeds of item sold, or market value if you stopped using the item for work without selling it but if the sale proceeds or value of any item are more than the original cost of that item, see Note 2.  B£

If A is more than B, enter the difference in box C.    C£

Business proportion of box C (take the figure in box D to box 1.35 - a balancing allowance)   D£

If B is more than A, enter the difference in box E     E£

Business proportion of box E ( take the figure in box F to box 1.23 - a balancing charge)  F£

Note 1:  if the item is one on which you claimed a first year allowance in 1998-99, deduct the first year allowance from the original cost and enter the balance (if any) in box A.  The first year allowance to be deducted is the full allowance for the year before any deduction for private use.

Note 2: if the sale proceeds or value of any item are more than the original cost of that item to you or anybody connected with you, enter the original cost instead. Help Sheet IR293: Chattels and Capital Gains Tax explains how Capital Gains Tax may apply to these items.

Short Life Assets

There are special rules if you intend to keep the item of equipment for only a short time, or you think it will wear out quickly.  If you acquire an item that you expect to dispose of, or which you expect to wear out within five years of the date you acquired it, you may elect to have the capital allowances calculated separately from your main ‘pool’.

This election:

must be made in writing to your Inspector of Taxes, and

must be made no later than the first anniversary of 31 January following the end of the tax year in which you acquired the item (so an election for ‘short life asset’ treatment of an item acquired in 1998-99 must be made by 31 January 2001).

The election cannot be withdrawn once it has been made.

The separate calculation of capital allowances means that relief for the actual depreciation incurred in using the item can be given more quickly than under the normal rules.

If the item has not been sold or disposed of by the end of the five year period, the balance in the ‘separate pool’ for that item is added to the ‘main pool’, then dealt with in the normal way.

For further information ask your Tax Office or tax adviser.

Financing equipment by hire purchase or leasing agreement

If you acquired equipment under a hire purchase or leasing agreement the tax consequences depend on the arrangements you make.  Broadly, the rules are as follows:

if you have a hire purchase agreement, capital allowances are due on the deposit as soon as you pay it.  Once you bring the equipment into use, the rest of the capital cost qualifies for capital allowances.  Enter these in box 1.35.

for a lease agreement, tax relief for rental payments is given as an expense deduction for the years in which they are payable.  Expense deduction go in box 1.35 in the Employment Pages.  If the lease contains any provision whereby the lessee shall or may become the owner of the item, then the hire purchase contract rules apply.

If you use the item of equipment partly for private purposes, then the relief must be apportioned.  For further guidance on this ask your Tax Office or tax adviser.

Inexpensive items of equipment

Instead of claiming capital allowances, you may be able to claim an expenses deduction for the full cost of some items in the year they are acquired.  This applies if:

the cost of the item is small, and

the item replaces one on which capital allowances have not been claimed.

Examples of the sort of items that can be dealt with in this way are small tools, or protective clothing.  For further information, ask your Tax Office or tax adviser.

Examples of capital allowances and balancing charges

Example 2 - ‘pool’ of equipment used wholly for work : first year allowance and writing down allowance.

Sue starts a new employment on 6.10.97.  She works from home, and it was necessary for her to buy the following items of equipment in order to do her work:

6.10.97

a desk costing £320

a filing cabinet costing £100

6.12.98

a reprographic machine costing £290

All these items are used wholly for work. Sue claims capital allowances for them as follows:

1997-98

Cost of desk  £320

Cost of filing cabinet  £100

£420

first year allowance (50%)  £210

Carried forward to ‘pool’ for 1998-99  £210

1998-99

Pool value brought forward £210

writing down allowance (25%)  £53

Pool value carried forward  £157

Cost of reprographic machine 6.12.98  £290

First year allowance (40%) *  £116

Value carried forward  £174

Total capital allowances for 1998-99 (£53 + £116)  £169

1999-2000

Pool value brought forward  £157

value of reprographic machine brought forward  £174

New pool value £331

writing down allowance (25%)  £83

Pool value carried forward  £248

*  for items purchased for use outside Northern Ireland the rate of first year allowance was reduced from 50% to 40% on 2 July 1998.

Example 3 - assets used partly for no-business purposes : first year allowance and writing down allowance.

The facts are the same as in Example 2 except that on 6.3.99 Sue is given extra responsibilities which means that she has to buy a word processor costing £800. She uses the word processor 90% for her work and 10% privately.

Because the word processor is not used wholly for work it does not go into the ‘pool’ in Example 2.  Instead, capital allowances on the word processor are calculated separately, as follows:

1998-99

Cost of word processor on 6.3.98  £800

First year allowance (40%)  £320

Value carried forward £480

Allowance due (business proportion)  £320 x 90%   £288

1999-2000

Value brought forward  £480

Writing down allowance (25%)  £120

Value carried forward  £360

Allowance due (business proportion) £120 x 90%  £108

Example 4 - balancing allowances and balancing charges

Sue ceases her employment on 30.11.2000.  The items which she bought in Examples 2 and 3 are disposed of as follows:

Desk (cost £320) is retained for private use, its market value at 30.11.2000 is £100

Filing cabinet (cost £100) is sold for £25

Reprographic machine (cost £290) proves to be a rare example and is sold to the company’s museum for £500

Word processor (cost £800) is retained for private use; its market value at 30.11.2000 is £200

The balancing allowances and charges for 2000-2001 are:

‘Pool’ assets

Value brought forward from 1999-2000 (see Example 2)  £248

Disposal values:

desk (market value)  £100

filing cabinet (sale proceeds)  £25

reprographic machine (original cost)  £290  *

£415

Balancing charge for 2000-2001  £167 **

Word processor

Value brought forward from 1999-2000 (see Example 2)  £360

Disposal value (market value at 30.11.2000)  £200

Balancing allowance (before adjustment for private use)  £160

Balancing allowance due for 2000-2001 (business proportion) 160 x 90%  £144 ***

*  As the sale proceeds of the reprographic machine (£500) are more than the original cost (£290) the balancing adjustment is calculated using the original cost.

**  The balancing charge of £167 goes in box 1.23 in the Employment Pages.  If the total disposal value had been less than the pool value brought forward the result would have been a balancing allowance instead.

***  The balancing allowance of £144 goes in box 1.35 in the Employment Pages.


IR207

Non-taxable payment or benefits for employees

Expenses payments and benefits you get are not always shown on your P11D.  This may be because they are covered by :

a dispensation (an arrangement your employer may have with your Tax Office to save you the trouble of including a benefit or expense payment you get and then having to make a matching claim for the allowable expenses you incur)

a PAYE settlement agreement (where your employer settles your Income Tax liability on certain benefits in kind and expense payments)

a statutory exemption or an Extra-Statutory Concession.

The full text of all Extra-Statutory Concessions is in booklet IR1: Extra-Statutory Concessions, available from the Orderline.  Brief details of the most common exemptions and concessions are below.

You do not have to pay tax on benefits and expenses covered by concessions or exemptions. If the concessions or exemptions apply to you, do not enter the benefits and expense concerned on your Tax Return.

Accommodation, supplies and services in your employer’s business premises

Accommodation, supplies or services (for example ordinary office accommodation and equipment, typist, messengers, stationery) provided for you in your employer’s business premises and used by you solely in performing your duties.

Free or subsidised meals

Free or subsidised meals provided on your employer’s business premises, or in any canteen where meals are provided for staff generally, or a ticket or token used to obtain such meals, if

the meals are provided on a reasonable scale, and either

all employees can get free or subsidised meals on a reasonable scale, whether on your employer’s premises or elsewhere, or

your employer provides free or subsidised meals vouchers for staff who do not get meals.

This concession does not apply, in the case of an hotel, catering or similar business, to free or subsidised meals provided for you in a restaurant or dining room at a time when meals are being served to the public, unless part of it is designated as being for the use of staff only.

Meal vouchers

Meal vouchers issued to you provided that:

the vouchers are non-transferable, and

they are used for meals only, and

the value of vouchers issued to you does not exceed 15p for each working day, and

where any restriction is placed on their issue, they must be available to lower-paid staff.

You pay tax on the value of any voucher or part of a voucher not meeting these conditions

Expense of providing a pension

Expenses incurred providing any pension, annuity, lump sum, gratuity, or similar benefit to be given to you or to any member of your family or household on your retirement or death may not be shown on form P11D either because they are exempt or because they are entered elsewhere.

Medical treatment abroad

The cost of necessary medical treatment abroad paid for by your employer where you fall ill or suffer injury while away from the United Kingdom in the performance of your duties.  The cost of providing insurance for you against the cost of such treatment is also non-taxable.

Nurseries and playschemes

Places in nurseries or playschemes on premises made available by your employer or, if your employer runs the nursery jointly with others, on premises made available by one or more of those others, provided that your employer participates in managing and financing the provision of care.

Certain living accommodation

The cost of living accommodation provided for you if:

it is necessary for the proper performance of your duties that you reside in the accommodation (see * below), or

the accommodation is provided so that you can perform your duties in a materially better way, and you are in the kind of employment in which it is customary for employers in that business to provide accommodation (see * below), or

there is a threat to your security and special security arrangements are in force and you reside in the accommodation as part of those arrangements.

If you living accommodation is exempt, any Council Tax your employer pays on your behalf or reimburses you, will also be exempt.

*  If you are a company direct and the company, or an associated company, provides you with accommodation, you can only seek exemption in these circumstances if:

you have no material interest in the company, and

either you are a full-time working director, or the company is non-profit making, or is a charity.

Personal incidental expenses (PIEs)

Payments that your employer makes for personal expenditure, up to certain limits, when you stay away from home for at least one night during an allowable business journey. The maximum amounts of PIEs that may be paid without any tax consequences are:

£5 per night for each night away during business journeys anywhere in the UK (Great Britain and Northern Ireland)

£10 per night for each night away during business journeys outside the UK

If the maximum for a business journey as a whole is exceeded, the full amount of the PIEs paid for that journey is taxable.

Travelling expenses of directors

Certain expenses of travelling within the United Kingdom for a direct (full or part time) of two or more companies within a group of parent and subsidiary or associated companies are exempt. The expense are those necessarily incurred in travelling between the place where the director normally acts as director of the companies within the group of other places on the business of the group in the course of his or her duties as a director.  The same principle applies to an individual who is an employee of one company and a director of another company within the same group or companies.

Travel expenses paid to a director who gives his or her services without remuneration to a company not managed with a view to dividends.

Reasonable travel expenses paid to a director by the company where the directorship is held as part of a professional practice, provided no claim is made for a deduction for that expenditure by the practice.

Where a director’s spouse accompanies the director on a business trip abroad because the director’s health is so precarious that they could not undertake the foreign travel alone, the expenses borne by the employer for the spouse’s travel on that journey.  The same principle applies to the employees as it does for directors.

In all cases travel expenses include reasonable hotel expense necessarily incurred.

Travelling and subsistence expenses following strike disruption

Reasonable expenses reimbursed to you, or paid on your behalf, if, because of dislocation of public transport by strikes or other industrial action, you:

stay overnight in hotel or other accommodation, or

incur extra costs in travelling to and from work

Disabled people’s cost of travel between home and work

Assistance with the cost of travelling between home and work given to severely and permanently disabled persons incapable of using public transport because of their disability.  A car provided for your home to work travel is not taxed if:

you are severely and permanently disabled, and

the car has been specially adapted in accordance with your needs, and

private use by your or anyone else is prohibited, and

no private use of the car is made other than your travel between home and work

Similarly, if you are severely and permanently disabled and car fuel is provided only for your travel between home and work, there is no car fuel ‘scale charge’.

Certain retraining costs

Costs met by your employer for you if you are about to leave your employment, or have left within the previous year, to enable you to attend certain courses of re-training intended to help you get another job.  If you have not left by the time you start the course, you must leave within two years after finishing it for the exemption to apply.  The exemption is withdrawn if you are re-employed by he same employer in the two years following the end of the course.  (the employer must tell the Tax Office within 60 days of this happening.)

Exemption is only available if you have been in the full time employment of your employer for at least two years up to the time you begin the course (or at the time the employment ceased).

Course must:

teach or improve skills which will help you find new work (and be entirely devoted to those objectives), and

last no more than one year, and

take place wholly in the UK

You  must attend the course on a substantially full-time basis and the opportunity to attend it must have been given to all employees in a similar position.

Exempt expense are

fees for the course

fees for examinations taken during or at the end of the course

the cost of essential books

costs of travelling and subsistence to the extent that they exceed the costs normally incurred by you in travelling between your home and normal place of work (or former place of work).

Employer-funded or employer-reimbursed training

This exemption covers the cost borne by your employer of work-related training within the whole range of practical or theoretical skills and competences you are reasonably likely to need in you present or likely future jobs with your employer.  The exemption extends to:

training activities such as first aid and health and safety in the work place

employee development schemes,

activities intended to develop sills you need in leadership and teamwork, for example Raleigh International,

training which is provided by a third party rather than your employer.

All the ways in which training can be delivered are covered including full-time and part-time training, internal training courses run by your employer, courses which are run externally or by a third partly, and courses which comprise any mixture of these.

The tax exemption also covers:

travel and subsistence expenses, to the same extent as if you were undertaking employment duties whilst training,

other incidental costs, such as additional childcare expenses directly related to your undertaking the training in question,

costs which relate to examinations and registration of qualifications,

the cost of multi-media and distance learning aids, practical course materials and books.

Note:  training, or training-related travel and subsistence, which is provided as entertainment, recreation, reward or an inducement remains taxable. Any asset provided to you or provided for your use is also taxable unless the asset is provided or used purely for training, or for training coupled only with use in the performance of the duties of your office or employment.  Assets provided for private use remain chargeable in the normal way. You cannot get this exemption for reimbursed expenditure if you are entitled to claim Vocational Training Relief for the same expenditure.

Long Service Awards

Long service awards made to directors and employees as testimonials to mark long service where the service is not less than 20 years and no similar award has been made within the previous 10 years.  These have to be

tangible articles of reasonable cost, or

shares in an employing company (or another company in the same group).

The cost of an article is taken as reasonable where it does not exceed £20 per year of service.

Suggestion schemes

Awards made to you under suggestion schemes where the following conditions are satisfied:

there is a formally-constituted scheme under which suggestions are made, and it is open to all employees on equal terms;

the suggestions for which the award is made is outside the scope of your normal duties.  The test is whether, taking account of your experience, you could not reasonably have been expected to put forward such a suggestion as part of the duties of your post;

(where meetings of employees are held for the purpose of putting forward suggestions, they should be regarded as part of their duties.  Any consequential awards would be taxable.)

awards other than encouragement awards are only made following a decision to implement the suggestion, and are made directly to the employee or employees concerned;

the decision to make an award other than an encouragement award is based on the degree of improvement in efficiency or effectiveness likely to be achieved.  This is measured by:

the prospective financial benefits and the period over which they would accrue, and

the importance of the subject matter having regard to the nature of the employer’s business;

the amount of an award does not exceed:

50% of the expected net financial benefit during the first year of implementation, or

10% of the expected net financial benefit over a period of up to five years subject to an overriding maximum of £5,000.  where an award exceeds £5,000, the excess is not covered by this concession;

where a suggestion is put forward by more than one employee, the award made is divided between them on a reasonable basis;

any encouragement award is of £25 or less.  An encouragement award is one which is made for a suggestion which has some intrinsic merit or reflects meritorious effect on the part of the employee in making the suggestion.

Goodwill entertainment

Providing goodwill entertainment for an employee, or for a member of the employee’s family or household, provided that:

the person providing the entertainment is neither the employer, nor a person connected with the employer, and

neither the employer nor a person connected with the employer has directly or indirectly procured the provision of the entertainment, and

the entertainment is not provided either in recognition of particular services which the employee has performed in the course of the employee’s employment or in anticipation of particular services which are to be performed by the employee in the course of the employee’s employment.

This exemption applies only when the cost of the entertainment is assessable under Section 141 (vouchers), Section 142 (credit tokens) or section 154 (benefits in kind).  It does not extend to liability under Section 19 or Section 153.

Car parking

The provision of a car parking space at or near the employee’s place of work.

Certain gifts

Certain gifts received by you if all these conditions are satisfied:

the gift consists of goods or a voucher or token only capable of being used to obtain goods, and

the person making the gift is not your employer or a person connected with your employer, and

the gift is not made either in recognition of the performance of particular services in the course of your employment or in anticipation of particular services which are to be performed, and

the gift has not been directly or indirectly procured by your employer or by a person connected with your employer, and

the gift cost the donor £150 or less, and

the total cost of all gifts made by the same donor to you, or to members of your family or household, during the tax year is £150 or less.

Work to home travel provided when you work late

The cost of transport your employer provides to take you home if:

you are occasionally required to work late (until 9pm or later) (but those occasions are neither regular nor frequent), and

by the time you can go home, either public transport between your place of work and home has ceased, or it would not be reasonable in the circumstances for your employer to expect you to use it.

Christmas or other annual party

Annual parties or alternative functions of a similar nature, such as a Christmas dinner and summer party, which are open to staff generally and which cost no more than £75 per head in total to provide.

Sports facilities

Sports facilities generally available to all employees and members of their families and households.  This does not apply to facilities:

available to the general public, or

consisting of, or provided in association with, overnight or holiday accommodation, or

provided on domestic premises, or

consisting of mechanically propelled vehicles or vessels such as cars, motorboats and aeroplanes.

Travelling from offshore rigs to the mainland

Travelling facilities provided between the mainland and offshore oil or gas rigs or platforms.  Where the timing of transport between the mainland and the rig make it necessary for employees to take overnight accommodation near the mainland departure point, subsistence expenses borne on behalf of or reimbursed to employees working on offshore oil or gas rigs or platforms.

Working rule agreements

There are limited concessionary elements in the tax treatment of travelling and subsistence allowances paid under Working Rule Agreements to some employees in the construction and allied industries.  Any allowances or part of allowances covered by this concession will not be shown on the P11D (or the information your employer provides) and need not be included on your Tax Return.

Relocation

See page EN6 of the notes to the Employment Pages.

Counselling

Most counselling services provided in connection with termination of employment are exempt from tax.  There are detailed conditions to be satisfied.  Ask your Tax Office or tax adviser for further information.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR208

Payslips and Coding Notices

This Help Sheet tells you where to get information to help you:

enter the correct pay and tax details in the Employment Pages of your Tax Return, and

if you have decided to calculate your tax,

enter figures in boxes W51 and W57 in the Tax Calculation Guide Working Sheet

fill in boxes 18.1 and 18.4 on page 7 of your Tax Return.

Pay and Tax Details

You might have several documents which show pay and tax details for employments you had in the tax year.  Remember, if you had more than one employment in the tax year you have to complete separate sets of Employment Pages  see the Notes on Employment.  Documents you might have are:

a P60 if you were in employment on 5 April  see the example on page 3.  Each employer for whom you worked on that date should give you a P60 by 31 May

a P45 (Part 1A) if you left any job during the year  see the example on page 3.  Each time you leave a job your employer should give you three parts of a P45.  You should have kept Part 1A and given Parts 2 and 3 to your next employer, if you started a new job in the tax year.

payslips.  Most employers give employees payslips when their wage or salary is paid.  These show details of pay and tax, sometimes just for the pay period, but often from the beginning of the tax year, or the start of the job. Although it is a good idea to keep these slips, the P60s and P45s should provide you with the information you need for completing your Tax Return.

P60

Employers are allowed to design their own form, as long as they agree it with the Inland Revenue. But whatever the design, the information you need for your Tax Return will be shown on it somewhere.  The P60 shown below is the Inland Revenue’s standard design.  It shows the information required to complete the Employment Pages of your Tax Return.

Do not destroy    P60 Certificate of Pay, Income

Employer’s name and address

M W Engineering

36 Soho Gardens

London  W1V 4LD

Tax Office name

London Provincial 25

From Employer/Paying Office:  This certificate shows the purposes that I/we have paid in the year.  Any overtime, sick pay or statutory maternity pay is included.  It also gives deducted by me/us (less any refunds).

Employee’s details

National Insurance Number  AB , 12 , 24 , 56 , C       F -M if Male -F if female

Surname  Doe

First two forenames   Jane  Mary

Works/payroll no. etc.  W/1272

National Insurance contributions in this employment

NI contribution table letter   A   Y

Earnings on which employee’s contributions payable (whole £s only)

1a  £

12,584

Total of employee’s and employer’s contributions payable

1b  £ p

2249	200.00

Employee’s contributions payable

1c  £  p

938.08

Earnings on which employee’s contributions contracted out rate payable incl in 1a(whole £s only)

1d  £

Pay and Income Tax Details   Pay   Tax deducted

Employee’s Widows and Orphans/ Life Assurance contributions in this employment

£p

£ p

In previous employment   0.00   0.00

In this employment  12,584.00    2,103.50

Total for year  12,584  2,103.50

If net refund enter -R in this box

Final tax code  352L

Figures shown here should be used for your tax return if you get one

If there are any figures in these boxes, you will need to refer to P45s (Part 1A)  (see page 3) before completing a set of Employment Pages for any previous job(s).

On the set of Employment Pages that apply to this P60, enter these figures in boxes 1.8 and 1.11.

Enter in your Employment Pages only the figure of pay used by your employer to calculate your tax deductions.  This is usually described on your P60 as ‘In this employment’ or ‘This employment pay for tax purposes’.  To arrive at this figure your employer will usually have deducted from your gross pay certain items, such as your pension contributions (and charitable donations).  Some employers show the pension contributions you have paid.  (Make sure that you do not include these contribution sin the figures you give for employment income in the Employment Pages.)

P45 Part 1 A

You should have a P45 (Part 1A) for each job you had during the year other than one for which you got a P60. A separate set of Employment Pages will need to be completed for each of your previous employments, and these forms are the easiest way to find the figures you need to complete a set of Employment Pages for each of your previous employments.

Inland Revenue    Details of employee leaving work  Copy for Employee  P45 Pare 1A

1  PAYE Reference  District number 123   Reference number  456789

2    Employee’s National Insurance number  99 11 22 33 C

3  Surname  Smith

4  Leaving date   Day Month Year  31  1  1998

5  Tax Code at leaving date.  ‘X’  in the box means Week 1 or Month 1 basis applies

Code   Week 1 or Month 1

432T

6  Last entries on Deduction Working Sheet (P11).  If there is an ‘X; at item 5, there will be no entries here

Week or month number     Month 10

Total pay to date  £  21,937    26 p

Total tax to date £  4,113   17  p

7  This employment pay and tax.  If no entry here, the amounts are those shown at item 6

Total tax in this employment   £     p

To the employee

This form is important to you, so take good care of it.  You may need the information shown on Part 1A when completing any Tax Return you are sent at the end of the tax year.  Please also read the notes on Page 2 attached to this Part 1A.  Those notes give some important information about what you should do next and what to do with Parts 2 and 3.

Detach this Part 1A and keep it safe  Copes are not available.

Employer’s name, and address and Postcode

XYZ Limited

120 High Street Anytown X91 2PQ

To the new employer

If your new employee gives you this form please detach this Part 1A and return it to the employee.  Deal with Parts 2 and 3 normally.

On the set of Employment Pages that apply to this P45, enter these figure sin boxes 1.8 and 1.11.

There may not be any entries here.  This is because the job was the only job you had since 5 April and therefore the entries are item 6 on the form are the pay and tax in ‘this employment’.  You should therefore put the figures at item 6 on the form in boxes 1.8 and 1.11.

Collecting tax unpaid for earlier years through your PAYE code for another year

You should have kept all the PAYE coding notice, forms P2, which you received from the Inland Revenue.  You r tax code for the tax year may have been adjusted to collect tax unpaid in an earlier year.  Similarly, your tax code for the year after the tax year may have been adjusted to collect tax for the Tax Return year.  The latest coding notice for each tax year will show the amount of the tax that is being collected in this way, as illustrated below.  If you are calculating your own tax bill on your Tax Return, you need to take the amount of these underpayments into account or your tax bill will be too high.  You should therefore refer to:

the last P2 you received for the Tax Return year

the last P2 you have received for the year after the Tax Return year

If you did not keep your last P2, or have lost it, contact your Tax Office

A Coding Notice, P2, looks like this.

Inland Revenue  PAYE Coding Notice

This form shows your tax code for the year 1997-98

Please keep all your coding notices.  You may need to refer to them if you have to fill in a Tax Return.

Mr A Taxpayer

The Larches

9 The Avenue

London

SW25 2NR

Mr A N Inspector

London Provincial 47

Central House

Anytown  AN2 3PS

Tax Office telephone  01900 24680

Date of Issue  11 Jun 1997

Please quote your Tax reference and National Insurance number if you contact us

Tax reference 899/A/122/H   National Insurance Number QQ123456A

Your tax code for the year shown above is  298T

This tax code is used to deduct tax payable on your income from Albatross Holdings Plc

The ‘See note’ columns below refer to the numbered notes in the guidance leaflet P2 Understanding your tax code.  Leaflet P3 also tells you about the letter part of your tax code.

Check that the details are correct.  If you think they are wrong, or you have any queries, contact your Tax Office (details above).

This coding notice replaces any previous notice for the year.  You should pass it to your tax adviser if you have one.

If you move to another job, your new employer will normally continue to use this tax code.

The tax code is made up as follows:

See Note

Your tax allowances

£

See Note

Amount taken away from your total allowances

£

1  Personal Allowance  4045  33  Untaxed Interest  250

1  Married Allowance 1380  30  Car benefit 750

39  Unpaid Tax £300.00   750

25  Allowance Restriction  1143

Total allowances  5875

Total deductions  2893

Your tax free amount for the year is £2982, making your Tax Code 298T

See example overleaf

The Tax free amount is the difference between your Total allowances and Total deductions

If necessary we will use this box to give you further information bout your tax code.

Your tax code has changed.  Your tax free amount has gone down.  you will pay more tax for the rest of this year.  Our estimate of the underpayment for the earlier part of the year is £150.  We will normally collect any underpayment by making an adjustment to your tax code for the next tax year.

If you calculate your tax, copy this figure from the latest P2 for the Tax Return year to box W51 on the Working Sheet in the Tax Calculation Guide and to box 18.1 on page 7 of your Tax Return.

If you calculate your tax, copy this figure from the latest P2 you have received for the year after the Tax Return year to box W54 in your Tax Calculation Guide Working Sheet and to box 18.2 on page 7 of your Tax Return.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR209

Mobile telephones

This Help Sheets tells you whether or not you need to put a figure in box 1.20 in the Employment Pages of your Tax Return.

How Mobile Phones are Taxed

The benefit you get from having a mobile telephone * provided for you (or members of your family) by reason of your employment is taxable.  There is a standard charge of £200 for each mobile telephone provided at the same time.  If different mobile telephones are provided on different days the charge is calculated as if they were the same telephone (or telephones).

Exceptions

If the telephone is unavailable * for any part of the year the charge is reduced proportionally on a daily basis.

But you will not be taxed at all on the benefit of a mobile telephone for any year in which:

there is no private use * of it, or

you are required to and do repay the full cost * of any private use.

Check the definitions opposite.  If these conditions apply, leave box 1.20 blank.  Otherwise enter a appropriate figure in box 1.20, as explained above.

See next column for definitions.

Definitions

Mobile telephone means a telephone not physically connected to a landline.  It includes a car telephone whether or not the telephone has been fitted in the car and the benefit entered in box 1.16.  It does not include a cordless telephone (that is a telephone used only as an extension to another telephone which is physically connected to a landline) or a telepoint telephone.

A telephone is unavailable on any day if:

it is not made available until after that day, or

it ceases to be available before that day, or

the day is part of a period of at least 30 consecutive days throughout which the telephone is incapable of being used at all.

Private use means use to make calls or accept reverse charge calls which are not wholly, exclusively and necessarily in the performance of your duties.

Full costs means

the cost of private calls

plus

a proportionate share of the higher of

20% of the market value of the telephone when it was first used to provide a benefit, and

the equipment rental costs

plus

a proportionate share of any other expenses incurred (for example, line rental) in connection with its provisions unless the purpose of the provision was to make it available for business use.


IR220

More Than One Business

This Help Sheet gives you information to help you fill in:

the Self-employment Pages, or the Partnership Pages, of your personal Tax Return, or

the Partnership Tax Return

If either you, or the partnership, caries on more than one business.

Sole Traders

You must send in a completed set of Self-employment Pages for each business you are involved in.  You may also need to complete a set for each account that relates wholly or in part to your basis period for 1998-99.  Read the Notes on Self-employment.

Partners

If you carried on business in partnership you should complete the Partnership Pages of your Tax Return instead of the Self-employment Pages.  Fill in a separate set of these Pages

for each partnership of which you were a member, and

for each business the partnership carried on

Partnerships

A separate set of Partnership Trading Pages should be completed for each business that the partnership carried on.  You may also need to complete a set for each account that relates wholly or in part to the Return period for 1998-99.  Read the notes in the Partnership Tax Return Guide.

Calculating Class 4 National Insurance Contributions due (if you have more than one business)

There are special rules for dealing with Class 4 National Insurance Contributions (Class 4 NICs) if you have more than one business.  These will also change the way you complete the Self-employment or Partnership Pages.

Use the Working Sheet overleaf if you had profits from more than one business (including partnership businesses) during 1998-99.

There is no need to complete the working Sheet if you are excepted from paying Class 4 NICs on all of your business profits, or if the Contributions Agency has agreed that your Class 4 NICs may be deferred.  Instead

tick box 3.89 (or box 4.23 of the Partnership Pages)

enter ‘0’ in boxes 3.90 and 3.91 (or boxes 4.24 and 4.25 of the Partnership Pages)

explain in the ‘Additional information’ box that you are excepted or deferred, and give the reason.

How to fill in the working Sheet

Complete one column in Section 1 for each business you carried on during 1998-99 (whether on your own or in partnership).  Identify the business to which the details in each column relate.

If you carried on more than three businesses, use another Working Sheet or photocopy this one.  Bring together all figures in boxes J to L into one Working Sheet (in Section 2 box M).

You normally pay Class 4 NICs on your total taxable profits for 1998-99.  However, you may be able to make adjustments for any interest, annual payments or losses (but not losses arising from furnished holiday lettings) that fall within the following rules:

trading losses that are allowable for tax are also treated as losses arising for the purposes of Class 4 NICs.  They may be allowed for Class 4 NICs in the same way as losses are allowed for tax - explain in Help Sheet IR227: Losses.

Interest can be deduced in calculating Class 4 profits if it is incurred for the purposes of your business, but was not deducted in arriving at your taxable profits.

boxes D, E and F  Copy the figures for taxable profits for 1998-99 for each of your businesses (from box 3.88 on the Self-employment Pages or box 4.22 on the Partnership Pages).

boxes G, H and I  Deduct:

any losses that arose prior to 1998-99 not yet set against Class 4 profits.  These can only be deducted from the profits of the same business that gave rise to them

any interest from 1997-98 and earlier years that has not yet been set against previous Class 4 profits.

The figure of adjustments to profits to be entered at boxes G, H or I must not exceed the taxable profit figure for the relevant business at D, E or F.  If, for example, Business 1 has taxable profits of £3,000 (figure entered in box D) and there are total deductions for losses and interest relating to that business of £3,500, then the amount to be entered at box G needs to be restricted to £3,000.  A record should be kept of the unused deductions (£500).  These can be set against profits of the same business for later years.

boxes J, K and L  Enter the profit for each business after the adjustments made to the profits of that business.

The amounts entered here cannot be less than zero - see the advice on boxes G, H and I above.

box M  Enter the total adjusted profits for all your businesses

box N  Enter allowable losses of any of your businesses for 1998-99 (box 3.80 on the Self-employment Pages, or box 4.14 on the Partnership Pages) that you want to set against Class 4 profits.  Enter any interest you pay in 1998-99 for the purposes of any of your businesses and not deducted in arriving at your taxable profits.

If you are excepted from paying Class 4 NICs on one of your businesses (for example, because you were a sleeping partner, diver or diving supervisor), enter in box N the taxable profit of this business (and leave boxes 3.89 and 4.23 blank).

boxes O to Q  Enter in box O your total profits after deducting amounts entered in box N.  Deduct £7,310 from box O, enter the balance up to a maximum of £17,910 at box P.  This is charged at 6%.  Enter in box Q the amount of Class 4 NICs that you are liable to pay.  If you do not want to calculate your tax, you do not have to fill in box Q (or box 3.91 on the Self-employment Pages, or box 4.25 on the Partnership Pages).

If the Contributions Agency has agreed that your Class 4 contributions may be deferred, enter ‘0’ in boxes P and Q.  Explain this in the ‘Additional information’ box on the Self-employment Pages, or Partnership Pages, as appropriate.

Now

Add together the adjustments included in boxes G, H, I and N and copy this figure to box 3.90 in the copy of the Self-employment Pages on which you have put information about Business 1

copy the figure in box Q to box 3.91 in the copy of the Self-employment Pages on which you have put information about Business 1 (or box 4.25 on the Partnership Pages)

enter ‘multiple businesses’ in the ‘Additional information’ box on page 1 of the Self-employment Pages for Business 1 (or in the 'Additional information' box on the appropriate Partnership Pages)

Leave boxes 3.90 and 3.91 blank on the copies of Self-employment Pages (boxes 4.24 and 4.25 in the Partnership Pages) you complete for Business 2 onwards.

Working Sheet (more than one business)

Section 1

Business 1  Business 2    Business 3

Business names      A             B     C

Taxable profits (or share of taxable profit)     D£    E£      F£

Adjustments to profits   G£      H£    I£

Profits for each business after adjustments  J£ box D minus box G      K£ box E minus box H

L£ box F minus box I

Section 2

Total business profits from Section 1   M£ box J plus box K plus box L

Adjustments to total business profits   N£

Chargeable profits for Class 4 National Insurance  O£ box M minus box N

Minus exempt threshold    £7,310

Amount chargeable to Class 4 NIC (maximum £17,170)   P£ box O minus £7,310

Amount of Class 4 NIC due (maximum £1,074)   Q£  box P x 6%

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR222

How to Calculate your Taxable Profits

This Help Sheet gives you information to help you fill in boxes in:

the Self-employment Pages of your personal Tax Return, or

the Trading Pages of the Partnership Tax Return and the Partnership Pages of your personal Tax Return

Except where specifically noted in the Help Sheet the box numbers on the Trading Pages of the Partnership Tax Return follow those on the Self-employment Pages of the personal Tax Return.

This Help sheet explains about

accounting periods

how business profits are taxed

cost of sales

allowable business expenses

basis periods

overlap profits and relief

capital allowances and balancing charges

commencements and cessations

terminal loss relief

partners’ trading or professional profits.

More detailed information is available if you need it.  The Help Sheet refers you to other sources.

You will come across the terms ‘accounting period’ and ‘accounting date’ in both the notes to the Tax Return and the Help Sheets.  If you do not have accounts prepared for your business, you should read:

‘accounting period’ to mean the period for which you provide details of your business income and expenditure, and

‘accounting date’ to mean the date on which that period ends.

Accounting Periods

boxes 3.4 to 3.5  You will need to decide upon your accounting date - that is, the date to which your accounts are drawn up.  Enter the first day covered by the accounts in box 3.4 and your accounting date in box 3.5.  You can choose any convenient date, for example, the anniversary of the date you began your business, or in a seasonal business, a date when trade is slack and stocks are low.  You are entitled to change to a different date if you want to.  However, whatever date your choose you will find your tax is easier to work out if you keep to it each year.  And if you have just started in business, you many find 5 April is the best date to choose as it keeps your tax calculation simple.

Even if you do not have accounts prepared for your business every year, your taxable profit should still be worked out using generally accepted accounting principles.  The Notes for the Self-employment Pages and the following notes provide some practical advice on how to compete your Tax Return if you do not have accounts.

How Business Profits are Taxed

Profits which arise from carrying on trades, professions and vocations cannot usually be worked out by simply add together the cash receipts of the business and deducting expenses paid out.  This would show the business cash flow, but it would not normally be a proper measure of its profits.  To arrive at the profits it is necessary to draw up accounts using the methods which accountants have developed for dealing with income which has been earned but not received, expenses which have been incurred but not paid or paid but not fully used, and so on.  And the profits arrived at using these methods - the commercial profits - have to be adjusted for tax purposes.  This is because in arriving at the commercial profits some items of income or expenditure may be recognised which are not taxable, or tax deductible and other special allowances may reduce the amount of profits which are taxable.

These guidance notes explain these principles as fully as possible but they are not a comprehensive guide in all circumstances.  If you are in doubt about the correct treatment of a particular item you should consult your Tax Office or tax adviser.

Cost of Sales

box 3.33  Show as cost of sales the cost of raw materials and goods bought for resale which you used during this account period.  Make sure you count creditors, that is items delivered to you but which you had not paid for at the end of the period.  Do not count items you paid for in this period if they were included as creditors in your last accounts.

You should include the value of stock you had on hand and uncompleted work in progress at the start of the period (this must be the closing figure which you used in your last accounts), but exclude the value of stock and work in progress at the end.  Value your stocks for resale and your work in progress at their cost to you or, if this happens to be lower, at the net price they will fetch when sold in the normal course of your business.  Value consumable stores at their cost to you, or if they are deteriorated or become obsolescent at their net realisable value where this is lower. The Working Sheet on page 2 will help you decide how much you can claim.

Goods and raw materials you bought this period  A£

Plus stock and work in progress on hand at the start of this period  B£

C£  box A plus box B

Minus stock and work in progress on hand at the end of this period  D£

Figure to enter in box 3.33  E£  box C minus box D

Allowable Business Expenses

Broadly speaking, you can deduct from your turnover all the costs you incur for the sole purpose of earning business profits.  But you cannot deduct costs which you incur for a non-business purpose such as your own personal expenses or drawings.  And you cannot deduct capital costs, that is, the cost of buying fixed assets or intangibles, such as goodwill, which last for several years (or losses you suffer when you sell them). But you may be able to claim capital allowances on these capital costs.  Additionally you cannot deduct costs which are recoverable under an insurance.

Business expenditure is allowed in your accounts for a period if it was incurred in earning turnover in that period even if you are not due to pay the money until later.

The amount to deduct is the amount of the expense which was used in during this period.  This may not be the amount actually paid. For example, If you owe money at the end of the account - your trade creditors - it may be that this should be included in this account rather than later when it is paid.  (Make sure you do not deduct any payments made in this account which you included as trade creditors in your last accounts.)  But if you make a payment which is used up over two periods or more you should spread it in your accounts.  For example, if halfway through the year you paid 12 months rent in advance for your business premises, only one half of the payment should be deducted this year, and the other half next year.

The Notes for the Self-employment Pages tell you where to include your expenses There is a Table on page SEN5 to help you decide which expenses can or cannot be claimed in working out business profits for tax purposes.

Use of mileage rates to calculate car expenses

You may calculate your car expenses using a fixed rate per business mile provided that:

the rate used does not exceed the appropriate Fixed Profit Car Scheme (FPCS) mileage rate for the car at the time it is used.  These rates are published annually by the Inland Revenue.

(The rates for 1998-99 were announced in a press release dated 8 December 1997 and remain at 1997-98 rates.  The press release is available from the Orderline), and

the annual turnover of the business at the time the car is acquired does not exceed the VAT registration threshold (currently £48,000), and

no other motoring expenses (other than interest on a loan used to purchase the car) are claimed and no capital allowances are claimed on the car (since the FPCS rates already contain an element to allow for depreciation), and

such a basis is applied consistently from year to year so that any change to or from an ‘actual’ basis (including one required by a change in turnover relative to the VAT registration threshold) takes place only when one car is replaced by another.

The VAT registration threshold is used here purely as convenient limit whose real value is regularly reviewed: this practice has no application to VAT accounting and does not affect existing VAT rules and practices.

This practice does not apply to taxis and other cars used for hire, nor to vehicles other than cars.

If you have existing arrangements for the use of mileage rates other than those set out in the Help Sheet, your Tax Office will expect that on the next change of vehicle, these arrangements are replaced either by claims to actual expenses or (where the conditions in this Help Sheet are satisfied) by claims in accordance with the practice set out in the Help Sheet.

Whatever your business and however you work out your motoring expenses, you must keep adequate records to back up your Tax Return.  For more information ask the Orderline for booklet SA Book 3 : Self Assessment: A guide to keeping records for the self-employed.

Your Basis Period for 1998-99

You pay tax for 1998-99 according to the profits, or losses, for your basis period.  After the first year or two in business, your basis period will be the 12 month period you use for your accounts, except if you change your accounting date.  However, you should check the following rules which enable you to work out your basis period.  (Partnerships do not have basis periods.  But the rules for changes of accounting dates apply.  For information about partner’s own basis periods, see pages 10 and 11.)

Your accounting period is the period your accounts cover: your accounting date is the last day of your accounts.  For example, if you draw up accounts each year to 31 December, your accounting period for the 1998-99 tax year is the 12 month period 01.01.98 to 31.12.98 and your accounting date is 31.12.98.

General Rules for Businesses Started in 1996-97 or earlier.

If you started business before 6 April 1997 and you were still in business at 5 April 1999, your basis period is the 12 months to your accounting date in 1998-99 unless you have changed accounting date during 1998-99 - see the ‘Changes of basis period’ section below.

Example 1

You started your business on 01.01.97 and have drawn up accounts to 31.12.97 and 31.12.98.  Your basis period for 1998-99 is the 12 months 01.01.98 to 31.12.98.

Commencement

Business started 1997-98

If you started business during the period 6 April 1997 to 5 April 1998, your basis period is one of the following unless you have changed accounting date during 1998-99 - see the ‘Changes of basis period’ section below.

If your accounting date in 1998-99 is 12 months or more after the date on which you started in business, your basis period is the 12 months to your accounting date.

If your accounting date in 1998-99 is less than 12 months after the date on which you started in business, your basis period is the 12 months beginning on the date your started.

If you do not have an accounting date in 1998-99, your basis period is the 12 month period 06.04.98 to 05.04.99.

Example 2

You started in business on 01.01.98

If your accounting date is 31.03.99, your basis period is 01.04.98 to 31.03.99

if your accounting date is 31.10.98, your basis period is 01.01.98 to 31.12.98

if your first accounting date is not until 30.04.99, your basis period is 06.04.98 to 05.04.99.

if you drew up an account to 31.03.98 but did not draw up an account to 31.03.99, see the ‘Changes of basis period’ section in the next column.

Business started in 1998-99

If you started during the period 06.04.98 to 05.04.99, your basis period is the period from the date you started to 05.04.99

Example 3

You started in business on 01.07.98.  You basis period is 01.07.98 to 05.04.99.

Cessations

If you ceased business during the period 06.04.98 to 05.04.99, your basis period is the period between the end of the basis period for 1997-98 and the date on which your business ceased.

Example 4

Your business ceased to trade on 31.12.98.  Your 1997-98 basis period ended on 30.04.97.

Your basis period is the 20 month period 01.05.09 to 31.12.98.

Special rules for businesses ceasing in 1997-98 or 1998-99: 1995-96 and 1996-97 may be revised.

Prior to the introduction of self assessment the taxable profits in the tax year in which a business ceases were the actual profits (6 April to date of cessation): in addition, your Tax Inspector was required to review the basis periods used in the two tax years prior to the year in which the business ceases.  This review might result in profits being taxable on an actual basis for these two years in place of the original basis , but only if the aggregate of taxable profits for these two years is higher using the actual profits.

For businesses set up and commenced prior to 6 April 1994 the transitional rules may result in similar adjustments to earlier years, but only if you ceased in 1997-98 or 1998-99.

Cessation in 1997-98

At the time you compete your 1996-98 Tax Return you should apply whatever transitional rules are appropriate to your business.  But if your business ceases in 1997-98, an Officer of the Board may subsequently direct that pre Self Assessment rules should apply.  Such directions will only be made where, under those rules, adjustment would have been made to the two tax years prior to the year in which the business ceases (1995-96 and 1996-97).  In other words a direction will only be made to replace the originally preceding year basis (1995-96) and the transitional basis (1996-97) with an actual basis for both years.

Cessation in 1998-99

Similarly, if your business ceases in 1998-99 an Officer of the Board may subsequently direct that actual basis rules should apply for 1996-97 instead

Time limits for directions to review 1998-99

Any assessment or other adjustment to give effect to a direction by an Officer of the Boards must be made within 5 years 10 months after the end of the 1998-99 tax year.  There is no right of apply against any such direction.

Changes of Accounting Date

There is a change of accounting date if:

you have drawn up your accounts to a date which is not the same as the date used for tax purposes last year, or

you intend to draw up accounts for more than 12 months and no accounting date falls in the 1998-99 tax year, or

you changed your accounting date last year, this was not accepted by the Tax Office, and you have drawn up your accounts to the dame date this year. (But if you have changed back to your old date this is not treated as a change of accounting date.)

You will normally want your new accounting date to count for tax - otherwise your basis period will not end on the same date as your accounts.  However, if you intend this to be only a temporary change, you may wish to ignore it for tax purposes.  You can then work out your tax using the same basis period as last year.

Changes of basis period: special rules which apply if you change your accounting date.

The notes above explain when a change of accounting date takes place for tax purposes.  If you are in any doubt whether your accounting date has changed according to these rules, you should contact your Tax Office or tax adviser for help.

When you change accounting date, and you want it to count for tax purposes, then your basis period will be given by one of two rules.

If your accounting date in 1998-99 is more than 12 months after the end of the basis period for 1997-98, your basis period is the period between the end of the basis period for 1997-98 and the new accounting date.

Example 5

If the basis period for 1997-98 ended on 31.05.97, and the new accounting date is 31.08.98, your basis period is the 15 month period 01.06.97 to 31.08.98

if your accounting date in 1998-99 is less than 12 months after the end of the basis period for 1997-98, your basis period is the 12 months ending on the new accounting date.

Time limit for notifying the change of accounting date

If you wish a change of accounting date to count for tax purposes, you are required to let your Tax Inspector know in your Return and give the reasons why the change had been made (box 3.8A is provided for you to notify the change).

One of the conditions for changing your basis period is that your Tax Return is sent back by the relevant filing date.  If you fail to do this, the change of accounting date will not count for tax purposes.

What to do if your basis period is not the same as your period of account

Your basis period for 1998-99 may be different from the period (or periods) for which your accounts are made up.  If so, you must calculate the profit of the basis period by adding together and/or dividing the periods for which you have accounts.  But see the note below if your accounting date falls between 31 March and 6 April.

Example 7

You commenced on 6 April 1998 and your basis period is the 12 months to 05.04.99.  But your accounts are made up for the three months to 30.06.98 (profit £4,500) and the 12 months to 30.06.99 (profit £24,000).  So your basis period covers three months of your 1998 accounts and nine months of your 1999 accounts.

The profit of the basis period will be:

£4,500 + (279/365 x £24,000) = £22,500

These calculations should strictly be made in days by weeks, months or fractions of years may be used instead.

Accounting dates between 31 March and 4 April

The basis of assessment for the tax year in which a business commences (Year 1) is the profits arising in that tax year.  So where a new business adopts an accounting date of 31 March and prepares its first trading accounts for a period of 12 months or less, it should in strictness:

if the business began on 6 April or later, add on five days’ worth of the profits of the following account in order to make up the full period to 5 April.  There will therefore be an overlap of five days between the basis periods for Years 1 and 2, for which the ‘overlap profit’ should be calculated.

if the business began on 1 to 5 April, be taxed on one to five days’ worth of the profits in Year 1.  The basis period for Year 2 will be the first 12 months from commencement so that (except for businesses which began on 1 April) up to four days’ worth of profits from the following account should be added on.  There will again be overlaps between the basis periods for Years 1 and 2, and sometimes those for Years 2 and 3, for which the ‘overlap profit’ should be calculated.

However in either case, you can if you want, treat any apportionment of profit for a period of give days or less as zero (that is, all the profit will be treated as falling within the other part of the account).  This will have the effect that:

the profits of the account to 31 March each year will be taxed as though they were for the year to the following 5 April.  Over the lifetime of the business, the full profits must, of course be taxed.

for businesses which commence in the period 1 to 5 April, the taxable profits for Year 1 will be zero

there will be no ‘overlap profits’, and hence no overlap relief in any later year.

This practice will not affect any other matters which depend upon the date on, or tax year in, which the business commences.

You may also treat a change of accounting date where the new date is 31 March as though it was a change to 5 April.  All previous overlap profits will accordingly be deductible in the year the change takes effect for tax purposes.

If you are in any doubt, ask your Tax Office or tax adviser for help.

Overlap profits

It may be that your basis period for 1998-99 overlaps with the basis period for 1997-98.  Such overlaps can occur in the first three years after a business starts up, or in a year in which there is a change of basis period (because your accounting date has changed).

Example 8

Your business started on 01/01/98 and your first accounts is for the 12 months to 31.12.98.  Your basis periods are

1997-98 : 01.01.98 to 05.04.98

1998-99 : 01.01.98 to 31.12.98

The period of overlap is 01.01.98 to 05.04.98.  So if the profit of the 12 months to 31.12.98 is £12,000, the overlap profit is 95/365 x £12,000) = £3,123 (over 95 days).  This is the same as the amount which was assessable for 1997-98.

If your basis periods for 1997-98 and 1998-99 overlap, you should keep a record of both the overlap profit and the overlap period.  Any overlap profit you have is carried forward until such a time as you can claim overlap relief.  The amount of your overlap profit to be  carried forward should be entered in box 3.77 (or box 4.11 of the Partnership Pages).

Overlap relief

box 3.76 * include in the adjustments you make in box 3.76 any overlap relief you are allowed to deduct for 1998-99.  The notes below will help you work out how much overlap relief to deduct.

Overlap profits which arose in 1997-98 or earlier years can be deducted as overlap relief in working out your taxable business profits for 1998-99 if:

you sold or closed down your business in 1998-99.  All the overlap profits brought forward should be entered at box 3.75 (or box 4.9 of the Partnership Pages), or

your basis period for 1997-98 is more than 12 months long because you have changed your accounting date since last year.  (This can only happen if you changed your basis period.)  The amount of overlap profits allowed as overlap relief is in proportion to the length of your basis period in excess of 12 months and the length of your overlap period from earlier years. Example 9 below shows how this works.

* or box 4.10 of the Partnership Pages

Example 9

You have overlap profit of £5,000 (over five months) from an earlier year.  You change basis period.  Your basis period is 14 months and you are therefore entitled to overlap relief.  There are five months of overlap profit available.  The relief is in proportion to the number of months by which the basis period exceeds 12 months (that is, two months) and the length of the basis period (that is, five months)

So the relief is:

2/5 x £5,000 = £2,000

The balance of overlap profit £3,000 (over three months) is carried forward.  You will claim this as overlap relief in a later year.

Capital allowances and balancing charges

In working out your business profits you must not deduct:

the cost of buying, altering or improving fixed assets, or

depreciation or any losses which arise when you sell them

Instead, you can claim tax allowances called capital allowances.  These are deducted to arrive at your taxable profits.  An adjustment, known as a balancing charge, may arise when you sell an item, give it away or stop using it in your business.

Balancing charges must be added back to arrive at your taxable profits.  These notes explain how you can work out these capital allowances and balancing charges.

Partnership Tax Return

The partnership can claim capital allowances on assets owned by the partnership.  It can also claim capital allowances on plant and machinery owned by one of the partners but which is used in the partnership’s business.

What can you claim capital allowances on?

You can claim capital allowances for the cost of:

plant and machinery such as vehicles, tools, ladders, computers and business furniture which belongs to you (see ‘Plant and Machinery’ on page 7)

agricultural buildings, industrial buildings and certain other buildings

patents, certain specialist types of ‘know-how’, scientific research, mineral extraction and dredging.  Your tax adviser will claim these for you, if they apply.

If you buy on hire purchase, you can claim capital allowances on the original cost of the item; the interest or other charges count as business expenses and should be deducted at box 3.48.

You cannot claim for anything you have bought solely for private use, or the cost of land even if it is used for your business.

Value Added Tax

The purchase price of an asset on which capital allowances can be claimed sometimes include VAT.  If you are registered for VAT and can offset that VAT against your output tax when you make your returns for VAT purposes, you should only claim capital allowances on the net cost of the asset.  In all other cases, and particularly if you are not registered for VAT, the VAT paid should be included in the capital expenditure on which you claim capital allowances.

How you make your claim

Enter in boxes 3.61 to 3.70 the amount you wish to claim.  This should be the amount worked out from the rules set out in these notes.  The examples show you what to do.  If you need more help ask your Tax Office or tax adviser.  You will also need to consult them if

you do not what to claim the full amount of allowances, or

someone else pays part of the cost (for example, by giving you a grant) or

you had purchases from or sales to members of your family or other connected persons.

Periods of account

You should make a separate capital allowances computation for each period of account.  If the period of account is longer than 18 months it should be split into shorter periods and separate capital allowances computations made for each of them.  The first 12 months will form a period and each subsequent 12 month period, or period of less than 12 months, will form further periods.

For example, if the period of accounts is the 20 months to 31 August 1999 you should split it into 12 months to 31 December 1998 and 8 months to 31 August 1999.

If there is a gap between two periods of account you should add it to the first period f account.  For example, if accounts are drawn up for the year to 31 December 1998 and the period 12 April 1999 to 31 December 1999 you should add the period 1 January 1999 to 31 March 1999 to the year ended 31 December 1998.

If there is an overlap between two periods of accounts the overlap period should be treated as part of the first period of account only.  For example, if accounts are drawn up for the 15 months to 31 March 1999 and the year ended 31 December 1999 you should treat the period 1 January 1999 to 31 March 1999 as being part of the 15 months to 31 March 1999 only.

The annual rate of writing down allowance for plant and machinery is 25%.  This is increased or reduced if the period of account is more or less than 12 months.  For example, if the period of account is 6 months long the rate of writing down allowance is 6/12 x 25% = 12.

Plant and machinery

You can claim first year and writing down allowances for the cost of vans, cars, machines, scaffolding, ladders, tools, equipment, furniture, computers and similar items which you use in your business.  Do not claim for the things it is your trade to buy and sell - these should be claimed as business expenses.

First year allowances are available for most expenditure on plant and machinery apart from expenditure on motor cars and on assets which you lease out.

The percentage to be used depends on when the item was bought, and where it is to be used as follows.

Date when item purchased (all dates inclusive)

Rate of first year allowances

Items acquired by small and medium sized businesses for use primarily in Northern Ireland  06.04.98 to 11.05.98   50%

12.05.98 to 05.04.99   100%

Items acquired for use elsewhere

06.04.98 to 01.07.98  50%

02.07.98 to 05.04.99   40%

If the asset is used only partly for work the first year allowance is reduced accordingly.

Most expenditure on plant and machinery incurred outside those dates is lumped together in a single ‘pool’ of expenditure.  There is a single capital allowance calculation for the pool no matter how many items are included.  Where a first year allowance is claimed the balance of the expenditure after deducting the first year allowance is added to the pool for the following year.  The types of plant and machinery which cannot be pooled are explained later in these notes.

Writing down allowances are worked out by an annual rate of 25% of the cost of the item or ‘pool’ of items for each year.  Example 11 shows how this works.

Example 11

Your accounts are drawn up to 5 April each year.  You spend £800 on a new machine in the year ended 5 April 1997.  You do not buy anything in the year ended 5 April 1998.

The writing down allowance you can claim for 1996-97 is:

Cost of machine  £800

Writing down allowance @ 25%  £200

Value of pool to carry forward £600

The writing down allowance you can claim for 1997-98 is:

Value of pool brought forward £600

Writing down allowance @ 25%  £150

Value of pool to carry forward £450

If you buy something in the period covered by your accounts and you do not claim first year allowance, the cost is added to the pool.  If you claim first year allowance you cannot add anything to the pool until the following year when you can add the cost after deducting the first year allowance claim.  You can also bring into the pool the value of any items which you used privately before using them in your business.   If you sell something, the sale proceeds (or the value if you gave it away or started to use it for non-business purposes) are deducted from the pool.  If the sale proceeds etc. are more than the original cost of the asset you should deduct the original cost unless you acquire the asset from a connected person.  If you did, you should deduct the greater of the cost to them and your cost if both of them are less than the sale proceeds.  Once these adjustments have been made, your writing down allowance for those accounts is calculated.

If the sale price is more than the value of the pool, the difference is a balancing charge.

Example 12

Suppose that the value of the pool brought forward at the beginning of 1997-98 was £450, that in your accounting period for 1997-98 you bought a new machine for £500 to April 1997 and a new machine for £2,000 in August 1997, and you sold a machine on which you are claiming capital allowances for £150.  Your capital allowances computation for 1997-98 looks like this:

Cost of machine August 1997  £2,000

First year allowance 50%  £1,000

Value carried forward £1,000

Pool brought forward  £450

Additions April 1997  £500

£950

Disposal  £150

Writing down allowance @ 25%  £200

Value carried forward  £600

The pool carried forward is £1,600 (= £1,000 for asset on which FYA was claimed + £600 from the 1997-98 pool).

Commencements and cessations

If you started business between 6 April 1998 and 5 April 1999, your writing down allowance is calculated for the period of accounts which starts on the date that your business began.

Example 13

Bob starts business on 1 May 1998.  He draws up his accounts to 31 December.   On 1 May 1998 he buys a computer for £12,000.  He buys no other business assets.  On 1 August 1999 he buys equipment costing £6,000.  His capital allowances computation for his period of account ended 31 December 1998 is:

Cost of computation  £12,000

Writing down allowance 8/12 x 25%  £2,000

Value to carry forward  £10,000

His capital allowance computation for the period of account ended 31 December 1999 is:

Value brought forward  £10,000

Additions £6,000

Writing down allowance 25% x £16,000  £4,000

Value to carry forward  £12,000

Bob has decided not claim first year allowances

If your business ceases you should deduct from the value of the pool the sale prices for any items you sell, or their values if you keep them.  If these are more than the value of the pool, the difference is a balancing charge.  If there is any value remaining in the pool, do not work out a writing down allowance, but claim the value remaining as a balancing allowance instead.

Example 14 shows how this is done.  If you sell any items for more than you paid for them, or their value if you keep them is more than you paid for them, you should deduct the amount you paid for those items from the pool, and not the sale price or value.  If you acquired the item from a connected person, you should deduct the greater of the cost to them and your cost if both are less than the sale proceeds.

Example 14

Jackson has been in business for many years.  He draws up his accounts to 31 March. At 31 March 1998 the value in the pool is £10,000.  He stops trading on 1 July 1998.  He keeps a word processor with an open market value at 1 July 1998 of £2,000.  He sells the other business assets for £7,000.  His capital allowance computation for 1998-99 is:

Writing down allowance brought forward   £10,000

Disposal proceeds (£7,000 + £2,000)  £9,000

Balancing allowance £1,000

Special rules for particular items

The precise way the allowances for plant and machinery are worked out depends on the type of item and whether you use it privately as well as for business.  The following rules will help you work out how much to claim under each of the headings in the Self-employment Pages.

Expensive cars

For cars which cost more than £12,000, the 25% writing down allowance is restricted to £3,000 a year for each car.  This amount is then restricted further if the car is used partly for private motoring.  A separate calculation, as shown in Example 15, must be made for each car - they are not ‘pooled’.  If you sell the car, you do not get writing down allowances for the period of account in which the sale took place, instead, you should calculate a balancing allowance or balancing charge.  This is done in the same way as described in the sections on cessations above.

Example 15

Your accounts are drawn up for the year to 5 April 1999.  You spend £15,000 in that year on a car which is driven 12,000 miles a year including 8,000 private miles.  The calculation is:

Cost of car  £15,000

Writing down allowance @ 25% (restricted) £3,000

Value to carry forward £12,000

The writing down allowance you can claim is £1,000

(£3,000 x 1/3 (one third of mileage on business)).

Other cars

For cars which cost less than £12,000 and are used solely for business, separate calculations are not necessary.  Instead, all expenditure and sales are dealt with in a single pool, separate from the pool of other capital expenditure.  This is no restriction of the writing down allowance of £3,000.

Any sales proceeds are deducted from the pool in the normal way.  The pool continues until the last car in it is sold.  When that happens no more writing down allowances are calculated but there is a balancing charge or balancing allowance.

Plant and Machinery used only partly for business purposes.

This category includes any cars costing less than £12,000 which are not used solely for business.  These items should not be included in any pool.  Instead the allowances on each item should be worked out separately (in the same way as Example 15) but there is no £3,000 restriction on the writing down allowance,

The writing down allowance, and any balancing allowance or charge when the item is sold, should be reduced so that only the business use proportion is taken into account.

Example 16

Your accounts are drawn up to 31 December each year.  You buy a car for £8,000 in 1997 and sell it for £5,000 in 1998.  You use it 50% for business. The calculation is:

1997-98

Cost of car £8,000

Writing down allowance @ 25%  £2,000

Value to carry forward £6,000

The writing down allowance which can be claimed is £1,000

(£2,000 x 50% business use)

1998-99

Value brought forward £6,000

Price when sold £5,000

Difference £1,000

The balancing allowance which can be claimed is £500

(£1,000 x 50% business use).

Short life assets

There are special rules if you intend to keep the item of equipment for only a short time or you think it will wear out quickly.  If you acquire an item (other than a car) which you expect to dispose of within five years of the date you acquire it, you may elect to have the capital allowances calculated separately from your main pool.

You should make the election for this no later than the first anniversary of 31 January following the end of the tax year in which you acquire the item.  You cannot withdraw an election.  The separate calculation of capital allowances means that when the asset is sold the allowances given can be adjusted by way of a balancing allowance or charge to bring them in line with the actual depreciation.

If the item has not been sold or disposed of by the end of the five year period, the balance in the ‘separate pool’ for that item is added to the ‘main pool’, then dealt with in the normal way .  Further information is available from your Tax Office.

Long life assets

A long life asset is an asset whose expected working life when new is more than 25 years.

The writing down allowance rate for long life assets is 6%.  There is a separate pool of expenditure for long life assets and the 6% rate is applied to that pool.  If you work full time in your business and the amount you spend on long life assets is less than £100,000, the reduced rate of writing down allowance does not apply.

Assets leased out

You can claim capital allowances for assets you own and lease out to other users.  Capital allowances on these assets should be claimed in the same way as for assets you use in your business.  But first year allowance is not available on assets leased out. However, if the asset is used by a person who is not resident in the UK, you will need to discuss with your tax adviser what allowances are due.

Buildings

You can claim capital allowances for the cost of constructing agricultural or industrial buildings, industrial and commercial buildings in enterprise zones and certain types of hotel. You can claim industrial buildings allowance if you buy or construct a building which is used for the purposes of a qualifying trade.  Manufacturing is a qualifying trade, so are processing trades and there are certain others.  You cannot claim industrial buildings allowance on buildings such as houses, showrooms, offices and shops even if they are used for the purpose of a qualifying trade, or for the land on which the building stands.  You should consult your Tax Office or tax adviser if you think you may be able to make a claim.

You can claim capital allowances at a special rate on industrial and commercial buildings in enterprise zones.  You can also claim capital allowances for the cost of constructing a qualifying hotel or buying an qualifying hotel constructed on or after 12 April 1978.  Ask your Tax Office or tax adviser if you need help.

Losses

If your business ceased in 1998-99 and you made a loss in your last year of trading, you can claim ‘terminal loss relief’ against any profits from the same business taxed in 1995-96 or later.  This is an alternative to the other ways in which losses can be relieved - for information on losses generally ask the Orderline for Help Sheet IR227 Losses. However, make sure that you do not claim the same loss twice.

Terminal loss relief

If your business ceased in 1998-99 you can set the loss of your final 12 months of trading against any profits from the same business which were taxed in 1995-96, 1996-97, 1997-98 or 1998-99.

The time limit for this claim is 31 January 2005.

First work out the amount of the loss from your final 12 months of trading (this is called the ‘terminal loss’).  If your 1998-99 accounts cover a period of 12 months or more to the date  your business ceased trading, the terminal loss is the allowable loss, or a 12 month proportion of the allowable loss.

Example 17

If your accounts covered 15 months to your cessation of trading on 31.10.98, and the allowable loss is £5,000, your terminal loss is

£4,000 (£5,000 x 12/15)

If your 1998-99 accounts cover a period of less than 12 months, you need to add on part of the allowable loss from the 1997-98 accounts to make the terminal loss up to 12 months.

Example 18

Your accounts covering six months to your cessation of trading on 30.09.98 show a loss of £8,000.  You had a loss of £7,500 in your accounts for the nine months to 31.03.98.  You need to add six months to bring your terminal loss to 12 months.  You add onto your £8,000 loss £5,000 (£7,500 x 6/9).  So your terminal loss is £13,000.

The Working Sheet below will help you work out your terminal loss

Allowable loss for 1998-99

Either

a)	If this account is more than 12months, deduct a proportion of the loss to leave 12 months’ worth of loss, or £

b)	if this account is less than 12 months, add part of the allowable loss (if any) from earlier accounts to make up the 12 month period to the date your business ceased   £

Terminal loss £

If you have already claimed relief for the loss in (b) above then you must reduce the terminal loss by the amount of relief that you have already claimed.  This is because you can only have relief once for each £1 of loss.

Your terminal loss must be set against any profits (after deducting losses brought forward) from the same business taxed in 1998-99.  If these are zero, it must be set against profits from the same business taxed in 1997-98.  Once these have been reduced to zero any balance of the terminal loss must be set against the profits taxed in 1996-97.  Finally, if there is still a balance, this must be set against the profits taxed in 1995-96.

Enter the amount of terminal loss relief you are claiming against your 1998-99 profits at box 3.85 or box 4.19 as a loss brought forward and use this year.  This is in addition to any other losses you are bringing forward from earlier years, but make sure you do not count the same loss twice.  Enter the total amount of terminal loss relief for 1997-98, 1996-97 or 1995-96 in box 3.82 or box 4.16 and give details of the amount carried back to each year in the ‘Additional information’ box on page SE4 of your Self-employment Pages.

If you have been sent your Tax Return for the year in which your business ceased then you must make your terminal loss relief claim in your Return.  If you have not been sent your Tax Return yet then you can claim terminal loss relief as soon as you know how big the loss is, normally when the final accounts have been prepared for the business.  If you wish to claim terminal loss relief before your Tax Return has been sent to you, write a letter.

Your letter should state

the name of your business

that you wish to claim terminal loss relief

the date your business ceased

the profit or loss the business from the end of the last basis period to the date the business ceased, calculated in accordance with the guidance in the Notes to the Self-employment Pages and elsewhere in this Help Sheet

the terminal loss that you have calculated following the above guidance.

Partners’ trading or professional profits

The basis period and overlap rules detailed above are applied to your share of the partnership’s trading and professional profits (or losses) as if that income had arisen to you from a business which you carried on alone, as a sole trader.

That business will be deemed to have commenced on the date you became a partner (unless you previously carried on the business on your own account when it will be deemed to have commenced on the date you started the business) and deemed to have ceased on the date on which you ceased to be a partner (or if you carry on the business thereafter as a sole trader, on the date you ceased to carry on that business).

Example 19: Basis period rules for partners

The partnership commenced business on 1 October 1996 and makes up its account each year to 30 September.  You ceased to be a partner on 31 December 1998.  Your share of trading profits as shown in the Partnership Tax Return are as follows:

year ended 30.09.97  £12,000

year ended 30.09.98  £18,000  (A)

year ended 30.09.99  £7,000  (B)

Your basis periods for each fiscal year and the overlap relief to which you are entitled are as follows:

1996	01.10.96 to 05.04.97  profits £6,000

1997	01.10.96 to 30.09.97 profits £12,000 (overlap profits £6,000)

1998-98 01.10.97 to 31.12.98 profits £25,000 (A) + (B)

minus overlap relief £6,000 (C)

Taxable profit £19,000 (D)

£18,000 should be entered in box 4.7 of the Partnership Pages, £7,000 in box 4.8, £6,000 in boxes 4.9 and 4.10 and £19,000 in boxes 4.13, 4.20 and 4.22.

If you are unsure how the basis rules apply to you, as a partner, ask your Tax Office or tax adviser for help.

Other partnership income

The basis period rules to be applied to your share of the partnership’s non trading or professional income are as follows:

If the partnership carried on a trade or profession in 1998-99 then the basis period will depend on whether UK tax has been deducted from that income.

Your share of the partnership’s non trading or professional income from which no UK tax has been deducted ‘untaxed income’ is treated as having been derived from a second ‘notional’ business which you carried on alone.  The same basis period and overlap rules which are applied to your share of the partnership’s trading or professional profits are applied to the second ’notional’ business which are treated as carrying on.  But for this purpose the second ‘notional’ business is deemed always to have commenced on the date you became a partner and to have ceased on the date you ceased to be a partner.

Any overlap relief to which you may be entitled from your second ‘notional’ business is first to be relieved against any other untaxed income (regardless of the source from which it is derived) and the balance is to be given as a deduction against any other income of that year.

For your share of the partnership’s non trading or professional income from which UK tax has been deducted ‘taxed income’ your basis period is the tax year.  This is the period 6 April 1998 to 5 April 1999.

If the partnership did not carry on a trade or profession in 1998-99 then your basis period for both ‘untaxed’ and ‘taxed’ income is the tax year.   This is the period 6 April 1998 to 5 April 1999.


IR223

Rent a Room for Traders

The Help Sheet explains how the Rent a Room scheme works.  If your trade involves providing furnished accommodation, the notes below will help you to fill in the Self-employment Pages of your Tax Return to take account of the scheme (if it applies to you).

If your provision of furnished rooms does not amount to a trade, do not include the letting income in the Self-employment Pages.  As the Orderline for the Land and Property Pages, and include the income there.

Rent a Room Scheme

Rent a Room applies only to owner-occupiers and tenants who receive rent from letting furnished accommodation in their only or main home.  In general, gross annual receipts (including sums paid in respect of meals, goods and services provided in connection with the use of accommodation) and balancing charges from that sort of letting that do not exceed £4,250 in total will be exempt from Income Tax altogether.  However, if you wish you can opt out of this exemption.  You might want to do so if you have made losses and want to claim relief for them.

If you receive gross annual receipts in excess of £4,250 you can choose between paying tax on:

your gross receipts (plus any balancing charges) minus £4,250 without any separate tax relief for allowable expenses or capital allowances, or

your actual profit from letting worked out in the normal way (this is, gross rents minus actual expenses and capital allowances).

The limit of £4,250 is reduced to £2,125 if during the basis period for the year, someone else received income from letting accommodation in the same property.  Rent a Room does not apply to income from accommodation used as an office or for business purposes (other than by genuine lodgers such as students who are provided with study facilities in their lodgings)

Rent a Room relief applies to a tax year.  To decide whether the Rent a Room conditions are satisfied and, therefore, whether the relief applies, you must look at what happened in the basis period for the tax year.  You will need to get advice from your Tax Office or tax adviser if the income from this source is not for:

a period of 12 months, or

a period from the date of the commencement of the source to 5 April 1999, or

a period from 6 April 1998 to the date of cessation of the source.

You should enter the following details on the Self-employment Pages:

if your gross receipts including balancing charges are less than £4,250 (or £2,125) and you want to claim exemption from tax on them

enter Rent a Room in box 3.2

leave the rest of the Self-employment Pages blank

If your gross receipts excluding balancing charges exceed £4,250 (or £2,125) and you wish to claim Rent a Room relief

enter Rent a Room in box 3.2 and fill in boxes 3.3 to 3.10 as appropriate

if your gross receipts are less than £15,000, enter the gross receipts (including sums received for meals, goods and services but excluding any balancing charges) in box 3.11.  If your gross receipts are £15,000 or more, enter the gross receipts (including sums received for meals, goods and services but excluding balancing charges) in box 3.16.

enter £4,250 (£2,125 if appropriate), in box 3.12 if your turnover is less than £15,00 or in box 3.50 if your turnover is £15,000 or more.  Do not fill in boxes 3.17 to 3.49 or boxes 3.53 to 3.59.

You will need to work out the amount of any balancing charges.   Ask the Orderline for Help Sheet IR222: How to calculate your taxable profits and enter any balancing charge in box 3.55 as appropriate.

If you do not want to claim Rent a Room relief

fill in the Self-employment Pages by entering your gross receipts, expenses, capital allowances and balancing charges in the normal way.

Further information about the Rent a Room scheme can be obtained by requiring leaflet IR150: Taxation or rents. A guide to property income from the Orderline.

Summary

Under Rent a Room you can be exempt from Income Tax on profits from furnished accommodation in your only or main home if the gross receipts you get (that is, before expenses) are £4,250 or less.  But you cannot then claim any of the expenses of the letting.

In addition, receipts over the £4,150 exemption limit can be taxed on an alternative basis, which may produce a lower tax bill.  Briefly, the excess of the gross receipts over the exemption limit is treated as the taxable rental income, instead of the actual profit.  But you cannot then claim any of the expenses of the letting.

For the purposes of the Rent a Room scheme, gross receipts include not only rents but also payments made to you for the provision of any other goods, or services (such as meals, cleaning, laundry etc.) in connection with the letting.  The £4,250 limit may be halved if someone else gets rents from letting in your home.

The Rent a Room scheme applies to ordinary lettings of living accommodation in your own home.  It does not apply to rooms let as an office or for other business purposes.  But the scheme applies to genuine lodgers who study in your home in the evenings or at weekends.

Rent a Room applies to people who let a room in a home they rent as well as to people who own their homes.  It is not relevant for tax but you may want to check whether:

your lease allows you to take in a lodger (where you rent your home)

your lender has any objections to your taking in a lodger (where you have a mortgage on your home).

your insurance company is content: your cover may not be adequate if circumstances have changed.

Details of the Rent a Room exemption limits

The exemption limit of £4,250 is reduced to £2,125 if during the tax year to 5 April, someone else received income from letting accommodation in the same property.  This might happen where you own your home jointly with another person.

If the period f letting is less than 12 months, the limit of £4,250 is reduced to £2,125 if some other person lets accommodation in the same residence at any time in any period of 12 months that includes your less-than-12-month period.

You move home during the year

The Rent a Room rules apply to the total gross furnished letting receipts for the tax year from your own home.  If you move home, and lettings in both your old and new home qualify for Rent a Room relief during the same year, you must add together the rents from both to find the total receipts.

You move abroad

If you let your home in the United Kingdom while you live abroad, you will not normally be within Rent a Room.  This is because the let property will not usually be a residence of yours at any time during the basis period for the letting.  Ask your Tax Office or you  tax adviser for advice.

You are below the exemption limit

Where you are below the exemption limit you are automatically exempt from tax. But you can ask to be taxed in the normal way - that is, on your receipts less expenses.  This may be to your advantage where, for example, you have a loss and you would like to use that loss.  A similar point may arise where you are taxed on the excess of your receipts over the exemption limit but you actually made a loss.

Lodger provided with services that amount to a trade - basis period.

Some lettings may amount to a trade.  This is likely to happen where you run a guest house or bed and breakfast business, or if you provide material services, for example, meals and cleaning.  If your lettings amount to a trade, Rent a Room relief may still be claimed, but you should exclude any assessable profits from your rental business and return them as trading profits.

The basis period for a property business must be the tax year itself (the year to 5 April) or the actual period of letting in the tax year if this is shorter.  But if your letting activity amounts to a trade, you can choose a different annual period (generally a period of one year ending on a date in the tax year).  You will usually find your tax calculations earlier if you stick to 5 April year end.

A  paying tax on the profit you make from letting, worked out in the normal way for a rental business (that is, rents received minus expenses) or

B  paying tax on the gross amount of your receipts (including receipts for any related services you provide) minus the £4,250 (o £2125) exemption limit.

Method A applies automatically unless you tell your Tax Office within the time limit (see page 4) that you want method B

Once you have elected for method B it continues to apply in the future until you tell your Tax Office you want method A.  You must tell your Tax Office within the time limit if you decide you no longer want method B to apply.  You may want to do this where the taxable profit is less under method A or where expenses are more than the rents (so there is a loss).

For example, your gross receipts may be £5,000 but your expenses are £6,000 so you have a loss of £1,000.  Unless you opt out of method B, you will still be taxable on the excess of the gross receipts of £5,000 over the exemption limit of £4,250, this is, the taxable profit from letting in your own home will be £750.

Example where method B is better - Florence

Florence lets out a room in her own home for £150 a week.  Nobody else lets a room in the house.  Her gross receipts for the year are £7,800/  She is not exempt from tax because her gross receipts exceed the exemption limit of £4,250.  She has expenses o £1,000 so her profit is £6,800.  The excess of her receipts over £4,250 is £3,550 (£7,800 minus £4,250).

Using method A, she pays tax on her actual profit of £6,800

Using method B, she pays tax on a profit of £3,550

In Florence’s case, method B is better and she elects for it.

Example where method A is better - John

John lets out a room in his own home for rent of £150 a week plus contributions to the heating and lighting.  His total letting receipts for the year from letting the room are £7,800 rent plus £200 for light and heating = £8,000.  He has expenses of £4,500 so his profit is £3,500.  The excess of his gross receipts over £4,250 is £3,750 (£8,000 minus £4,250).

John pays tax on his actual profit of £3,500 if he uses method A

John pays tax on a profit of £3,750 if he uses method B

In John’s case, method A is better.  Therefore he either does not elect for method B or, if he has already done so, he tells his Tax Office that he no longer wants it to apply.

Changing from method A to method B and vice versa

You can change from method A to method B (or vice versa) from year to year.  But each time you want to change you must tell your Tax Office within the time limit.

Method B will automatically cease if the rent you get drops below the exemption limit of £4.250 (or £2,125).  You will then be automatically exempt from tax on his rental income unless you ask within the time limit for your actual profit or loss to be taken into account.  If, in the following year, your gross receipts go up and you want to use method B again, you must tell your Tax Office within the time limit.  Otherwise you are automatically taxable on the normal rental business basis (receipts less expenses).

Rent a Room and losses

Losses cannot be created under the Rent a Room scheme.  So, if you are under the exemption limit or you are taxable under method B, any actual loss you make cannot be relieved unless you tell your Tax Office within the time limit that you do not want Rent a Room to apply.

Any losses outstanding from earlier years when your rents were not within the Rent a Room scheme are not wasted. They are dealt with as follows:

suppose your gross receipts from letting in your own home in the current year are no more than £4,250 (or £2,125) and you therefore have no tax to pay on that income. Here the full amount of any losses from an earlier year can be brought forward and set against any other business profits of the current year.  If there are no other business profits in the current year the losses can go forward to be set against the first business profits of a later year.  The losses are no reduced because Rent a Room exempts or reduces your tax bill for the year.

suppose your gross receipts from letting in your own home are more than £4,240 (or £2,125).  Here the earlier losses can be set against your net profits in the normal way (however the taxable profits are calculated).  That is, whether the income from letting in your own home is calculated under method A or B, and whether or not there is any other letting.  For example, suppose you have no other lettings and you chose method B. Here your business profits will be the excess over £4,250 (or £3,125) and it is this excess amount that will absorb any losses.  Any remaining losses will then be allowable against the taxable business profit of the following or later year, however calculated.

Interest and Rent a Room

Interest paid on a long used to buy a property cannot be claimed as a deduction in your rental business if Rent a Room applies during a year.  That is, if:

your receipts from letting a room in your own home are below the exemption limit and you have not opted out of Rent a Room, or

you elect for method B, where the tax is simply based on the excess of receipts over the exemption limit.

This is the same treatment as applies to any other expenses.

Relief under the MIRAS arrangements will not normally be affected unless you let more than one third of your home.

Rent a Room time limits

There are time limits within which you must tell your Tax Office if:

you do not want to be exempt when your gross receipts are below the exemption limit of £4,250 (or (£2,125), or

you want method B to apply, or want it to stop applying.

The time limits are:

just under 22 months from the end of the tax year for 1996-97 and later years, and

12 months from the end of the tax year for 1995-96 and earlier years.

Extension of time limits for Rent a Room

The time limits for letting your Tax Office know what you want done are strictly applied.  But we may extend the time limits in certain exceptional circumstances; for example, where you have been seriously lill for some time and it was impossible for you to deal with your tax affairs.  The limits are unlikely to be extended if you leave everything to the last minute and then have a minor illness.  If you have, for some good reason, missed a time limit, please explain the circumstances to your Tax Office


IR224

Farmers and Market Gardeners

This Help Sheet gives you information about special rules which can apply to farmers and market gardeners:

farmers’ averaging relief

herd basis

agricultural buildings allowance

losses

the treatment of compensation for compulsory slaughter

some aspects of information from accounts in addition to those covered in Help Sheet IR229: Information from your accounts.

Farmers’ averaging 1998-99 and 1997-98

Provided certain conditions are met, a special relief is available to farmers and market gardeners under which they can claim to add together their profits from farming or market gardening for two years and be taxable on half the total for each of the two years.  This helps to even out fluctuation results.  (Farming includes the intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption - Extra Statutory Concession A29).

Who can claim?

Claims can be made by:

sole traders

partners, except people who joined or left the partnership in 1997-98 or 1998-99.

You cannot claim if your business ceased in 1998-99 or if it commenced in 1998-99 or 1997-98.

How to claim

Sole traders

Claim in box 3.78 in the Self-employment Pages.

Partners

Claim in box 4.12 in your Partnership Pages.  if you wish to claim averaging, you are entitled to do so even if your partners decided not to claim.

What are the conditions?

The difference between the profits for the two years must be at least 30% of the profits of the year with the better result.  To help people where the results are not quite so different, relief is also available on a special tapering scale where the difference is between 30% (full relief available) and 25% (no relief). Below 25% claims may not be made.

If you claim averaging and calculated your tax, you must also calculate the increase or decease in your Income Tax and Class 4 NIC for 1997-98.  Make the alteration for 1997-98 by adjusting your 1998-99 tax.  If the adjustment is an increase, enter the amount in box 18.4 on page 7 of your Tax Return.  If it is a decrease, use box 18.5.

What is meant by profit?

These notes cannot give detailed guidance on every situation. If you read these notes but cannot then calculate your profits for 1998-99 or 1997-98, ask your Tax Office or tax adviser for further help.

Sole traders

Profit means profit after capital allowances and balancing charges.  Losses count as zero.  For 1998-99 your profit is the figure in box 3.73 on the Self-employment Pages, adjusted by any amounts in boxes 3.74 and 3.76.  For 1997-98 it is the figure in box 3.79 of your Self-employment Pages.

Partners

Your profit for 1998-99 is the figure in box 4.7 of your Partnership Pages, adjusted by the figures (if any) in boxes 4.8 and 4.10.  For 1997-98 your profit is the figure in box 4.13 of your 1998 Partnership Pages.

Examples of averaging where profits differ by more than 30%

Example 1

John’s results are as follows:

1998-99 profit £10,000

1997-98 profit £40,000

If averaging is claimed by the profit for each year becomes:

(£10,000 + £40,000) = £25,000

     2

This applies even if the £40,000 for 1997-98 was the result of an averaging claim for 1997-98 and 1996-97.

John’s 1998-99 profit is increased by £15,000 and this increase must be entered in box 3.78 (sole traders) or box 4.12 (partners).

Example 2

Ian’s results are as follows:

1998-99 loss £20,000

1997-98 profit £32,000

The loss counts as zero when averaging is computed so the average result for each year is

(£32,000 + 0) = £16,000

     2

Ian’s 1998-99 profit is increased from £0 to £16,000 and this increase of £16,000 must be entered in box 3.78 on Page SE3 of the Self-employment Pages (or box 4.12 of the Partnership Pages if Ian is a partner).  This figure should also be entered in box 3.79 (box £4.13 for partners).  The loss of £20,000 should be entered in box 3.80 (box 3.74 and 3.76 (boxes 4.8 and 4.10 for partners), this figure will be the same as the figure in box 3.73 (box 4.7 for partners).

What if the profits differ by between 30% and 25% of the profit for the year with the better result?

In that situation you can claim to have a special sum deducted from the profit for the higher year and added to the profit for the lower year.  This sum is computed by multiplying the difference by 3 and subtracting 75% of the profits for the higher year.

Example where profits differ by between 30% and 25%

Example 3

Liz’s results are as follows

1998-99 profit £50,000

1997-98 profit £36,000

The difference is £14,000 which is between £15,000 (30% of the higher figure) and £12,500 (25% of the higher figure) so Liz can reduce the higher figure and increase the lower figure by:

(2 x £14,000) - (75% x £50,000) = £4,500

The reduction of £4,500 to Liz’s 1998-99 profit must be entered, in brackets, in box 3.78 (sole traders) or box 4.12 (partners).

How final is a claim?

Making a claim does not commit you to averaging. If you change your mind, you can withdraw the claim within the time limit for amending your Tax Return.

What is my profits change?

Any averaging claim you have made in your Tax Return will lapse if your profits for either 1998-99 or 1997-98 change.  Provided the time limit for amending your Tax Return has not expired, you can make a claim to average the changed profits by amending your Tax Return, whether or not you originally made a claim.

Even if the time limit for amending your Tax Return has expired, you can still make a claim if you used averaging to compute your taxable profit before the profits changed.  You cannot amend the Tax Return yourself but you should write to your Tax Office to ask for any necessary adjustments to be made. Do not delay writing because there is a time limit.

What about the change in the profits for 1997-98?

A claim to averaging for 1998-99 and 1997-98 changes your income for 1997-98.  If, as a result, you wish to change other claims to relief for 1997-98, you can do so when making the averaging claim.  But averaging does not change your tax bill for 1997-98. Depending on whether your 1997-98 profit goes down or up as a result of averaging, relief is given or the extra tax is charged by an adjustment to your tax liability for 1998-99.

If you claim averaging and you calculate your tax and Class 4 NIC, you must also,

calculate the increase or decrease in your tax and Class 4 NIC for 1997-98 which would have happened if you had amended your 1998 Tax Return because of the changed profit including any consequential changes (for example, because changing the profit changes the limits for Retirement Annuity Relief), and

enter the adjustment on your Tax Return for 1998-99 in box 18.4 (increases) or box 18.5 (decreases).

Stock valuation

Partners can ignore this section when completing the Partnership Pages.

Help Sheet Ir232: Farm stock valuation explains the methods of farm stock valuation which are acceptable to the Inland Revenue. Ask the Orderline for a copy if you need one.

There is only space to enter a single figure for stock in box 3.95 of your personal or Partnership Tax Return.  The example at the end of this Help Sheet includes a breakdown of this figure in the ‘Additional information’ space on Page SE4 between:

livestock

growing crops

harvested crops

deadstock and consumable stores.

Providing this information with your Tax Return may help avoid enquiries.

The herd basis

Partners can ignore this section when completing the Partnership Pages.

What is the head basis?

The herd basis is a special method of calculating profits or losses which may be used by people who keep production livestock.  If you use the herd basis you will need to keep records so that you can identify the figures to be used when applying the special rules.

As a normal rule, farm animals are dealt with a trading stock.  However some farm animals - those which are kept by farmers not primarily for resale but for the sake of the products (for example, milk or eggs) or offspring (for example, lambs or piglets) which they produce - are in many ways more like capital assets of the farmer’s business.  Tax law recognises this by giving farmers the option of dealing with such ‘production animals’ under the herd basis.  It provides a set of rules whereby a herd or flock of production animals is excluded from trading stock and treated, in most but not al circumstances, like a capital asset.

A farmer must elect for the herd basis; otherwise the animals are treated as trading stock.  The election must specify the class of animals concerned and, once it has been made, the herd basis must be used for as long as the farmer continues to keep animals of that class.  The election has to be made soon after the farmer first starts keeping animals of that class, and then the herd basis applies to those animals from the outset. There is a further opportunity to elect to use the herd basis if a herd or a substantial part of it (20% or more) is compulsorily slaughtered.

What is the effect of electing for the herd basis?

Where a herd basis election is in force, the treatment for the purpose of computing farm profits of the herd or herds covered by the election is governed by the special rules.  Very briefly they are:

the initial cost of the herd is not an allowable deduction, nor is the cost of any subsequent increase in herd size

the net cost of replacing animals in the herd (but not any element of improvement) is an allowable deduction

where the odd animal, or just a few animals (amounting to less than 20% of the herd), are sold from the herd and not replaced, the resulting profit or loss is taken into account in arriving at the farming profits.  The profits or loss is the difference between the proceeds of sale of the animal and the cost of the original animal it replaced or its own cost if it was not a replacement.

where the whole herd, or substantial part (20% or more) of the herd, is sold and not replaced, and resulting profit or loss is not taken into account.

Although the herd basis legislation refers only to animals and not to shares in animals, Extra Statutory Concession B37 provides that in practice the herd basis may be applied to a share in an animal in the same way as if the share were a whole animal.  This enables the herd basis to be applied to share farming where herds are jointly owned.

There are further special rules for particular situations

Adjustments to be made in the Self-employment Pages of your Tax Return or the Partnership Tax Return

If you have made a herd basis election then you should include the herd in box 3.94 in your Balance Sheet Summary.

The example at the end of this Help Sheet includes in the ‘Additional information’ box a breakdown of the figures showing the number and cost of the animals.  You may find it useful to provide that information there in order to clarify your figures.  Similarly, the ‘Additional information’ box may be used to show how any herd basis adjustments in your accounts or in the tax adjustment son Page SE2 (or page 3 of the Partnership Tax Return are calculated.  Providing this information with your Tax Return may help avoid enquiries.

To get to the taxable profit, special adjustments may be needed to the profits shown by the accounts.  This will depend upon the way the herd is accounted for.  You should deal with these adjustments by making entries in boxes 3.17 to 3.32 to remove profits or losses which have been included but which are not taxable, and/or expenses which have been included but which are not allowable.  If a sum which is not taxable has been included in your business turnover in box 3.16, then the adjustment should be made in box 3.58.

For example:

an animal dies and is replaced by a better animal costing £200 more than a replacement of the same quality as the one that died.  Because of the way the accounts are prepared, the cost of the replacement is included in box 3.33.  The £200 which is not allowable should be included in box 3.17

a substantial part of the her is sold and the profit of £10,000is included in box 3.49.  It is not taxable so it should be adjusted by a negative entry in box 3.31.  If the profit had been included in business turnover at box 3.16 then the adjustment would be in box 3.58.

the following year the herd in the previous example is replaced.  The cost of the replacements is included in box 3.33.

The proceeds of the sale of the herd sold the previous year now becomes taxable and must be added to the profit.  Make the adjustment in box 3.54 and put a note in the '‘Additional information’ box to explain the adjustment.

a home bred dairy cow is added to the herd.  The cost of breeding it is included in the various expenses in the accounts.  The farmer’s records are not adequate to calculate the cost accurately. The cost is estimated at 60% of market value (see Help Sheet IR232: Farm stock valuation).  If the sum to be disallowed has been included in sales, then no further adjustment is required.  Otherwise the sum to be disallowed should be included in box 3.19.

If an adjustment is needed but you are not sure where to put it, please include it where you think best and use the ‘Additional information’ box to say what you have done.

If you would like further information about the herd basis, ask your Tax Office or tax adviser.

Losses

Most losses can be claimed against other income.  But there are special result which restrict your ability to claim if your farm is uncommercial or if you had a run of losses (calculated before capital allowances) or more than five years.  Please refer to Help Sheet IR227: Losses before making a claim.  If these rules apply to prevent you claiming loss relief and you are an owner-occupier, you may still be able to claim some relief under Extra Statutory Concession B5.  If you wish to make a claim under ESC B5, use box 5.44 of the Land and Property Pages.  Ask the Orderline for the Land and Property Notes and Pages, and Help Sheet IR251: Agricultural land an land managed as one estate.  For further information, ask your Tax Office or tax adviser.

Compulsory Slaughter

Compensation for compulsory slaughter is normally treated as sale proceeds whether or not the animal concerned is part of a production herd accounted for on the herd basis.  Where the animals slaughtered are not on the herd basis and could not be (even with the fresh opportunity to election for herd basis following compulsory slaughter of more than 20% of a herd) you can use Extra Statutory Concession B11 to remove the profit arising from the year of slaughter and bring it in in equal instalments over the next three years.  Use box 3.58 to show profits removed and box 3.54 to show profits brought back in and put an explanation n the 'Additional information' box.

BSE

The special tax treatment for compensation for compulsory slaughter referred to in the previous paragraph applies to compensation under:

the BSE Suspects Schemes

the BSE Selective Cull where the animal slaughtered was born on or after 15 October 1990

The special tax treatment for compensation for compulsory slaughter does not apply to sums paid under:

the Calf Processing Scheme

the Over Thirty Month Scheme

the BSE Selective Cull where the animal slaughtered was born before 15 October 1990.

Payments under these schemes should be dealt with in the same way as if the compensation was received from the ordinary commercial sale of the animal(s) concerned.

Standard Accounts Information

General guidance on the completion of Pages SE2 and SE4 of the Self-employment Pages (or pages 3 and 5 of the Partnership Tax Return) is contained in the Notes to those Pages.  Help Sheet IR229: Information from your accounts, give further advice on transferring figures from accounts to the Tax Return and includes two examples of a general nature.

The accounts produced for farming businesses have traditionally included more detail than those for other businesses of a comparable size.  Examples on pages 5 to 8 show how the figures from one such set of accounts could be used to complete the standard accounts information sections of the Self-employment Pages or Partnership Tax Return.

The accounts are intended to be broadly realistic, but figures are illustrative only. They do not necessarily reflect the Inland Revenue’s views on what may or may not be acceptable in any particular case.

For more businesses the information on the Self-employment Pages or Partnership Tax Return, together with any entries in the 'Additional information' box considered necessary, will enable a full and fair picture of your business to be presented.

In some larger or more complex businesses, this may not, on its own, provide an adequate means of disclosure. The submission of further information including, where necessary, accounts and supporting calculations should be considered where:

a large farming business has a substantial turnover

the farming business is complex (perhaps because it is highly specialised or diversified)

accounts and/or a note of the calculations are required for a proper understanding of the figures.

The standard accounts information section of the Tax Return must also be completed as usual unless you are a partnership with a turnover of £15 million or more in which case you should only complete boxes 3.16 and 3.60.

Agricultural Buildings

You can claim agricultural buildings allowance for the cost of constructing farm buildings, barns, cottages, farm houses and similar works.  You cannot claim for the cost of the land on which the building stands.  The allowance is given at the yearly rate of 4% of the construction cost, so the construction expenditure is written off over 25 years.

Example 4

A barn costs £50,000 to construct during the year ended 05.04.99.  The agricultural buildings allowances is £2,000 for each of the years ended 05.04.99 to 05.04.24.

Example 5

You spent £10,000 on a cowshed in 1989.  The allowances are due at £400 a year. You draw up accounts for nine months from ¼.98 to 31.12.97.  You can claim agricultural buildings allowance in this account of £300 (£400 x 9/12).

Some buildings do not qualify in full for agricultural buildings allowance.  If a building is a farmhouse, the maximum expenditure qualifying for agricultural buildings allowance is one-third of the construction expenditure.  If the accommodation and the amenities of the farmhouse are out of due proportion to the nature and extent of the farm, the expenditure which qualifies is less than one-third.

Example 6

You construct a farmhouse at a cost of £150,000.  The maximum expenditure qualifying for agricultural buildings allowances is £50,000 (1/3 x £15,000).

If a building which is not a farmhouse is used partly for non-agricultural purposes, only part of the expenditure qualifies for agricultural buildings allowance.

Example 7

You construct a barn for £60,000. This has three sections of which you use two for your farm and one for private storage.  The expenditure qualifying for agricultural buildings allowance is £40,000 (2/3 x £60,000) and the allowances due are £1,600 (4% of £40,000) each year for 25 years.

The allowance for each agricultural building is calculated separately.

There are special rules if you sell an agricultural building or if you buy an agricultural building on which somebody else has been claiming allowances.  Your tax adviser will be able to give you advice about these.

Example 8

Trading and Profit and Loss Account for the year ended 31 March 1999

Sale of livestock  £14,000

Transfers to herd (Note 1)  1,200      16,000   Box 3.16

Sale of produce

crops and subsidies   42,163

milk  68,337

straw   50    110,550  Box 3.16

Miscellaneous receipts  650    Note 2

Sheep grazing  950   1,600   Box 3.37

128,150

Opening valuation  42,500

Feeds, Seeds and fertilisers  42,800

85,300

Closing valuation  44,200  41,100   Box 3.33

Gross Profit   87,050  Note 3

Rent (Note 4)  1,700  Box 3.39

Rates and water (Note 4)  1,700  Box 3.39

Wages  14,125   Box 3.38

Insurance 1,205  Note 5

Equipment and vehicle exp.  15,923  Note 6

Light and Heat (Note 7)  3,77  Box 3.39

Telephone (Note 7)  759  Box 3.41

Contracting and plant hire  1,991  Note 8

Lease of milk quota  4,620  Box 3.35

Haulage  365  Box 3.35

Veterinary expenses (Note 9)  1,215  Box 3.45

Bank charges  2,273  Note 10

Hire purchase interest  1,274  Box 3.48

Silage wrapping  1,592  Box 3.35

Accountancy  923  Box 3.45

Valuation charges 175  Box 3.45

Miscellaneous expenses  1,297  Box 3.50

Depreciation  6,292  Box 3.49

61,858

Net Profit  £25,192

Balance Sheet at 31 March 1999

Fixed assets

Land  200,269  Box 3.94

Buildings  125,694  Box 3.94

machinery 32,578  Box 3.93

Milk quota  9,520   Box 3.94

Dairy herd (herd basis)  17,700  Box 3.94

385,761

Current assets

Valuation  Note 11

growing crops 12,000

Livestock  14,750

produce  14,050

deadstock  3,200

44,200  Box 3.95

Debtors and prepayments  14,770  Box 3.96

58,970

Current liabilities

Creditors  16,021  box 3.100

Overdraft  11,565  Box 3.101

HP account 25,641  Box 3.102

53,222  Box 3.103

Net current assets  5,743

Net assets  391,504  Box 3.104

Represented by

Capital Account

Balance at 01.04.98  384,623  box 3.105

Net profit  25,192  Box 3.106

409,815

Less drawings  18,311  box 3.108

391,504  Box 3.109

Note 1

Herd basis adjustment to exclude the cost of home-bred additions to herd.  Following the suggestions in the Help Sheet, and herd basis reconciliation is included in the 'Additional information' box.

Note 2

Miscellaneous receipts comprise haulage (£401) and wayleaves (£249).  Haulage has been included as an item of business income in box 3.16.  The wayleaves are included in box 3.37. Wayleaves received after 5 April 1997 are no longer subject to deduction of tax and are no longer required to be excluded from the farming profits.

Note 3

In this example, the figure of gross profit in the accounts will be different from the figure in box 3.36 because some expenditure has been included as direct costs of the business.

Note 4

The private proportions of rent and of rates and water are respectively £475 and £200.  These amounts need to be disallowed in arriving at the profit for tax purposes and re included in box 3.21.

Note 5

There are several figures making up the overall insurance expense.  £210 relates to motor vehicles partly used for private purposes.  This amount is included in the entry in box 3.42 (see Note 6 below).  There is a choice as far as the balance is concerned.  That part relating to the premises and property could be included in the entry in box 3.39; but it would also be reasonable to enter the full amount of the balance in box 3.41 on a consistent basis from year to year.  The latter approach is adopted here.

Note 6

The equipment and vehicle expenditure comprises the following: tractor/combine repairs, £6,351, tractor/combine diesel, £5,102 and motor car expenses £,4470.  This latter figure, together with the motor insurance costs, is entered in box 3.42.  Of the total motoring costs of £4,680 (£4,470 + £210) 30% are for private use and are disallowed by entering the private proportion, £1,404, in box 3.24.  The tractor/combine expenditure has been treated as a direct cost of production and included in the enter in box 3.35, although it would be equally acceptable to separate the repairs expenditure and enter it in box 3.40.

Note 7

The private proportions of light and heat and of telephone are respectively £650 and £150.  To arrive at the profit for tax purposes, these amounts have to be disallowed and are included in the entries for boxes 3.21 and 3.23 respectively.

Note 8

Contracting and plant hire comprises costs of a ditching contractor £1,767 and plant hire, £224.  The expenditure all relates to maintenance of the farm and has been entered in box 3.40.  Had the contracting been in respect of contract milkers or contract harvesters, for example, it would have been entered in box 3.35 as a direct cost of production.

Note 9

Veterinary expenses included £177 for treatment to a privately owned pony.  This has been disallowed by including the amount in the entry in box 3.27.  Ass associated expenses of upkeep on the pony have been met privately or charged to drawings.

Note 10

Bank charges included £701 interest charges which is entered separately in box 3.47.

Note 11

Details of the valuation at the year end are included in the 'Additional information' box to help clarify the figure shown in box 3.95.  It is not necessary for a professional valuation to be obtained but the likely reliability of the valuation will be one of the factors the Inland Revenue will consider in deciding whether to open an enquiry.

You must fill in this Page if your annual turnover is £15,000 or more - read the Notes, page SEN2

If you were registered for VAT, do the figures in boxes 3.16 to 3.51 include VAT?

314    or exclude VAT   315

Sales/business income (turnover)  3.16  £126,951

Disallowable expenses included in boxes3.33 to 3.50   Total Expenses

Cost of sales  3.17 £   3.33 £41100

Construction industry subcontractor costs  3.18 £     3.34  £

Other direct costs  3.19 £    3.35  £18,030

box 3.16   (box 3.33 + box 3.34 + box 3.35

Gross profit/(loss)  3.36  £67,821

Other income/profits  3.37 £1,199

Employee costs  3.20 £   3.38  £14,125

Premises cost  3.21  £1,325   3.39  £7,829

Repairs  3.22  £    3.40  £1,991

General administrative expenses  3.23 £150    3.41  £1,754

Motor expenses  3.24  £1,404   3.42  £4,680

Travel and subsistence 3.25 £     3.43

Advertising, promotion and entertainment   3.26  £    3.44 £

Legal and professional costs 3.27  £177    3.45  £2,373

Bad debts   3.28  £       3.46  £

Interest   3.29  £       3.47  £701

Other financial charges  3.30  £     3.48  £2,846

Depreciation and loss/(profit) on sale  3.31  £6,292   3.49 £6,292

Other expenses   3.32 £     3.500£1,297

Put the total of boxes 3.17 to 3.32 in box 3.53 below

Total expenses  3.51 £43,828  total of boxes 3.38 to 3.50

Net profit/(loss)  3.52  £25,192  boxes 3.36 + 3.37 minus box 3.51

Tax adjustments to net profit or loss

Disallowable expenses  3.53 £9,348  total of boxes 3.17 to 3.32

Good etc. taken for personal use and other adjustments (apart from disallowable expenses) that increase profit  3.54 £

Balancing charge   3.55  £

Balancing charges  3.55  £

Total additions to net profit (deduct from net loss)

3.56  £9,348  boxes 3.53 + 3.54 + 3.55

Capital allowances  3.57 £8,327

Deductions from net profit (add to net loss)  3.58 £    3.59 £8,327  boxes 3.57 + 3.58

Net business profit for tax purposes (put figure in brackets if a loss)    3.60 £ 26,213  boxes 3.52 + 3.56 minus box 3.59

Includes £1,200 herd basis adjustment (Note 1)

Cost of sales comprises the feeds, seeds and fertilizers used in the year

Sheep grazing and wayleaves

Other direct costs includes:

Tractor/combine running costs  11,453

Lease of milk quota  4,620

Silage wrapping 1,592

Haulage  365

Expenditure which is not allowable for tax purposes is entered in the appropriate box in the left hand column.  The total is entered in box 3.53 and added to the net profit in box 3.52 to arrive at the taxable profit for the business.

Capital allowances are claimed for motor vehicle, farm machinery and agricultural buildings.  The total of the allowances claimed (box 3.69) is included here.

Extract from Page SE4 of the Self-employment Pages.

The dairy herd is dealt with on the herd basis and therefore included with other fixed assets in box 3.94.

Summary of balance sheet

Assets

Plant, machinery and motor vehicles   3.93 £32,578

Other fixed assets (premises, goodwill, investments etc.)  3.94  £353,183

Stock and work in progress  3.95  £44,200

Debtors/prepayments/other current assets   3.96  £14,770

Bank/building society balances  3.97  £

Cash in hand  3.98  £

3	£444,731  total of boxes 3.93 to 3.98

Liabilities

Trade creditors/accruals   3.100 £16,021

Loans and overdrawn bank accounts  3.101  £11,565

Other liabilities   3.102  £25,641

3	£53,227  total of boxes 3.100 to 3.102

Net business assets (put the figure in brackets if you had net business liabilities)

3	£391,504  box 3.99 minus box 3.103

Represented by

Capital Account

Balance at start of period*  3.105  £384,623

Net profit/(loss)*  3.106  £25,192

Capital introduced  3.107  £

Drawings  3.108  £18,311

Balance at end of period *  3.109 £931,504  total of boxes 3.105 to 3.107 minus box 3.108

if the Capital Account is overdrawn, or the business made a net loss, show the figure in brackets.

Tax deducted from trading income

Any tax deducted (excluding deductions made by contractors on account of tax) from trading income  3.120 £

Note: box numbers 3.110 to 3.119 are not used

Additional income

1.Details of the professional relation in box 3.95 are

Growing crops 12,200

Livestock (not herd basis) 14,750

Produce 14,050

Deadstock 3,200

£44,200

2.Herd Basis reconciliation

Opening herd 20 @ £200  -4,000

25 @ £500   12,500

16,500

Additions 2 @ £600  1,200

@ 31/03/98 £17,700

Additions adjusted in box 3.16 to include cost 1,200

an analysis of the valuation is included in the additional information section to help clarify the figure in box 3.95 (Note 11).

Details of the herd reconciliation are included in the additional information section

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR227

Losses

This Help Sheet tells you what you can do if:

you have made a loss in your business, or

you are entitled to a share of the loss made by a partnership of which you are a member.

Sole traders

The Box numbers mentioned below refer to boxes in the Self-employment Pages of your Tax Return.

You can claim tax relief for a loss you made in your business by filling in boxes 3.81 in your Self-employment Pages.  You do not have to make your claims immediately: if you prefer, you may wait and claim relief later. But remember to make your claims within the time limits shown below. Late claims cannot normally be accepted.

The different ways you can claim tax relief for a business loss are:

as a deduction from your income for this year (boxes 3.81) or 3.85 in the Self-employment Pages)

as a deduction from your capital gains for the year (box 8.5 in the Capital Gains Pages)

as a deduction from your income or capital gains for earlier years (box 3.82 in the Self-employment Pages).

by reducing your business profits taxed in earlier years (box 3.82) following cessation

by carry forward against future profits from your business (box 3.83 in the Self-employment Pages).

You cannot claim only part of the loss.  And you can only claim relief once for each pound of loss).  But if you make a claim and your income, gains or profits are not enough to use the whole of the loss, the balance of the loss can be claimed in another way.

You can claim loss relief as soon as you know how big the loss is, normally when the accounts have been prepared.  But we cannot give the relief you claim until you have sent in your completed Tax Return for the year you are claiming the relief to be given.

If you want to claim loss relief as a deduction from your income or gains for this year you must make your claim in your 1998-99 Tax Return.  If your business makes a loss in future, you can claim tax relief as a deduction against your income of the same year as the loss arose as soon as you know how big the loss is.  We cannot, normally, give the relief until you have sent in your Tax Return for the year. But if, exceptionally, you have income from employment then you can claim for your loss relief to be included in your tax code for the year of the loss.

If your claim is for loss relief as a deduction from your income or capital gains for earlier years, you can claim as soon as you know how big the loss is.  This may mean that you claim relief even before you have been sent a Tax Return.  If you want to claim relief before you have been sent a Tax Return, write a letter telling us the name of your business, how much the loss is and for what period and say how you want relief to be given.

Partners

If you are a member of a partnership you can claim tax relief for your share of the partnership losses by filling in boxes 4.15 to 4.19 in your Partnership Pages.

Your share of the loss will be treated as having arisen from a business that you carried on alone.  That business will be regarded as having started on the date you became a partner (unless you previously carried on the business on your own account when it will be regarded as having commenced on the date you started in business) and to have ceased on the date on which you cased to be a partner (or if you carry on the business thereafter as a sole trader the date on which the business ceased).

The boxes referred to on this Help Sheet are those shown on the Self-employment Pages.  The equivalent boxes on the Partnership Pages in your Tax Return are as follows:

Box 3.81 is equivalent to box 4.15

Box 3.82 is equivalent to box 4.16

Box 3.83 is equivalent to box 4.17

Box 3.84 is equivalent to box 4.18

Box 3.85 is equivalent to box 4.19

The following paragraphs describe the different options and the conditions that must be satisfied.

Deduction from income or gains for 1998-99

You can claim relief for the loss as a deduction from your income for 198-99.  If the allowable loss is more than your income, you can claim the balance of the loss as a deduction from your capital gains for 1998-99.

The loss you claim in box 3.81 will normally be the whole of the loss.  But your total income less deductions cannot be reduced below zero.  So, the figure you put in box 3.81 should be no higher than your total income less deductions.

If you wish to claim the balance of the loss against your capital gains for 1998-99, enter the balance of your loss in box 8.5 on the Capital Gains Pages or, if this is more than your total gains for 1998-99, enough of the loss to reduce the gains to zero.  If there is a balance of loss after setting it against your income (and capital gains if you choose) then it can be claimed in another way.

The time limit for this claim is 31 January 2001.

Deduction from income or gains for earlier years

You can claim for the loss as a deduction from your income for an earlier year.  There are two ways of doing this.

If your business was set up and commenced trading on or after 6 April 1995, you can claim relief for the loss as a deduction from your income (but not capital gains) of the three years 1995-96 to 1997-98.  The loss is first deducted from your 1995-96 income.  If there is any balance of loss left, this is deducted from your 1996-97 income.  Finally, any remainder is deducted from your 1997-98 income.

You can claim relief for the deduction from your income for 1997-98.  If the allowable loss is more than your 1997-98 income, you can, if you wish, claim the balance of the loss as a deduction from your capital gains for 1997-98.  This option is available to any business.

The time limit for claims is 31 January 2001.

If you want to claim relief in your Tax Return, enter the total to be carried back in box 3.82 and provide details of the amount carried back to each year in the 'Additional information' box on page SE4.  You can use the Working Sheet to keep track of your losses.  The first entry will normally be the whole of your allowable loss for 1998-99 (box 3.80).  But if your total income for this year is less than the loss, it will be the amount of your income.  You may then complete the second line in the same way, and so on.

If you claimed loss relief under this heading before your Tax Return was sent to you, you must remember to include the amount of relief claimed in box 3.82 of the Self-employment Pages.

Deduction from income and gains : restrictions

You should only claim relief for your loss as a deduction against your income or capital gains of 1998-99 or an earlier year if you ran your business commercially for profit.  If not, for example, because your business is run as a hobby, you can only claim to set the losses against profits made in your business.  And if you are a farmer or market gardener, you cannot normally claim your losses in this way if you also made losses (computed for this purpose only before capital allowances are taken into account) in each of the previous five tax years.  If your business is carried on wholly overseas, you can only claim your losses as a deduction from your income or capital gains which come from abroad. Your tax adviser or Tax Office will tell you what to do.

Carry forward against future profits

You can carry your loss forward to set against future profits from the same business.  It will then be deducted from your profits in the first and each subsequent profitable year until it is used up. The time limit for a claim is 31 January 2005.

Enter in box 3.83 the amount of your 1998-99 loss which you wish to claim in this way.  Enter in box 3.84 the amount of any losses you sustained in 1997-98 and earlier years which you have not yet used, and include in box 3.85 losses used against 1998-99 profits.

Reduction of business profits taxed in earlier years

If your business ceased in 1998-99, you can set the loss of your final 12 months of trading against any profits from the same business which were taxed in 1995-96, 1996-97, 1997-98 or 1998-99.  Help Sheet IR222: How to calculate your taxable profit explains this.

Summary of how allowable loss is to be relieved

You may find it useful to summarise your loss relief claims in the Working Sheet below.  This will enable you to keep track of your losses and make sure you do not forget to claim relief for any of them. Remember that there is a limit how far back you can carry a loss to set against earlier years’ income and this depends upon the type of claim you make.

Working Sheet

Allowable loss for 1998-99 (from box 3.80)  A £

Loss relief claimed against other taxable income or capital gains for:

1998	B £

1997-98  C £

1996-97  D £

1995	E £

Total losses claimed in this way   F £  total of boxes B to E

Balance of allowable loss for 1998-99  G £   box A minus box F

Loss brought forward from last year  H £

Loss allowed this year (box 3.85)  I £

Not yet allowed  J £   box H minus box I

Loss carried forward to next year  K £    box G + box J

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR229

Information from your Accounts

This Help Sheet helps you fill in boxes on:

Page SE2 of the Self-employment Pages to give details of your income and expenditure, and

Page SE4 of the Self-employment Pages to give details of your balance sheet.  If you have one.

It does not give guidance on which expenses are allowable for tax purposes.  If you need advice on this topic you should ask for Help Sheet IR222: How to calculate your taxable profits.

The box numbers mentioned in this Help Sheet are references to boxes in the Self-employment Pages.  Look up box numbers in the Notes to the Self-employment Pages for more information.

Partnership Tax Return

The Help Sheet will also help you fill in the Trading Pages of the Partnership Tax Return.

The box numbers on the Trading Pages of the Partnership Tax Return are the same as those on the Self-employment Pages of the personal Tax Return (except where specifically noted).

What does this help sheet cover?

If you have business accounts, and your annual turnover (that is, all the money earned in your business before deducting business expenses) is £15,000 or more for a full year, you must fill in boxes 3.14 to 3.52 and, if you have a balance sheet, boxes 3.93 to 3.109 - the ‘standard accounts information’.

This Help Sheet provides guidance on how to fill in the boxes from the figures in your accounts and answers some of the more common questions that arise from doing this.

What is ‘standard accounts information’ (SAI)?

SAI is a self-contained summary of your accounts which you complete as part of your Tax Return.  It provides a comprehensive summary of your trading and profit and loss account or your income and expenditure account, and your balance sheet.  Also it shows what adjustments you have made to arrive at your profit for tax purposes.

What if there are no accounts?

If you are not intending to have accounts prepared, the Notes to the Self-employment Pages provides guidance to help you calculate your business profit, the adjustments you may need to make for tax purposes and how to fill in the SAI boxes.

Remember, you must keep records of all your business transactions: Leaflet SA/BK3 available from the Orderline helps you decide what records to keep.

What if annual turnover is less than £15,000?

If your annual turnover before adding any balancing charges is less than £15,000 you do not need to fill in the SAI section. Instead you can fill in the shortened income and expenditure section on Page SE1 of the Self-employment Pages or page 2 of the Partnership Tax Return - boxes 3.11 to 3.13.

Remember, if your accounts do not cover a period of 12 months the £15,000 threshold is adjusted proportionately. For example, if your accounts covered only eight months the threshold would be £10,000 (that is, £15,000 x 8/12).

Must accounts and tax calculations be sent in?

No.  There is no longer a requirement for you to submit business accounts, or tax calculations based on them, with your Tax Return unless you are a partnership with a turnover of £15 million or more.

Normally the SAI gives all the information the Inland Revenue needs to know about your business for the purposes of deciding whether to make an enquire into your Tax Return.

What if there are things to draw attention to?

For most business this information will enable you to present a full and fair picture of your business for tax purposes.  If there are any points needing further explanation enter details in the 'Additional information' box on Page SE4 of the Self-employment Pages or page 4 of the Partnership Tax Return.

In some larger or more complex businesses additional information given in the Return may not be enough to provide a means of adequate disclosure.  The submission of further information including perhaps accounts and supporting calculations, may be considered necessary.  For example, where

a large business has substantial turnover, or

a business is complex (perhaps because it is in a highly specialised trade), or

accounts or calculation are needed for a proper understanding of the figures.

Remember to fill in Page SE2 and, if you have a balance sheet, Page SE4 of the Self-employment Pages or, in the case of a partnership, pages 3 and 5 of the Partnership Tax Return as well.

Where to start

As well as your accounts you may find it useful to have your business records available when you complete the SAI section of you Return.

There are no hard and fast rules, but you should be consistent from one year to the next.  It will help you next year if you keep a note of which accounts figures you enter in which SAI boxes.

Remember, the purpose of completing these boxes is to present the accounts information as clearly and informatively as the standard format allows.

Filling in the boxes

Here are some suggestions

unless your accounts are very simple, or they have been drawn up using SAI heading, it is probably best not to write any figures in the Self-employment Pages until you are sure of the final amounts to put in each box

start by transferring the business turnover shown in your accounts to boxes 3.16 and 3.37

go through the expenses shown in your accounts and note against each one the number of the box in which you think it should be entered.  If, for whatever reason, an expense causes difficulty leave it initially and go on to the next item

once you have looked at every item in the accounts go back to the ones for which you could not make an immediate decision.  The notes that follow should help you decide what to do.

Make sure that every figure from your accounts is included somewhere in the SAI boxes, and included only once.

What to do if there are expenses in the accounts that are not specified in the Self-employment Pages

The general guidance explains what each box is broadly intended to include and gives some examples of common types of expenditure which are usually appropriate to each. But inevitably there will be some expenses that the 'Additional information' Format does not readily accommodate.  In these cases you will have to judge how best to present your figures.

Consider whether the expense can be swept up into one of the SAI headings. For example, expenditure on training courses could, depending on the circumstances, be included under the general heading of employee costs.

Some types of expenditure might be included under alternative SAI headings depending on the type of business and the precise nature of that expenditure. But whichever treatment you adopt, you should be consistent from one year to the next.

If the expenditure is of a one-off or unusual nature, or if you want, for any reason, to draw particular attention to it, or to the tax treatment you have adopted, give details in the 'Additional information' box on Page SE4 of the Self-employment Pages (or page 4 of the Partnership Tax Return).

If there is no suitable heading or the amounts involved are immaterial use the ‘Other expenses’ Box (box 3.50).

Do not change the descriptions printed on the Tax Return.  Use the 'Additional information' box if you need to write anything outside the boxes.

What should be included under ‘Other Expenses’?

If expenditure you include here is material by reference to the total amount of business expenditure, consider the need to explain what is included by making a note in the 'Additional information' box in order to make your figures clear.

There is no precise definition of what is or is not material, but as a general rule, if the inclusion or exclusion of an item might affect judgements that the Inland Revenue, or anyone else who uses the information in your Tax Return, might make, the item should be considered a material.

Avoiding unnecessary use of the ‘Other expenses’ box, and explaining the main items you have included may help avoid enquiries being made into your Tax Return.

What to do if accounts include as a single item expenses that may need to be shown separately in the Self-employment Pages.

If the expenditure is virtually all of one type, there is no objection to categorising the whole expense under the main heading.  For example, your accounts may include an entry for ‘Bank charges and interest’ that consist almost entirely of bank charges.  If so, put the whole amount in box 3.48.

But you should divide the expenses between different headings if the amounts involved are material, or it would be misleading if they were all included under one heading. For example, if your accounts include a single entry for ‘travel and entertainment’ you should distinguish the amount of the entertainment expenses, include it in the entry in box 3.44 and make sure this is disallowed for tax by entering the disallowable part in box 3.26.  The remainder of the expense relating to travel costs should be entered in box 3.43 and any disallowable part of that expense, for example private travel costs, should be shown in box 3.25.

Consider keeping these amounts separate when the next accounts are prepared.

In cases where the taxable profit or loss is not affected and the amounts involved are not material by reference to the total expenditure, no objection would normally be made if you decide to estimate the split between the SAI boxes.  For example, if your accounts include an item for ‘insurance’ of say £300, and you know that about £200 was the premium for insuring the business premises and the remainder was other insurance costs, wholly allowable for tax, include £200 under ‘Premises costs’ (box 3.39) and £100 under ‘General administrative expenses’ (box 3.41).

Will wrong entries be penalised?

In many cases there will be an element of choice in how you complete the SAI boxes and there will be no right or wrong answer.

But you must take reasonable care to ensure that your Tax Return is completed accurately. Errors arising from fraudulent or negligent conduct that give rise to a loss of tax will be subject to penalties.

Examples

The rest of this Help Sheet contains examples to show you how to fill in the SAI boxes on Pages SE2 and SE4 of the Self-employment Pages (or pages 3 and 5 of the Partnership Tax Return).

Example 1, staring on page 4, gives details from the trading and profit and loss account and balance sheet of a snack bar, Jack’s Snacks.  Page 5 and 6 show how the Self-employment Pages can be completed. Jack is no intending to do the tax calculation himself.

Example 2, on pages 7 and 8 deals with a business, Harry Cooper Business Services.  A balance sheet was no drawn up, so there is no need to fill in boxes 3.93 to 3.109 in the Self-employment Pages.

Example 1 - Jack’s Snacks

Trading and profit and loss account for the year ended 30 June 1998

Sales  93,808  see box 3.16 and Note 1

Opening stock 2,200

Purchases 42,578

44,778

Closing stock 2,450   42,328  see box 3.33

Gross profit  51,480

Rents received  2,327 see Note 2

Bank interest 92 see box 3.37

53,899

Wages and salaries  11,014  see box 3.38

Rent and rates 3,946  see box 3.39

Insurance 794  see Note 3

Light and heat 1,335  see box 3.39

Cleaning 328  see Note 3

Repairs and maintenance 1,577  see box 3.40

Printing, postage and stationery 79  see box 3.41

Telephone 204  see Note 4

Motor expenses 1,266  see Note 4

Advertising 240  see box 3.44

Legal and professional 70  see box 3.45

Accountancy 866  see box 3.45

Bank and credit card charges 809 see box 3.48

Sundries  236  see box 3.50

Hire purchase interest 484  see box 3.48

Depreciation 6,648  see box 3.49

Profit on disposal of assets  (1,089)  see box 3.49

VAT surcharge 351  see Note 5

29,158

Net profit £24,741

Balance sheet at 30 June 1998-12-27

Fixed assets

Freehold property  34,032  see box 3.94

Furniture and equipment 4,232  see Note 6

Motor vehicles 23,701  see box 3.93

61,965

Current assets

Stock  2,450   see box 3.95

Debtors and prepayments 3,197  see box 3.96

Cash in hand and at bank  6,808  see Note 7

12,455

Current liabilities

Trade creditors  2,080  see box 3.100

Other creditors  10,627  see box 3.102

Accruals  4,372  see box 3.100

Net current liabilities  4,624

Total net assets 57,341   see box 3.104

Capital account

At 1 July 1997   47,080  see box 3.105

Capital introduced  6,734  see box 3.107 and Note 8

Profit for the year  24,741  see box 3.106

78,555

Drawings (21,214)  se box 3.108

57,341  see box 3.109

Note 1  Goods taken from the business for personal use and not paid for amount to £1,520.  This amount should be included as part of business turnover and is therefore added to the net profit by entering the figure in box 3.54.

Note 2  Rents received are for a part of the premises not used for business purposes.  It has been agreed that they can be treated as business income for tax purposes.  They are included in box 3.37 but no adjustment is made in box 3.58 and there is no need to include this figure in the Land and Property Pages as it is fully accounted for here.

Note 3  Insurance costs and cleaning costs all relate to the business premises.

Note 4  50% of telephone costs and 35% of motor expenses are for private, non- business use.  These amounts are not allowable for tax.  The amounts of £102 and £443 go in boxes 3.23 and 3.24.

Note 5  A VAT Surcharge of £351 was incurred.  This amount is included under ‘Other expenses’ in box 3.50.  It is not an allowable expenses for tax purposes and is therefore disallowed by including the amount in box 3.32.  Although the amount is relatively small it is material, because it is not allowable for tax purposes.  A note has therefore been made in the 'Additional information' box to explain the tax treatment.

Note 6  Furniture and equipment used in the business premises are included in box 3.93, ‘Plant, machinery and motor vehicles.’

Note 7  The cash and bank balances are not separated in the accounts, but the business records show that the bank balance was £6,085 and cash on hand was £723.

Note 8  An endowment policy matured during the year and the proceeds of £6,734 were paid into the business.  A note of the source of these funds is given in the 'Additional information' box.

Income and expenses - annual turnover £15,000 or more

You must fill in this Page if your annual turnover is £15,000 or more - read the Notes, Page SEN2

If you were registered for VAT, do the figures in boxes 3.16 to 3.51, include VAT  3.14  or exclude VAT? 3.15

Sales/business income (turnover)   3.16  £93,808

Disallowable expenses included in boxes 3.33 to 3.50    Total expenses

Cost of sales  3.17 £    3.33  £42,328

Construction industry subcontractor costs  3.18 £    3.34 £

Other direct cost 3.19 £    3.35 £

Gross profit/(loss)  3.36 £51,480  box 3.16 minus (box 3.33 + box 3.34 + box 3.35)

Other income/profits   3.37 £2,419

Employee costs 3.20 £   3.38 £11,014

Premises costs 3.21 £   3.39 £5,403

Repairs  3.22 £   3.40 £1,577

General administrative expenses 3.23 £102   3.41 £283

Motor expenses 3.24 £443   3.42 £1,266

Travel and subsistence   3.25 £   3.43 £

Advertising, promotion and entertainment 3.26 £   3.44  £240

Legal and professional costs  3.27 £  3.45 £936

Bad debts  3.28 £  3.46

Interest 3.29 £   3.47 £

Other finance charges  3.30 £   3.48 £1,293

Depreciation and loss/(profit) on sale 3.31 £5,559  3.49 £5,559

Other expenses 3.32 £351   3.50 £587

Put the total of boxes 3.17 to 3.52 in box 3.53 below

Total expenses 3.51 £29,158  total of boxes 3.38 to 3.50

Net profit/(loss)  3.52 £24,741  boxes 3.36 + 3.51

Tax adjustments of net profit or loss

Disallowable expenses  3.53 £6,455  total of boxes 3.17 to 3.32

Goods etc., taken for personal use and other adjustments (apart from disallowable expenses) that increase profits  3.54  £1,520

Balancing charges 3.55 £

Total additions to net profit (deduct from net loss)  3.56 £7,975  boxes 3.53+3.54+3.55

Capital allowances  3.57 £5,250

Deductions from net profit (add to net loss)  3.58 £92  3.59  £5,342 boxes 3.57+3.58

Net business profit for tax purposes (put figure in brackets if a loss)  3.60 £27,374  boxes 3.52+3.56 minus box 3.59

Rent received and interest received.  The interest received is shown as a deduction from net profit at box 3.58.  The rent is not deducted (see Note 2 to the accounts)

Other expenditure is made up of sundries £236, and the VAT surcharge (see Note 5 to the accounts).

Adjustment for ‘own goods’

Capital allowances claimed on the car and other business assets - from box 3.69

The part of any expenditure that is not allowable for tax purposes is entered in the appropriate box in the left hand column.  The total is added to the net profit to arrive at the profit for tax purposes.

This is the income included in box 3.37 that is not treated as trading income and which needs to be returned elsewhere in your Tax Return.  The bank interest received is shown as a deduction from net profit by entering it in box 3.58.  This income should then be included on page 3 of your Tax Return (or the equivalent sections in the Partnership Tax Return).

Class 4 National Insurance Contributions

Tick this box if exception or deferment applies  3.89

Adjustments to profits chargeable to Class 4 National Insurance Contributions 3.90 £

Class 4 National Insurance Contributions due  3.91  £

Subcontractors n the construction industry

Deductions made by contractors on account of tax (you must send your SC60s to us)  3.92  £

Summary of balance sheet

Leave these boxes blank if you do not have a balance sheet

Assets

Plant, machinery and motor vehicles  3.93  £27,933

Other fixed assets (premises, goodwill, investments etc.)  3.94 £34,032

Stock and work in progress  3.95  £2,450

Debtors/prepayments/other current assets  3.96  £3,197

Bank/building society balances  3.97 £6,085

Cash in hand  3.98 £723

3.99 £74,420  total of boxes 3.93 to 3.98

Liabilities

Trade creditors/accruals  3.100 £6,452

Loans and overdrawn bank accounts  3.101 £

Other liabilities  3.102 £10,627

3.103 £17,079 total of boxes 3.100 to 3.102

Net business assets (put the figure in brackets if you had net business liabilities)

3.104 £57,341  box 3.99 minus box 3.103

Represented by:

Capital Account

Balance at start of period *  3.105 £47,080

Net profit/(loss) *  3.106  £24,741

Capital introduced  3.107  £6,734

Drawings  3.108  £21,214

Balance at end of period * 3.109 £57,341  total of boxes 3.105 to 3.107 minus box 3.108

•	If the Capital Account is overdrawn, or the business made a net loss, show the figure in brackets.

Tax deducted from trading income

Any tax deducted (excluding deductions made by contractors on account of tax) from trading income  3.120 £

Note box numbers 3.110 to 3.119 are not used

Additional information

Box 3.50 includes £351 VAT surcharge which has been disallowed for tax purposes (in box 3.32)

Capital introduced (box 3.107) was financed with the proceeds of a maturing endowment policy

Now fill in any other supplementary Pages that apply to you. Otherwise go back to Page 2 of your Tax Return and finish filling it in.

Source of capital introduced explained in the 'Additional information' box.

See Note 5.

Example 2 - Harry Cooper Business Services

Profit and loss account for the year ended 30 April 1998

Work done  82,331  see box 3.16 on page 8

Interest  615  see box 3.37 on page 8

Commission  133  see box 3.16 on page 8

83,079

Expenditure

Staff salaries  13,955  see box 3.38 on page 8 and Note 6

Subcontract expenses 5,705  see box 3.38 on page 8

Rent, rates and water  9,940  see box 3.39 on page 8

Heat and light  494  see box 3.39 on page 8

Printing, stationery and postage 1,479  see box 3.41 on page 8

Repairs and computer maintenance  776  see box 3.40 on page 8

Insurance 1,257  see Note 1

Telephone  2,352 see box 3.41 on page 8

Motor vehicle expenses  8,286  see box 3.42 on page 8

Entertaining  237  see box 3.44 on page 8

Training courses 699  see box 3.38 on page 8

Subscriptions and journals  312  see box 3.41 on page 8

Legal and professional fees  902  see box 3.45 on page 8

Finance and HP interest  345  see box 3.48 on page 8

Bank charges and interest 2,461  see Note 2

Hire of equipment 1,248  see Note 3

Cleaning  692  See Note 4

Sundries 604  see box 3.50 on page 8

Depreciation 3,200  see box 3.49 on page 8

Loss on sale of vehicles  900  see box 3.49 on page 8

55,844

Net profit £27,235

Note 1  Insurance includes £758 professional indemnity cover which is entered in box 3.45.  The balance includes various items and has been entered in box 3.41 in line with general guidance.  This treatment will be followed consistently, from year to year

Note 2  Bank charges and interest are shown in the accounts as a composite figure.  This amount comprises £1,687 for interest and £774 for bank charges.  These amounts are shown separately in boxes 3.47 and 3.47.

Note 3  Equipment hire covers cost of renting office equipment including a photocopier and fax.  It is included in ‘General administrative expenses’ in box 3.41.

Note 4  The business records show that £531 cleaning is for the business premises.  the balance includes various small one-off expenses.  As almost all the expenditure is for the business premises, and the whole £692 is allowable for tax it can simply be included as part of ‘Premises costs’ in box 3.39.

Note 5  Capital allowances of £2,062 are claimed on the car, and other business assets.

Note 6  Staff salaries include Harry’s own wages of £5,000

Income and expenses - annual turnover £15,000 or more

You must fill in this Page if your annual turnover is £15,000 or more - read the Notes, Page SEN2

If you were registered for VAT, do the figures in boxes 3.16 to 3.51, include VAT  3.14  or exclude VAT? 3.15

Sales/business income (turnover)   3.16  £82,464

Disallowable expenses included in boxes 3.33 to 3.50    Total expenses

Cost of sales  3.17 £    3.33

Construction industry subcontractor costs  3.18 £  3.34 £

Other direct cost 3.19 £    3.35 £

Gross profit/(loss)  3.36 £82,464  box 3.16 minus (box 3.33 + box 3.34 + box 3.35)

Other income/profits   3.37 £615

Employee costs 3.20 £5,000   3.38 £20,359

Premises costs 3.21 £   3.39 £11,126

Repairs  3.22 £   3.40 £776

General administrative expenses 3.23 £260   3.41 £5,890

Motor expenses 3.24 £2,704   3.42 £8,286

Travel and subsistence   3.25 £   3.43 £

Advertising, promotion and entertainment 3.26 £237   3.44  £237

Legal and professional costs  3.27 £  3.45 £1,660

Bad debts  3.28 £  3.46 £

Interest 3.29 £   3.47 £1,687

Other finance charges  3.30 £   3.48 £1,119

Depreciation and loss/(profit) on sale 3.31 £4,100  3.49 £4,100

Other expenses 3.32 £   3.50 £604

Put the total of boxes 3.17 to 3.52 in box 3.53 below

Total expenses 3.51 £55,844  total of boxes 3.38 to 3.50

Net profit/(loss)  3.52 £27,235  boxes 3.36 + 3.51

Tax adjustments of net profit or loss

Disallowable expenses  3.53 £12,301  total of boxes 3.17 to 3.32

Goods etc., taken for personal use and other adjustments (apart from disallowable expenses) that increase profits  3.54  £

Balancing charges 3.55 £

Total additions to net profit (deduct from net loss)  3.56 £12,301  boxes 3.53+3.54+3.55

Capital allowances  3.57 £2.062

Deductions from net profit (add to net loss)  3.58 £615  3.59  £2,677 boxes 3.57+3.58

Net business profit for tax purposes (put figure in brackets if a loss)  3.60 £36,859  boxes 3.52+3.56 minus box 3.59

Commission included as part of business income.

Interest received.

A trader’s own wages are not allowable business expenses (Note 6)

Premises costs includes £692 cleaning (Note 4)

Expenditure which is not allowable for tax purposes is identified in these boxes.  The Notes in the Self-employment Pages give guidance on how to calculate these amounts.

Includes bank charges of £774.

Capital allowances from box 3.69 (Note 5)

This is the income included in box 3.37 that is not treated as trading income and which needs to be entered elsewhere in your Tax Return.  The bank interest received is shown as a deduction from net profit by including it in box 3.58.  This income should then be included on page 3 of your Tax Return (or the equivalent section in the Partnership Tax Return).

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR231

Doctors’ Expenses

This Help Sheet gives advice about the calculation of business profits that is of particular relevance to doctors and medical practitioners.

For a partnership it explains how to return details of:

expenditure incurred by a partner on behalf of the partnership (in boxes 3.38 to 3.50 of the Partnership Tax Return)

capital allowances claimed by the partnership on a vehicle (or other asset) owned by a partner (in boxes 3.61 to 3.68 of the Partnership Tax Return)

and, where appropriate, how such items are then reflected in the allocation of partnership profit between the partners.

For both individuals and partnerships there is a reminder of the guidance on preparing medical accounts contained in the Department of Health’s ‘Red Book’.

More general guidance on the completion of the Standard Accounts Information section of the Tax Return can be found in Help Sheet IR229: Information from your accounts, available from the Orderline.

Calculation of partnership profits

The rules for calculating the taxable profit made by any business, reflect the sources of income making up that business.  And where, for example, a medical practice is carried on in partnership, that practice is a single source for tax purposes, regardless of the number of partners entitled to share the profits of the practice.

It follows that the Partnership Tax Return for any business must contain all the information required to calculate the taxable profits arising from that business in any accounting period.  This includes any claims (such as capital allowances) that must be taken into account when calculating the taxable profits.

It also follows that individual partners are not entitled to make any adjustments to the amount of partnership profit allocated to them for a particular accounting period.  For example, the entry that a partner makes in box 4.7 of the Partnership Pages of the personal Tax Return is the share of profit allocated to that partner in the Partnership Statement for the relevant accounting period.

Treatment of expenditure incurred by a partner on behalf of the partnership

The Partnership Tax Return for any business must contain all the information relevant to the calculation of the taxable profits arising from that business including any expenses incurred by a partner on behalf of the partnership.  it is not possible for individual partners to make supplementary claims, whether for expenses or capital allowances, in their own Tax Return.  This is because expenditure incurred by a partner only qualifies for relief if it is made ‘wholly and exclusively’ for the purposes of the partnership business.  And the only legal basis for giving relief for any such expenditure is as a deduction in the calculation of the profits of the partnership business.

Similarly, the only legal basis for giving relief for expenditure that qualifies for capital allowances is as a deduction in the calculation of the profits of the partnership business (unless there is a formal leasing agreement between the partner and the partnership, when the allowances will be due against the leasing income).

However, this does not mean that any legitimate expenditure incurred by a partner - that is, any expense that would be allowable if met from partnership funds - can only be relieved if it is formally included in the partnership accounts.  Nor does it mean that capital allowances can only be claimed on vehicles, or other assets, that feature in the partnership accounts.

Providing that:

any expenditure, or claim to capital allowances, is correctly calculated for tax purposes, and

records relevant to those calculations are made and kept as if the expenditure, or asset, were part of the partnership accounts

the Inland Revenue will accept entries in the relevant sections of the Partnership Tax Return which, though based on the partnership accounts, include adjustments for such expenditure, or allowances.  But once the adjustments have been made the expenditure will be treated, for all practical purposes, as if it had been included in the partnership’s accounts.

Where partners’ personal expenses have been included in arriving at the figure of net taxable profit or loss and those expenses have not been included in the partnership’s accounts either:

a corresponding adjustment should be made to the net profit figure in box 3.106 of the Partnership Tax Return, or

the accounts figure should be entered in box 3.106 and a reconciliation given in the ‘'Additional information' box on page 8 of the Tax Return.

Corresponding adjustments in the apportionment of taxable profit between the partners

Some partnership agreements, generally those relating to medical practices, provide that any expenditure incurred by a partner on behalf of the partnership, or any capital allowances due on assets owned by a partner, should be taken into account when the net profit of the practice is shared between the partners.

Where this is the case the Inland Revenue accepts that it is appropriate for a corresponding adjustment to be made in the allocation of net taxable profit between the partners, to ensure that a partner receives the benefit due under the partnership agreement.  This adjustment will be equivalent to the expenditure incurred by the partner on behalf of the partnership, or to the amount of the capital allowances attributable to the vehicle (or other asset) owned by the partner but used in the partnership business.

Any such adjustments are analogous to ‘fixed profit adjustments’ or ‘salary’ or ‘interest on capital’ and should be identified as such in the Partnership Statement for the relevant accounting period.

Example

Doctors John, Hook and Feelgood carry on a Health Centre practice in partnership together.  Their partnership agreement requires profits to be shared 50;30;20 but each partner is entitled to an adjustment for any expenditure incurred on behalf of the partnership.  No other '‘fixed adjustments'’ are due.

The partnership accounts for the 12 months to 31 December 1998 include entries for:

Employee costs £24,000

Premises costs £12,000

Motor expenses £7,500

The capital allowances due on the practice vehicles is £3,750.

The three doctors bear the full running costs of their own private cars, although the vehicles are used in the practice.

For the 12 months to 31 December 1998 the running costs attributable to the practice were:

John  £4,000

Hook  £2,4000

Feelgood £1,900

Capital allowances are due (based on separate pools and adjusted for private usage) at follows:

John £1,750

Hook £1,420

Feelgood £460  (balancing allowance on car disposed of )  £3,000 (new car)

In addition Dr John runs a small satellite surgery at home which is part of the partnership practice. Although the practice bears some of the costs directly Dr John incurs some costs himself.  These are

Proportion of home running costs £1,500

Wife’s wages and pension payments £8,000

Entries in the 1998-99 Partnership Tax Return

When completing the Trading Pages of the Partnership Tax Return for 1998-99 the following composite entries are required:

Employee costs £24,000 + £8,000 = £32,000 in box 3.38

Premises costs £12,000 + £1,500 = £13,500 in box 3.39

Motor expenses £7,500 + £4,000 + £2,400 + £1,900 = £15,800 in box 3.42

Capital allowances on motor cars £3,750 + £1,750 + £1,420 + £460 + £3,000 = £10,380 in box 3.58

The net taxable profit (box 3.79) returned by the partnership for the 12 months to 31.12.98 was £120,000.  This is allocated between the partners as follows:

Step 1: adjust for expenditure incurred by individual partners

Net taxable profit  £120,000

Add back

motor expenses £8,300

capital allowances £6,630

surgery costs £9,500

profit to be shared before individual adjustments £144,430

Step 2 : allocate profit between the partners

Totals John (50%)  Hook (30%)  Feelgood (20%)

Profit before individual adjustment £144,430  £72,215  £43,329  £28,886

Motor costs (£8,300)  (£4,000)  (£2,400)  (£1,900)

Capital allowances (£6,630)  (£1,750)  (£1,420)  (£3,460)

Surgery costs (£9,500)   (£(,500)  0  0

Net share of taxable profit  £120,000  £56,965  £39,509  £23,526

When completing the Partnership Statement for 1998-99 the following entries are required

£120,000 in box 3 (the total profit from this source)

£56,965 in the corresponding profit share box for Dr John

£39,509 in the corresponding profit share box for Dr Hook

£23,526 in the corresponding profit share box for Dr Feelgood

Department of Health guidelines on the completion of the accounts of medical practices

Each year the Inland Revenue carries out a survey of the income and expenses of medical practitioners on behalf of the Department of Health and the General Medical Services Committee of the BMA.  The information from this survey is used to work out a ratio of expenses (including capital allowances) to income, which in turn is used to calculate the level of the profession’s reimbursable expenses.

The Department of Health publishes the ‘Red Book’ which contains detailed guidance on the treatment of different items of income and expenditure in the accounts of medical practitioners.  Of particular importance is the treatment of expenditure that is met either directly, or indirectly, by a Health Authority.  This is because the treatment adopted influences the ratio of expenses to income derived from the annual survey.

Two key principles are identified in the ‘Red Book’:

where a revenue expense such as medical supplies, premises running costs, staff costs, or motor running costs) is met directly, or indirectly, by an Health Authority then

the expense should be reported as the gross cost, and

the amount met directly, or reimbursed to the practice at a later date, should be reported as income.

The amounts should not be set off, one against each other (so that only the net cost appears in the accounts).

by contrast, where the practice receives a grant for capital expenditure (for example, computer equipment) only the net cost of the capital asset should be reported in the practice accounts. Similarly any capital allowances due should be calculated using the net capital cost (GPs and their advisers should refer to the Red Book for the special rules precluding GPs from obtaining tax relief for any capital expenditure part-funded by an Improvement Grant from the Health Authority).

Whether you are in practice on your own, or with others, it is in everyone’s interest that the annual survey carried out by the Inland Revenue is as accurate as possible.  Therefore, you should ensure that the figures you enter in your Tax Return follow the detailed guidelines set out in the ‘Red Book’.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR232

Farm Stock Valuation

This Help sheet explains the methods of farm stock valuation that are acceptable to the Inland Revenue.  It will help you fill in the Self-employment Pages of your Tax Return and the Trading Pages of the Partnership Tax Return.

It was originally published in 1993 as Business Economic Note 19 and is sometimes referred to as ‘BED19’.

Introduction

This Help Sheet explains the basis of farm stock valuation at the end of periods of accounts acceptable to the Inland Revenue.  It has been prepared to assist farmers and their professional advisers.  It has been prepared after consultation between the Inland Revenue, the Central Association of Agricultural Valuers, the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation, the Royal Institution of Chartered Surveyors, the Country Landowners Association and the National Farmers Union (NFU).  It supersedes all previous arrangements made by the Inland Revenue and the NFU.  It does not affect rights of appeal in individual cases.

Other methods of valuation may also be acceptable to the Inland Revenue in particular cases, provided they are recognised by the accountancy profession as giving a true and fair view of the results for the period concerned and do not violate the taxing statutes as interpreted by the Courts.

A valuation that pays insufficient attention to the facts, although inform it is made on a recognised basis, will not be acceptable.

General principles

The reason for valuing stock at the end of an accounting period is to identify and carry forward those cots incurred before that date but will not give rise to income until a later period. By carrying forward those costs they can be matched with the income when it arises.  Profit will be understated if stock is not brought in.

However, if there is no reasonable expectation that e proceeds from the sale of the stock in a future period will be enough to cover the costs, then relief for the expected loss may be obtained in the period for which the accounts are being prepared by valuing the stock at what it is expected to realise when sold in the normal course of trade.

For tax purposes we are looking for a figure (commonly referred to as a valuation) which represents the cost, or, if lower, the net realisable value of the stock.

In some circumstances there may be more than one acceptable method of calculating the value of stock but the basis of valuation in a particular case should be consistent.  If it is decided to change the basis of valuation, your Tax Office should be advised. The Inland Revenue'’ practice on changes of basis in valuation is set out in Statement of Practice 3/90, available from the Orderline.

Occasionally, we discover that the stock figure in the accounts is net of a provision (reserve), such as for dilapidations.  If the creation of such a provision is considered appropriate, the Tax Office should be made fully aware of it.  Provisions are only allowable for tax purposes if profits would not be properly stated in their absence and the amount referable to the year can be quantified with reasonable accuracy.  Even if these conditions are met, tax law provides that some provisions are not allowable for tax purposes (for example, for repairs to premises which are not allowable unless expended).

Valuation problems can be complex and farmers normally seek the assistance of accountants and agricultural valuers and surveyors.  But this is not compulsory and some farmers prepare their own valuations.

Although livestock should be valued on an animal-by-animal basis, it is acceptable for farmers to value animals of a similar type and quality together on a global or average basis, classified according to age.  If deemed cost is used (see page 3) home-bred animals should be distinguished from animals which have been bought in.

If tax is lost or delayed as a result of incorrect valuation of stock then interest and penalties may be due in addition to the tax.

Livestock, growing and harvested crops.

Production cost

Production cost is the actual cost of getting the stock into its condition and location at the balance sheet date.  Farm stock valuations should include the costs directly attributable to producing or rearing the stock in question.  From an accountancy point of view, it is preferable but not mandatory, except in the case of certain limited companies, also to include a reasonable proportion of the cost only indirectly attributable to the production of the stock to the extent that those costs relate to the period of production.  This will result in a more accurate matching of costs with related sales income.  Either method, if applied consistently, is acceptable to the Inland Revenue.

Direct costs

Costs which are directly attributable to buying, producing and growing the livestock or crops should be included.  Such costs will consist not only of the expenses of acquiring the ‘raw materials’, such as seeds, but also of any expenses which directly relate to producing or rearing the stock in question.  There can be no definitive list, but the following are examples of direct costs.

Livestock

purchase cost, or

insemination costs plus additional maternal feed costs in excess of maintenance, plus

costs of rearing to the valuation date of maturity if earlier including:

feed costs including forage

vets’ fees including drugs

drenches and other medicines

ringing, cutting and dehorning

supervisory employee or contract labour costs

Growing and harvested crops

seeds

fertilisers

beneficial sprays (the term ‘beneficial sprays’ includes preventive sprays and means any sprays which are not applied to remedy a particular infestation of crop deficiency.

seasonal licence payments (for example, short-term hire of land to grow a particular crop) but not normal farm rents

drying

storage

employee (including direct) or contract labour and direct machinery costs (for example, fuel, servicing, rental, spares and reduction in value due to wear and tear caused by actual usage for the activity concerned) incurred on;

cultivations

crop working

harvesting

Indirect costs

Examples of such costs:

depreciation and maintenance of farm buildings

rent and rates (excluding licence payments added - see above)

general employee (including director) or contract labour and machinery costs.

Costs to be based on expenditure incurred

Except where the deemed cost method is used, cost must represent the actual costs incurred by the particular farmer on producing the stock, as established from his own personal records.  Larger and specialised businesses, such as intensive pig-rearing units, will usually have adequate records to calculate the cost.  The current Guide to Costings, as issued by the Central Association of Agricultural Valuers, together with figures produced by other independent institutions, provide useful models to help farmers establish their own costs.

Labour costs should not include anything for the notional cost of own labour for sole proprietors or partners.

Deemed cost acceptable in some circumstances

If it is not possible to ascertain actual costs from the farmer’s records, Inspectors will accept deemed cost valuations (see page 3).

Net realisable value

If there is no reasonable expectation that the net realisable value of stock will cover costs incurred, then the stock should be stated at net realisable value.

Net realisable value consists of:

the sale proceeds that it is anticipated will be received from the eventual disposal of the stock in the condition in which, at the balance sheet date, the farmer intended subsequently to market it.  It is important to note that the valuation should be made on a normal commercial basis. For instance, it is not acceptable to value stock on the basis that it would have been sold in a forced sale on the balance sheet date in its then, possibly immature, state.

Plus

grants and subsidies intended to augment the sale prices of stocks (see page 3)

for breeding/production animals, the ancillary stream of income from the sale of their progeny and produce

Minus

the further cost to be incurred in getting the stock into marketable condition and then marketing, selling and distributing that stock.  Where the proceeds from the sale of progeny/produce are brought in, then the costs relating to their production and marketing should also be deducted.

It is not acceptable to treat cull value as the only future revenue from production animals as this does not recognise the value of the future income stream from the produce and/or progeny.

The Inland Revenue recognises, however, that farmers may not have the extensive records necessary to calculate net realisable value with reasonable accuracy, therefore:

for production animals such as laying hens and breeding sows that are not usually sold except for slaughter at the end of their productive lives, the Inland Revenue will accept that, at the balance sheet date, a reasonable approximation of the net realisable value is the value arrived at by consistently writing off the cost, down to anticipated cull value, on a straight line or other appropriate basis over the animals’ expected productive life

for other production animals, the Inland Revenue will accept the use of the open market value of animals on the same kind, quality and condition, based on the assumption that, at the balance sheet date, there is a willing buyer and a willing seller of the particular animal as a production animal.

Where net realisable value is used as being less than the cost, the Inspector may want to establish the basis of valuation.

Co-operatives

In the same way as any other stock held by a farmer, stock marketed through co-operatives acting as agent for the farmer must be included in the valuation unless it has been sold.

Stock held off the farm which is identifiable as belonging to the farmer must also be included.

Where stock held off the farm has been pooled and cannot be identified as belonging to a particular farmer, the unsold proportion must be included.  This may be computed by taking A x B/C, where A is the amount in the pool that came from the farmer, B is the amount in the pool not sold at the valuation date and C is the amount in the pool not sold at the valuation date plus the amount sold from it up to that date.

Where a co-operative acts as agent for the farmer but the relevant stock can be identified as not being part of a pool, no apportionment is necessary. It should be included in the valuation.

Stock which has been sold to a co-operative that does not act as agent should not be included in the valuation.

Grants and subsidies - effect on stock valuations

Grants and subsides towards specific expenses should be regarded as reducing those expenses.  If those expenses are included in the cost for stock valuation, then the figure used should be the net cost after deducting the related grants.

Grants and subsidies intended to augment the sale prices of stocks should be taken into account in calculating their net realisable values.

Consumables

Consumables include spares for plant and equipment, oil, diesel, sprays, fertilisers, feedstuffs and bags.  For any stock of unused but usable consumables held at the balance sheet date, the valuation should normally be made at cost.

If, however, the consumables have deteriorated or become obsolete, then their net realisable value should be used if it is lower than cost.

Deemed cost valuation

When deemed cost is acceptable

Valuations should only be based on deemed cost where it is not possible to ascertain actual costs from the farmer’s records.  Deemed cost should not be used for purchased animals if it is less than the original purchase price plus (if the animal was immature when purchased) the costs of rearing from the date of purchase to the valuation date or, if earlier, to maturity.

In such situations, the Inland Revenue will accept that a reasonable estimate of ‘deemed cost’, is given by a specific percentage of open market value. It may be necessary, from time to time, to review the percentages if the relationship between costs and market value changes.  Current percentages are set out below.

For production animals, open market value should be based on the assumption that there is a willing buyer and a willing seller of the animal as a production animal free from, for example, movement restrictions. It is not acceptable to treat cull value as the open market value of production animals because this does not recognise the value of the future income stream from produce and/or progeny.

Livestock

The percentages in the case of livestock are:

cattle - 60% of open market value

sheep and pigs - 75% of open market value

The following points should be noted:

Deemed cost valuations are only valid of home-bred or home-reared stock or stock acquired some time before maturity and matured on the farm.  (See above for stock other than home-bred stock.)

It is preferable for deemed cost to be fixed at maturity but the Inland Revenue will accept valuations at deemed costs based on open market value at the balance sheet date if that method has been used consistently. Farmers should be aware that using deemed cost at beach balance sheet date may result in profits coming into tax earlier.

The valuation of immature and unweaned animals using deemed cost methods based on the open market value of animals of a similar age and type is acceptable to the Inland Revenue except in the situation described in the next paragraph.  If it is appropriate to value mother and progeny together because that is the market unit, this should be done.

The method described in the previous paragraph is not appropriate where the mother is on the herd basis and where there is no market or a very limited market in unweaned progeny (for example, unweaned lambs at foot).  In this situation, failure to recognise the young stock at all in the valuation is not acceptable. The costs of producing the progeny (see page 2) should be carried forward to be set against the eventual sale price.

Deadstock (harvested crops)

Deemed cost based on 75% (85% for valuations at dates before 31 March 1993) of open market value at the balance sheet date will be accepted by the Inland Revenue.


IR214 HS

Service Benefits connected with Job-Related Living Accommodation

This Help Sheet tells you about the limit on the tax you have to pay on benefits connected with accommodation.  It explains how to calculate that limit and how to fill in box 1M.31 of the Ministers of Religion Pages.

The benefits are:

the cost of heating, lighting and cleaning the premises

the expenses of repairing, maintaining and decorating the premises (other than landlord’s repairs - see note on box 1M.18 in the Notes to the Ministers of Religion Pages)

the provisions of furniture or other domestic equipment or effects (such as a washing machine or television set) which are a normal part of domestic occupation of the premises.

If the value of accommodation provided to you is exempt from tax (see note 1M.8 in the Notes to the Ministers of Religion Pages) and your Income, benefits and expenses payments were at a rate of £8,500 a year or more (see notes on benefits and expenses payments received) then you do not have to pay tax on some benefits in kind beyond a certain limit.  The limit is 10% of the net Income of your post or appointment.   There is a Working Sheet on page 3 of this Help Sheet (and a worked example on page 5) to help you do your own calculation.

The calculation may change the amount that has to go in box 1M.33 of the Ministers of Religion Pages.  In order to do the calculation you need to fill in at least up to box 1M.33 first.  But because the figure in box 1M.33 might change, fill in that box in pencil at this sage.   Ink in the final figure when you have done the calculation.

Do not send this Help Sheet to me with your Tax Return.  Keep it in case I ask you to tell me how you have done the calculation.

If you are under the £8,500 threshold do not use this Help Sheet.  Instead use Working Sheet 2 on page MN4 of the Notes to the Ministers of Religion Pages.

How to calculate the limit

Refer to the Working Sheet and worked example.  These will help you explain the steps.  The figures in the example below and on page 5 and 6 are illustrative only.

Step 1  Add up the cash equivalents1 of the benefits concerned.

Your church should have shown these on your P11D or equivalent document.  For example, these might be:

Manse electricity bills for the year  £350

Gas bills £580

Cleaners wages paid by church  £765

Repairs to broken windows  £200

Furniture, curtains, carpets and T.V.2  £340

£2,235

£200 was made good in the year to the church for use of the furniture.  This has been taken into account in the P11D figures which show:

Total cash equivalent  £2,035

In the example the gas and electricity bills are in the minister’s name and the minister is responsible for paying them.

Therefore they should go in box 1M.7 (see the notes on box 1M.7 on page MN2 of the Notes to the Ministers of Religion Pages).  The other benefits go in box 1M.18.

Step 2  Work out the ‘net income’ of your post3

You should include:

your total income from box 1M.15 of the Ministers of Religion pages after excluding any service benefits shown in Step 1 which are included in box 1M.7.  In the example this is £14,000.  This figure includes £930 for the electricity (£350) the gas bills (£580) included in box 1M.7 which leaves £13,070.

the total expenses payments and benefits from box 1M.22, after excluding the service benefits shown in Step 1.  In the example the total expenses payments and benefits are £2,300, of which £1,105 are those shown in Step 1 (£2,035 minus the £930 included in box 1M.7).

1  See the notes on benefits and expenses payments received.

2  Where a benefit consists of the provision of an asset such as furniture, the annual cash equivalent of the benefit is normally 20% of the value of the asset when it was first provided as a benefit, plus an annual ‘running costs’ (such as repairs) of providing the asset.  The total value of these items when they were first provided as a benefit was £1,700 and there were no extra running costs.  So the cash equivalent of the benefit is 20% of this amount = £340.  If you need more information, ask the Orderline for Booklet 480: Expenses and Benefits - A Tax Guide.

3  The calculation of this figure is for the purpose of this Help Sheet. Do not put it on your Tax Return.any back pay for the year 1998-99 you have received, or will receive, after 5 April 1999 (even though you may pay tax on this in a later year).  In the example £500 back pay for 1998-99 was received on 14 June 1999.

You should deduct:

the total of your allowable expenses and capital allowances from box 1M.33.  In the example one quarter of the accommodation is used for work purposes.  So the ‘business’ part of the manse expenses is £559 (25% of £2,235).  The other allowable expenses and capital allowances come to £941.  So the total of the expenses and capital allowances claimed is £1,500.

any contributions (including free standing additional voluntary contributions) you pay out of the income of your post to a superannuation scheme approved by the Inland Revenue or retirement annuity payments you make to provide a pension or annuity to you after retirement. In the example £500 retirement annuity payments are made.

any back pay for years before 1998-99 included in the figure of your total income from box 1M.15.  In the example this is £300 received on 10 May 1998.

Step 3  Work out 10% of the figure in box D in Step 2.  (If you did not have the accommodation for the whole of the period of time for which the box D figure was paid, first reduce the box D figure to an amount relating to the period you had the accommodation.  Do this by multiplying the box D figure by the number of days you had the accommodation and then dividing by the number of days the box D figure was for - 365 if you held your post for the whole of the tax year.  Then take 10% of the reduced amount.)  From this amount subtract any amount you made good in respect of the benefits in Step 1.  In the example this is £200 - see Step 1.

Step 4  Compare the figure in box C in Step 1 with the figure in box F in Step 3.

Copy the figure in box C to box G.  If box G is greater than box F, enter the difference (G minus F) in box H.  Use this figure to complete box 1M.31.

How does the limit affect the £8,500 threshold?

The 10% limit affects the amount you have to include for benefits when working out whether you are over the £8,500 threshold (see the notes about benefits and expense payments).  So if you are in any doubt whether you are over the threshold or not work out if any limit applies to the benefits in Step 1 before you do the sum of your income and benefits.

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.

Working Sheet

Step 1  Payment of your manse bills (included in box 1M.7)

Electricity  £

Gas  £

Oil  £

Solid fuel  £

Other  £

Total personal manse bills  A  £

Benefits (included in box 1M.18)

Heat, light and cleaning

Cost to ‘employer’  Amount made good by you  Cash equivalent

Electricity  £  £  £

Gas £  £  £

Oil  £ minus £ equals £

Solid fuel  £  £  £

Other  £  £  £

Repairs, maintenance and decoration

Repairs and maintenance  £ minus £ equals £

Decoration  £  £  £

Furniture and effects

Deemed ‘cost’  Amount made good by you  Cash equivalent

Furnishings  £ minus £ equals £

Other effects  £  £  £

Totals

Cost or ‘deemed’ cost  Amount made good by you  Cash equivalent

Total benefits £ minus B£ equals £

+

Copy figure from box A above £

equals

C£

Step 2  Net income

Total income from box IM.15  £

minus

Total amount included in the figure in box 1M.7 for service benefits  £  equals  £

Total expenses payments and benefits from box 1M.22  £

minus  +

Total cash equivalent of the service benefits in box 1M.18  £  equals  £

+

Back pay for 1998-99 received after 5 April 1999  £

equals

Sub total  £

Deduct

Expenses and capital allowances from box 1M.33  £

+

Contributions made by you to approved superannuation scheme or retirement annuity payments £

+  minus

Back pay for earlier years received in 1998-99  £  equals  £

equals

Net income  D£

minus

Step 3 Copy amount from box B in Step 1  £

equals

Net income less amounts made good  E£

10% of amount in box E  F£

Step 4  Copy the amount from box C  G£

If the figure in box G is greater than the figure in box F, take F away from G and put the result in box H.  H£

Working Sheet

Step 1  Payment of your manse bills (included in box 1M.7)

Electricity  £350

Gas  £580

Oil  £

Solid fuel  £

Other  £

Total personal manse bills  A  £930

Benefits (included in box 1M.18)

Heat, light and cleaning

Cost to ‘employer’  Amount made good by you  Cash equivalent

Electricity  £  £  £

Gas £  £  £

Oil  £ minus £ equals £

Solid fuel  £  £  £

Other  £765  £  £765

Repairs, maintenance and decoration

Repairs and maintenance  £200 minus £ equals £200

Decoration  £  £  £

Furniture and effects

Deemed ‘cost’  Amount made good by you  Cash equivalent

Furnishings  £300 minus £200 equals £100

Other effects  £40 (TV)  £  £40

Totals

Cost or ‘deemed’ cost  Amount made good by you  Cash equivalent

Total benefits £1,305 minus B£200 equals £1,105

+

Copy figure from box A above £930

equals

C£2,035

Step 2  Net income

Total income from box IM.15  £14,000

minus

Total amount included in the figure in box 1M.7 for service benefits  £930  equals  £13,070

Total expenses payments and benefits from box 1M.22  £2,300

minus  +

Total cash equivalent of the service benefits in box 1M.18  £1,105  equals  £1,195

+

Back pay for 1998-99 received after 5 April 1999  £500

equals

Sub total  £14,765

Deduct

Expenses and capital allowances from box 1M.33  £1,500

+

Contributions made by you to approved superannuation scheme or retirement annuity payments £500

+  minus

Back pay for earlier years received in 1998-99  £300  equals  £2,300

equals

Net income  D£12,465

minus

Step 3 Copy amount from box B in Step 1  £200

equals

Net income less amounts made good  E£12,265

10% of amount in box E  F£1,226

Step 4  Copy the amount from box C  G£2,035

If the figure in box G is greater than the figure in box F, take F away from G and put the result in box H.  H£809


IR 216

Shares as benefits

This Help Sheet gives you information to help you fill in box 2.27 in the Share Schemes Pages of your Tax Return.

Acquisition of shares as benefits

You will be taxed on the benefit arising if:

you acquire shares or an interest in shares by reason of your employment (this may include shares acquired by the exercise of a share option granted in a year in which you were Not Resident or Ordinarily Resident, see leaflet IR16 Share acquisitions by directors and employees, available from the Orderline), and

the price you paid when you acquired them was less than they (or fully-paid shares of the same class) were worth at that time, and

the benefit of acquiring the shares free or cheaply is not otherwise taxable (for example, as an emolument).

The taxable benefit is worked out by treating the ‘under-value’ at which you acquired your shares as if it were an interest-free loan from your employer.

The amount of taxable benefit is:

The ‘cash equivalent’ of the benefit for each year the loan exists - that is, the amount of interest that would have been payable for the year at the official rate.  (The official rate varies from time to time.  Your Tax Office will be able to provide these details.)

the amount of the loan still outstanding when

you sell or transfer the beneficial ownership of your shares, or

you are released from paying the outstanding amount due, where the shares are partly paid.

See ‘Shares sold or transferred’ on page 2.

What is the ‘under-value’?

The ‘under-value’ is the difference, at the time you acquired the shares, between:

the market value of fully-paid up shares of the same class as yours, and

the amount you paid for your shares at that time.

The under-value is treated as a notional interest-free loan.  When you pay further instalments, the amount of the loan is reduced.  The amount of the under-value is reduced to the extent that any of it is otherwise chargeable to tax.

Example 1

01.06.98  You acquired 2,500 shares in the company you work for.  The market value of the shares is £4 each, but you are allowed to pay for them in four yearly instalments of £1 each.

Value of shares £10,000

First instalment  £2,500

Under-value/amount of loan  £7,500

01.06.99  Second instalment paid  £2,500

Amount of loan reduced to  £5,000

01.06.2000   Third instalment paid £2,500

Amount of loan reduced to £2,500

01.06.2001  Fourth and last instalment paid  £2,500

Amount of loan reduced to  0

The cash equivalent of the benefit

You will be taxed on the benefit arising for each year that you are treated as having an interest-free loan unless the total amount of the loan, and any other loans (notional or actual) you obtain by reason of your employment, at no time in the tax year exceeds £5,000.

The cash equivalent (the taxable amount) is the amount of interest that would have been payable at the official rate, if interest had been payable on the loan.

Example 2

01.06.98  You acquire 2,500 shares in the company you work for.  The market value of the shares is £4 each, but you are allowed to pay £1 each for them.

Value of shares  £10,000

Price paid  £2,500

Under-value/amount of loan  £7,500

05.04.99  Notional loan  £7,500

Average amount of loan during the year £7,500 + £7,500 divided by 2  = £7,500

Interest for whole year £7,500 x official rate of interest (7.25%)  £543

Number of complete tax months loan existed  10

Cash equivalent £543 x 10/12 equals:

1998-99 taxable benefit £452

If this applies to any of your shares:

complete boxes 2.25 and 2.26 on Page S1 of the Share Schemes Pages

complete boxes 2.42 and 2.43 on Page S2 of the Share Schemes Pages

complete boxes 2.44, 2.45, 2.46 and 2.47 in the ‘Shares acquired’ column on Page S2 of the Share Schemes Pages

then use Working Sheet 1 to work out the taxable amount.

Working Sheet 1

Market value of a fully-paid up share when you acquired your shares  A £

Amount you paid for each share when you acquired them  B£

Under-value per share C £  box A minus box B

Number of shares  D £

Original under-value/notional loan  E £  box C x box D

If shares were acquired before 06.04.98, total of any further amount paid for them before 06.04.98  F £

Notional loan at 06.04.98 (or date shares acquired, if later) G  £  box E minus box F

Total of any further amounts paid during the year (1998-99)  H £

Notional loan at 05.04.99 (or date shares sold, if earlier)  I £ box G minus box H

Average amount of notional loan  J £  (box G + box I) / 2

Official rate of interest  K

Interest for the whole year   L £  box J x box K

Number of complete tax months (6th of month to 5th of following month) throughout which loan existed in tax year  M

Taxable amount (the cash equivalent)  N £  box L x (box M / 12)

Enter the taxable amount in box 2.27 on Page S2 of the Share Schemes pages.

Interest relief on a loan used to buy shares

You can claim tax relief for interest paid on an actual loan used to buy ordinary shares in:

a ‘close’ company (which is not a close investment holding company) in which, when you acquired the shares, you

had a ‘material interest’ (of more than 5%), or

worked in the actual management or conduct of the business for the greater part of your time, or

an ‘employee-controlled’ company is that

unlisted

resident in the UK and

a trading company, or the holding company of a trading group.

A ‘close company’ is broadly, a company controlled by five or fewer shareholders or by any number of directors.

An ‘employee-controlled’ company is, broadly, one in which more than 50% of the issued ordinary share capital and voting power is beneficially owned by full-time employees.  Where an individual beneficially owns more than 10%, the excess over 10% is ignored for this purpose.

If you could have claimed relief for any interest paid had you bought your shares with an actual loan, copy the taxable amount of the benefit in box N of Working Sheet 1 to box 15.3 on page 5 of your Tax Return.

Shares sold or transferred

You will be taxed on the benefit arising if:

you sell or transfer your shares, and

the total amount you have paid for the shares (or fully paid shares of the same class) is less than they were worth when you acquired them.

You will be taxed on the benefit arising if the amount outstanding on partly paid shares is released or written off.

In both these cases the taxable amount is the amount of the undervalue which you have not paid up by the time you transfer your shares, or at the time the amount outstanding is released.

Enter the taxable amount in box 2.27 on Page S1 of the Share Schemes Pages.

Example 3

06.04.98  Value of shares when acquired  £10,000

01.06.98  Total amounts paid for shares  £2,000

Under-value/amount of loan  £8,000

01.10.98 Shares sold

1998-99 Taxable amount  £8,000

If this applies to any of your shares:

complete boxes 2.25 and 2.26 on Page S1 of the Share Schemes Pages

complete boxes 2.42 and 2.43 on Page S2 of the Share Schemes Pages

complete boxes 2.44, 2.46, 2.46 and 2.47 in the ‘Shares acquired’ column on Page S2 of the Share Schemes Pages.

Then use Working Sheet 2 to work out the taxable amount

Working Sheet 2

Market value of a fully-paid up share when you acquired your shares  O £

Amount you paid for each share when you acquired them  P £

Under-value per share  Q £  box O minus box P

Number of shares  R

Notional loan  S £ box Q x box R

Total of any further amounts paid for the shares before you sold or transferred them or ceased to be obliged to pay any amount of the undervalue  T£

Taxable amount U £ box S minus box T

Enter the taxable amount in box 2.27 on Page S1 of the Shares Schemes Pages

You will be tax on this benefit arising, even if you can claim interest relief.

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.


IR217

Shares acquired : Post-acquisition charges

This Help Sheet gives you information to help you fill in box 2.30 in the Share Schemes Pages of your Tax Return.

Post-acquisition charges

If you have acquired shares or an interest in shares:

by reason of your employment, and

at a time when you were resident and ordinarily resident in the United Kingdom, and

not under an offer to the public generally,

you will be taxed on:

some or all of the increase in the value of your shares in the periods after you acquired them if your shares were

subject to restrictions, or

in a subsidiary company

any special benefits you receive by virtue of your ownership of the shares

the gain on any conversion of the shares.

Restricted shares

When the value of your shares is increased by an alteration in the rights or any restrictions attaching to them, or to other shares in the company, you have to pay Income Tax on the amount of the increase, unless:

your shares are in a subsidiary company which is a ‘dependant’ subsidiary (for which there may be a different tax charge - see below), or

all of the shares of the same class as yours are similarly restricted, and

the majority of them are held by persons other than employees or directors, or

employees or directors control the company by virtue of their holdings of that class of shares, or

the company is a subsidiary (other than a ‘dependant’ subsidiary) which has only one class of shares.

A tax charge arises each time there is an alteration, and more than one charge may arise on the same shares.

Example 2

01.10.95  You acquire 1,000 shares in the company you work for.  The shares restrict the right of employees to receive dividends.

01.10.98  The restriction is lifted so that employee shareholders have dividend rights:

value of share

with dividend rights  £3

with no dividend rights  £2

increase due to alteration  £1

1998-99 taxable amount (1,000 x £1)  £1,000

If this applies to any of your shares:

complete boxes 2.28 and 2.29 on Page S1 of the Share Schemes Pages

complete boxes 2.42 and 2.43 on Page S2 of the Share Schemes Pages

complete boxes 2.44, 2.45,2.47 and 2.48 in the ‘Post-acquisition charges’ column on Page S2 of the Share Schemes Pages.

Then use Working Sheet 1 to work out the taxable amount.

Working Sheet 1

Market value of each share after restrictions altered  A £

Market value of each share before restrictions altered  B £

Increase per share  C £  box A minus box B

Number of shares  D

Taxable amount  E £  box C x box D

Enter the taxable amount ’E’ in box 2.30 on Page S1 of the Share Schemes Pages.

Convertible shares

If you acquired convertible shares on or after 17 march 1998, you will be taxed for the year the shares are converted on the difference between:

the value of the new shares after conversion, and

the amount paid for the old shares and any amounts on which you have already been taxed in respect of those shares, unless

the conversion is a conversion of one class into one other class only and all of the shares of the same class as yours are similarly converted, and

the majority of them are held by persons other than employees or directors, or

employees or directors control the company by virtue of their holding of that class of shares.

This does not affect the tax you have to pay when you acquired the convertible shares (Help Sheet IR219: Shares acquired from your employment, available from the Orderline gives more details). A tax charge arises each time there is a conversion.

If this applies to any of your shares complete:

boxes 2.28, 2.29 on Pages S1, boxes 2.42, 2.4 on Page S2, and

boxes 2.44 to 2.47 in the ‘Post-acquisition charge’ column.

Then use Working Sheet 2 to calculate the taxable amount.

Working Sheet 2

Market value of each share after conversion  A £

Price paid per share plus any amount per share already taxed  B £

Increase per share  C £ box A minus box B

Number of shares  D

Taxable amount  E £  box C x box D

Enter the taxable amount ‘E’ in box 2.30 on Page S1 of the Share Schemes Pages.  If PAYE has been operated on any of the taxable amount in box ‘E’ already, you will also need to enter the amount on which PAYE has been operated in box 2.13B.

Shares in subsidiary companies

If the shares you have acquired are in a company which:

was a ‘dependent’ subsidiary when you acquired them, or

has become a ‘dependent’ subsidiary while you have held the shares

you will have to pay Income Tax on the increase in the value of your shares in a period of up to seven years after you acquire them, or after the company became a dependant subsidiary.

What is a dependant subsidiary?

Every subsidiary company, 51% of whose shares are held by another company, is a dependant subsidiary throughout a period of account (the period for which the company makes up its accounts) unless:

its business is carried on independently from other companies in the same group, and

the directors of the parent company certify this to the Inland Revenue, with a report from the auditors of the subsidiary, within two years of the end of the period of account.

If the company was a dependant subsidiary when you acquired your shares, the increase in value period ends seven years after you acquired them or when you sell your shares, if that is earlier.

If the company became a dependent subsidiary after you acquired your shares, the period ends seven years after the company became a dependant subsidiary or when you sell your shares or the company ceases to be a dependent subsidiary, if that is earlier.

Example 2

01.12.91 You acquire 1,000 shares in a dependant subsidiary company, market value £2 each.

01.12.98 You still hold the shares, market value £5 each.

Increase in value in seven year period is £3 a share (£5 minus £2)

1998-99 taxable amount £1,000 x £3)  £3,000

Your employer should be able to tell you whether the company whose shares you have acquired has been a dependent subsidiary company at any time while you have held the shares.

If this applies to any of your shares:

complete boxes 2.28 and 2.29 on Page S1 of the Share Schemes Pages

complete boxes 2.42 and 2.43 on Page S2 of the Share Schemes Pages

complete boxes 2.44, 2.45 and 2.48 in the ‘Post-acquisition charges’ column on Page S2 of the Share Schemes Pages

then use Working Sheet 3 to work out the taxable amount to go in box 2.30.

Working Sheet 3

Market value of each share when acquired or (if later) when company became a dependent subsidiary  A £

Market value of each share seven years after date at which market value is given in box A on page 1, or (if earlier) when you sold shares  B £

Increase per share  C £  box B minus box A

Number of shares  D

Taxable amount  E £  box C x box D

Enter the taxable amount ‘E’ in box 2.30 on Page S1 of the Share Schemes Pages.

Special Shareholder Benefit

If you have received any benefits through owning your shares you will have to pay Income Tax on the value of those benefits at the time you received them.

Examples of such benefits include bonus or rights issues of shares, cash, and vouchers or tokens exchangeable for cash or services.

You will be taxed only if the benefits are ‘special benefits’ which:

were not made available to at least 90% of holders of shares of the same class as yours, or

did not satisfy any of the conditions for exemption set out below, or

are not otherwise chargeable to Income Tax.

The taxable amount is the value of the benefit when you receive it.

Conditions for exemption

You will not be taxed on benefits made available to less than 90% of holders of shares of the same class as yours, if at the time you received your benefits, one of the following conditions applied:

employees or directors controlled the company by virtue of their holdings of that class of shares, or

the majority of the company’s issued shares (for which benefits are received) were not held by

directors or employees of the company or of companies associated with it, and

associated companies (excluding the parent company if the company is a subsidiary rather than a ‘dependent subsidiary’ company).

Your employer should be able to tell you whether either of these conditions was satisfied when you received your benefits.

If this applies to any of your shares:

complete boxes 2.28 and 2.29 on Page S1 of the Share Schemes Pages

complete boxes 2.42 and 2.43 on Page S2 of the Share Schemes Pages

complete boxes 2.44, 2.45 and 2.48 in the ‘Post-acquisition charges’ column on Page S2 of the Share Schemes Pages

then use Working Sheet 4 to work out the taxable amount to go in box 2.30.

Working Sheet 4

Value of special benefit received for each share  A £

Number of shares  B

Taxable amount C £ box A x box B

Enter the taxable amount ‘C’ in box 2.30 on Page S1 of the Share Schemes Pages.

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.


IR218

Shares acquired :  Operation of Pay As You Earn (PAYE)

This Help Sheet explains how to fill in the Share Schemes Pages of your Tax Return if:

you have received free or cheap shares either directly or from the exercise of a share option, or

you have received something for the cancellation or release of a share option, and

tax is due in respect of these shares or the value received, and

some or all of that tax has been paid to the Inland Revenue under the PAYE system.

Approved share schemes

Approved profit share schemes

Shares given to you under an approved profit share scheme will be taxed only if they are not kept in the Scheme Trust for three years (five years for periods up to 28 April 1996).  In this case tax will be accounted for under PAYE.  The trustees of the profit sharing scheme, or your employer, will let you have details (on your P60, or P45 Part 1A if you are a former employee) of the amount on which PAYE has been operated and of how much tax has been accounted for. These amounts should not be included in the Share Schemes Pages.  Instead include them in boxes 1.8 and 1.11 in the Employment Pages.

Approved savings-related share option schemes and approved discretionary share option schemes

Exercise of a share option

Your employer will not operate PAYE on any taxable amount you receive on the exercise of an option under an approved share option scheme.

Cancellation or release of a share option

Your employer will operate PAYE on any taxable amount you receive in the form of cash or ‘readily convertible assets’ (see below), for cancelling or releasing an option under an approved scheme.  Your employer will let you have details (included in your P60 or P45 Part 1A if you are a former employee) of the amount on which PAYE has been accounted for.  Enter these amounts in boxes 1.8 and 1.11 in the Employment Pages.

You also need to follow the instructions on page SN3 of the Share Scheme Notes for ‘All share option schemes - Cancellation or release of options’ in case the tax due is different from the tax accounted for under PAYE.

Shares provided other than under approved share schemes

Your employer will operate PAYE on any taxable amount provided in the form of ‘readily convertible assets’.

Shares are readily convertible assets if:

the shares can be sold or otherwise realised on a recognised investment exchange, such as the Stock Exchange, or

trading arrangements are in place in respect of the shares at the time the taxable income is provided, or

trading arrangements are likely to come into existence in accordance with arrangements or an understanding in place at the time the taxable income is provided.

Shares in your employer company or a company which controls your employer -‘own company shares’ - are excluded from readily convertible assets as follows:

until 27 November 1996 - all own company shares

on or after 27 November 1996 - own company shares received under approved share schemes or acquired under an option which was granted before that date.

So, from 27 November 1996 readily convertible assets can include own company shares acquired, outside an approved share scheme, on or after that date or under an option granted after that date.

Exercise of a share option

Your employer will operate PAYE when you receive shares on the exercise of an option granted to you on or after 27 November 1996 where the shares are readily convertible assets.  PAYE will be operated at the time the share option is exercised. Your employer will let you have details (included on your P60, or P45 Part 1A if you are a former employee) of the amount on which PAYE has been operated and of how much tax has been accounted for.  Enter these amounts in boxes 1.8 and 1.11 in the Employment Pages.

You also need to follow the instructions on page SN5 of the Share Schemes Notes, ‘Exercise of a share option’ in case the tax due is different from the tax accounted for under PAYE.

Cancellation or release of a share option

Your employer will operate PAYE on any taxable amount you receive in the form of cash or ‘readily convertible assets’, for cancelling or releasing an option.  Your employer will let you have details (included in your P60 or P45 Part 1A if you are a former employee) of the amount on which PAYE has been accounted for.  Enter these amounts in boxes 1.8 and 1.11 in the Employment Pages.

You also need to follow the instructions on page SN3 of the Share Schemes Notes for ‘All share option schemes - Cancellation or release of options’ in case the tax due is different from the tax accounted for under PAYE.

Shares received from your employment

Your employer will operate PAYE when you receive shares free or cheaply from your office or employment where the shares are readily convertible assets.  PAYE will be operated at the time the shares are acquired. Your employer will let you have details (included on your P60, or P45 Part 1A if you are a former employee) of the amount on which PAYE has been operated and of how much tax has been accounted for.  Enter these amounts in boxes 1.8 and 1.11 in the Employment Pages.

You also need to fill in Working Sheet 1 in the ‘Free or Cheap Shares’ section of Help Sheet IR219: Shares acquired from your employment (available from the Orderline) in case the tax due is different from the tax accounted for under PAYE


IR219

Shares acquired from your employment

You will be taxed on shares (or interests in shares) you get free or cheaply by reason of your employment.  This Help Sheet gives you information to help you fill in boxes 2.22 to 2.30 of the Share Schemes Pages.

There are various ways your employer can pass shares to you, and the tax treatment may be different depending on the method used.  In each case the shares may be in the company for which you work, or in any other company.

You may be granted an option to buy shares

The shares may be given to you free

You may be given the opportunity to buy the shares for less than their market value.

This Help Sheet does not deal with share options (see the Notes on Share Schemes Pages SN2 to SN5), or shares acquired through an approved profit sharing scheme (see page SN2).

If you get shares in connection with your employment which do not come from a share option or through an approved profit sharing scheme, this Help Sheet will help you to decide on what amount you will be taxed and for what year.

It does not make any difference whether you acquire your shares through a share scheme, or otherwise, so long as they are acquired from or because of your employment.

Free or cheap shares

If you acquire shares from your employment and the price you paid for them was less than they were worth at that time, you will be taxed on the difference between what the shares were worth and the price you paid for them.

Example 1

01.10.98  You are given the opportunity to buy 1,000 shares in the company you work for at a price of £2 per share.  The market value of the shares is £3 per share.  The opportunity arises as part of a share purchase scheme provided by the company for employees.  The taxable amount is:

market value of shares bought  £3 x 1,000 = £3,000

minus price paid for shares  £2 x 1,000 = £2,000

Taxable amount £1,000

If this applies to you complete:

boxes 2.22, 2.23 on Page S1, boxes 2.42, 2.43 on Page S2 and

boxes 2.44 to 2.47 in ‘Shares acquired’ column.

Then use Working Sheet 1 in the next column to calculate the taxable amount.

Working Sheet 1

Market value per share (box 2.47)  A £

Number of shares (box 2.45)  B

Total market value of shares bought  C  box A x box B

Amount paid per share (box 2.46)  D

Total amount paid for shares  E  box B x box D

Taxable amount  F  box C minus box E

Enter this taxable amount F in box 2.24.  If PAYE has been operated on this amount already, you will also need to enter the amount on which PAYE has been operated in box 2.31B.

Share incentive schemes

Under these schemes you may be promised or allocated a number of shares but you will not acquire the shares until certain conditions are met.  In these cases you will be taxed when the conditions are satisfied and you acquire the shares.  If this applies to you complete:

boxes 2.22, 2.23 on Page S1, boxes 2.42, 2.43 on Page S2 and

boxes 2.44 to 2.47 in ‘Shares acquired’ column.

Then use Working Sheet 1 to calculate the taxable amount.

Public offer shares

Employees are often given priority shares in a public offer.  If you pay the same price as the public you will not normally be taxed on the benefit to you of getting the extra shares.  Further information is available in Chapter 2 of booklet IR16: Share acquisitions by directors and employees available from the Orderline.

Share purchase schemes

Employees are often given the opportunity to buy shares in their company at full market value through a share purchase plan run by their employer.  If the savings you put into the plan are taxed in full (under PAYE), you will not normally be taxed on the purchase of the shares.   If your employer pays the costs of the share dealing that will be a benefit to be included in your P11D.

Restricted shares

You may acquire shares from your employment on the condition that they cannot be sold for a period of years, or are subject to other conditions.  They may be worth less at the time you acquire them, than shares with no conditions attached.  You will need to obtain a valuation of the restricted shares.  You will be taxed on the difference between their value taking into account the restrictions and the amount you paid for them.  If this applies to you complete:

boxes 2.22, 2.23 on Page S1, boxes 2.42, 2.43 on Page S2 and

boxes 2.44 to 2.47 in ‘Shares acquired’ column.

Then use Working Sheet 1 to calculate the taxable amount.

Restricted share schemes - shares subject to forfeiture

Under these schemes you may acquire shares which may be forfeit at some future time.  If the shares cannot be forfeit more than five years from the date they were acquired you will be taxed when the risk of forfeiture is lifted, or when the shares are disposed of before the risk of forfeiture is lifted and not at the time that the shares are acquired.  You will be taxed on the value of the shares at the time the risk of forfeiture is lifted or, if earlier, you sell the shares, minus any amount you have paid for the shares.   If you have acquired shares on or after 17 March 1998 and forfeiture has been lifted in the year to 5 April 1999, this applies to you and you should complete:

boxes 2.28, 2.29 on Page S1, boxes 2.42, 2.43 on Page S2, and

boxes 2.44 to 2.47 in ‘Post-acquisition charge’ column.

Then use Working Sheet 2 in the next column to calculate the taxable amount.

Working Sheet 2

Market value per share at date of acquisition or date forfeiture lifted (box 2.47)   A £

Number of shares (box 2.45)  B

Total market value of shares at date of acquisition or date forfeiture lifted  C  box A x box B

Amount paid per share (box 2.46)  D £

Total amount paid for shares  E  box B x box D

Taxable amount  F box C minus box E

Enter this taxable amount F in box 2.30.  If PAYE has been operated on this amount already, you will also need to enter the amount on which PAYE has been operated in box 2.31B.

If forfeiture has been lifted in the year to 5 April 1999 on shares which you acquired before 17 March 1998 you should not enter any amount in this year’s return, but let your Tax Office know the full circumstances in which you acquired the shares as there may be tax to be paid for the year in which you first acquired the shares.

If you have acquired shares subject to risk of forfeiture where the risk can last more than five years, you will be taxed when you acquire the shares on the difference between the value of those shares (taking into account all the restrictions including forfeiture) and any amount you have paid for the shares. If this applies to you complete:

boxes 2.22, 2.23 on Page S1, boxes 2.42, 2.43 on Page S2, and

boxes 2.44 to 2.47 in ‘Shares acquired’ column.

Then use Working Sheet 2 to calculate the taxable amount.


IR250

Capital Allowances and Balancing Charges in a Rental Business

This Help Sheet gives you information to help you fill in the Land and Property Pages in your Tax Return.  The box numbers mentioned below refer to those Pages.

In working out your rental business profits you must not deduct the cost of buying, altering or improving fixed assets, or depreciation or any losses that arise when you sell them.

Instead, you may be able to claim tax allowances called capital allowances.  These are deducted in working out your profits in box 5.36.  An adjustment, known as a balancing charge, may arise when you sell, give away or stop using an item in your business.  Balancing charges are added to your profits in box 5.33.  These notes explain how you can work out these capital allowances and balancing charges.

What can capital allowances be claimed on?

You can claim capital allowances for the cost of plant and machinery such as vehicles, tools, ladders, computers and business furniture that belongs to you (see ‘Plant and machinery’ below), and agricultural buildings, industrial buildings and certain other buildings.

First year allowances are available for most expenditure on plant and machinery apart from expenditure on motor cars, or assets which you lease out.

The percentage to be used depends on when the item was bought, and where it is be to used, as follows:

Date when item purchased (all dates inclusive)

Rate of first year allowance

Items acquired by small and medium sized businesses for use primarily in Northern Ireland

06.04.98 to 11.05.98   50%

12.05.98 to 05.04.99  100%

Items acquired for use elsewhere

06.04.98 to 01.07.98  50%

02.07.98 to 05.04.99  40%

If the asset is used only partly for work the first year allowance is reduced accordingly.

Where a first year allowance is claimed the balance of the expenditure after deducting the first year allowance is added to the pool for the following year.

If you buy or hire purchase, you can claim capital allowances on the original cost of the item; the interest or other charges count as business expenses and should be deducted in box 5.26.

You cannot claim for anything bought solely for private use, or for plant and machinery like furniture let for use in a dwelling house.

How to make a claim

Enter in boxes 5.36 and 5.33 the amounts you wish to claim or return.  These figures should be the amount worked out from the rules set out in these notes unless you choose to claim a lower amount.  If you are in doubt, ask your Tax Office or tax adviser for help.

Plant and machinery

You can claim allowances for the cost of cars, machines, scaffolding, ladders, tools, equipment, furniture, garden equipment and similar items that you use in your business.  The allowances are known as writing down allowances.  These are worked out at 25% of the cost of the item or ‘pool’ of items for each year (unless you are claiming first year allowance - see above). Example 1 shows how this and first year allowances work.

Example 1

You complete your Tax Return for the year to 5 April 199.  You spend £200 on ladders in May 1998, £600 on lawnmowers in June 1998 and £1,200 on a fax machine in August 1998.  Your capital allowance computation for 1998-99 is:

Cost of fax machine  £1,200

First year allowance @ 40%  £480

Value carried forward  £720

Cost of ladders and mowers

(You decide not to claim first year allowance)  £800

Writing down allowance @ 25%  £200

Value carried forward  £600

The pool to carry forward to 1999-2000 is £1,320 (£720 + £600).

The writing down allowance you can claim for 1999-2000 is:

Value of pool brought forward  £1,320

Writing down allowance @ 25%  £330

Value of pool carried forward  £990

The 25% rate applies if your business operates throughout the year, even if you only bought the item part way through the year.

If your business starts during the year, the 25% is reduced in proportion. So if you start six months into the tax year, you can only claim 12.5% (25% x 6/12).

Most plant and machinery you buy for your business can be lumped together in a single ‘pool’ of expenditure with just a single calculation no matter how many items are included.  This is known as ‘pooling’.  (The types or plant and machinery that cannot be pooled are explained later in these notes).

If you buy something in the period covered by your accounts, the cost is added to the pool.  You can also bring into the pool the value of any items that you used privately before using them in your business.  If you sell something, the sale proceeds (or the value, if you gave it away or started to use it for non-business purposes) are deducted from the pool.  Once these adjustments have been made, your writing down allowance for those accounts is calculated.

Example 2

Suppose that after the first two years in Example 1 you spend £2,000 and £500 on two new fax machines and you sell your lawnmower for £150.  The writing down allowance you can claim for 2000-2001 is:

Value of pool brought forward  £900

Additions  £2,500

Total  £3,400

Disposals  £150

Pool for 2000-2001  £3,250

Writing down allowance @ 25%  £813

Value of pool to carry forward  £2,437

If the sale price is more than the value of the pool, the difference is a balancing charge.  This should be entered in box 5.33.  If your business ceases, you should deduct from the value of the pool the sale prices for any items you sell, or their values if you keep them.  If these are more than the value of the pool, the difference is a balancing charge.  If there is any value remaining in the pool, do not work out a writing down allowance, but instead claim the value remaining as an additional allowance called balancing allowance.

The precise way the allowances are worked out depends on the type of item and whether you use it privately as well as for business.  The following rules will help you work out how much to claim under each of the headings.  However, if:

you do not want to claim the full amount of allowances, or

someone else pays part of the cost (for example, but giving you a grant), or

you had purchases from or sales to members of your family or other connected persons,

ask your Tax Office or tax adviser for advice.

Motor cars

When you use a car for your rental business, capital allowances may be claimed.

For expensive cars, which cost more than £12,000, the 25% writing down allowance is restricted to £3,000 a year for each car.  A separate calculation must be made for each such car - they are not ‘pooled’.  When you sell the car, the difference between the sale price and the value brought forward is allowed as a balancing allowance (added to the capital allowances for the year) or, if a profit, is taxable as a balancing charge, subject, in either case, to any necessary restriction for private use.

Example 3

Your accounts are drawn up for the year to 5 April 1999.  You spend £15,000 in that year on a car that is used in your rental business.  The business usage is agreed at 30%.

Cost of car  £15,000

Writing down allowance @ 25% (restricted)  £3,000

Value to carry forward  £12,000

The writing down allowance you can claim is £3,000 x 30% = £900.

There is a separate pool which contains all motor cars costing £12,000 or less.  The writing down allowance is 25% of the balance in the pool.

Where such a car is used partly for private purposes it must not be ‘pooled’.  Instead, a separate calculation must be made for each car.

Plant and machinery used only partly for business

These items should not be included in any pool.  Instead the allowances on each item should be worked out separately.  The writing down allowance, and any balancing allowance or charge when the item is sold, should be reduced so that only the business use proportion is taken into account.

Example 4

You buy a computer for £8,000 in January 1997 and sell it for £5,000 in 1999.  You use it 50% for rental business.  The calculation is:

1997-98

Cost of computer  £8,000

Writing down allowance @ 25%  £2,000

Value to carry forward  £6,000

The writing down allowance which can be claimed is £1,000 (£2,000 x 50% business use):

1998-99

Value brought forward  £6,000

Price when sold  £5,000

Difference  £1,000

The balancing allowance which can be claimed is £500 (£1,000 x 50% business use).

Assets leased out

You can claim capital allowances for assets you own and lease out to other users.  Capital allowances on these assets should be claimed in the same way as for assets you use personally in your rental business.  However, if the asset is used by a person who is not resident in the UK, you will need to discuss with your Tax Office or tax adviser which allowance are due.  Unless you are conducting a leasing trade, assets leased out are not pooled.  A separate capital allowance calculation should be made for each asset leased out.

Buildings

You can claim capital allowances for the cost of constructing agricultural buildings, industrial buildings, industrial and commercial buildings and enterprise zones and certain types of hotel.

If you want to claim agricultural buildings allowance, ask the Orderline for Help Sheet IR224: Farmers and market gardeners.  This contains information about the allowance as well as other special rules that apply to farmers and market gardeners.

You can claim industrial buildings allowance if you buy or construct a building used for the purposes of a qualifying trade.  Manufacturing is a qualifying trade, as are processing trades and there are certain others.  You cannot claim industrial buildings allowance on buildings such as houses, showrooms, offices and shops even if they are used for the purposes of a qualifying trade, or for the land on which the building stands.  If you think you may be able to make a claim, ask your Tax Office or tax adviser.

You can claim capital allowances at a special rate on industrial and commercial buildings in enterprise zones.  You can also claim capital allowances for the cost of a qualifying hotel.  For information about allowances on these types of building, ask your Tax Office or tax adviser.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR251

Agricultural Land and Land Managed as One Estate

This Help Sheet gives you information to help you fill in the Land and Property pages in your Tax Return.  The box numbers mentioned below refer to those Pages.

This Help Sheet covers two different situations:

the additional loss relief, know as ‘agricultural relief’, available to you where agricultural land is included in your rental business

land managed as one estate under a valid election and the restriction of the pooling of all income and expenditure within your rental business brought about by the special rules governing such estates.

Agricultural land: Special provisions for maintenance expenditure

Where your rental business includes land used for agricultural purposes you should keep a record of any expenditure on maintenance, repairs, insurance and management on agricultural land let out.  (Note that interest paid is not an agricultural expense.)  Normally any loss you make in your rental business can only be carried forward and set against future profits of the same rental business.  However, there are special rules that allow you to set off the amount of your rental business loss equal to the expenses, against your total income. You can set the lesser of:

the loss, or

the relevant expenditure on the agricultural land you let out,

against your income from other sources of either the tax year in which the loss is incurred, or of the following tax year.  Any set-off will reduce the rental business loss available to carry forward to future years.

What is agricultural land?

Agricultural land includes land, houses or other buildings in the UK occupied wholly or mainly for the purposes of husbandry.  Under tax rules husbandry does not include market gardening.  That apart, activities normally recognisable as farming, such as the growing of crops or the raising of farm livestock, will all fall to be included as acts of husbandry.

If you are the owner occupier of a farm not carried on on a commercial basis, you may be able to claim some agricultural relief under Extra Statutory Concession B5.  If you wish to make a claim under Extra Statutory Concession B5, use box 5.44.  For further information ask your Tax office or tax adviser.

How to claim agricultural relief against general income

Where you have made a loss in your rental business in a tax year you should enter the total amount of that loss in box 5.41 on Page L2.  By keeping a separate note of the expenditure on maintenance, repairs, insurance and management of the agricultural land you will be able to compare this total with the total rental business loss made in the year, to arrive at the maximum relief due against your general income from other sources.  The amount of agricultural relief available is restricted to the smallest of the following three figures.

your general income after any allowable rental business losses have been deducted,  or

the amount of the rental business loss made in the year (box 5.41), or

the expenditure on repairs, maintenance, insurance or management of the agricultural land.

You should include the amount of relief available in box 5.44.  If you calculate your tax, add the figure in box 5.44 to any other losses you are claiming against general income for example, trading losses) and copy that total to box W18 in the Working Sheet in your Tax Calculation Guide.

Example 1

Louise lets out a number of properties including two small farms in Scotland.  In 1998-99 she makes a loss in her rental business of £3,000.  Repairs and maintenance of the two farmhouses amounted to £2,200 and this figure was included in her expenditure for the tax year.  Louise can claim the full £2,200 as agricultural relief against her general, non rental business, income of either 1998-99 or 1999-2000.  (If she has less than £2,200 general income in one of the tax years she can claim the unallowed agricultural expenditure against her general income for the other).

Louise will be able to carry the remaining loss of £800 forward and set this against future profits of her rental business.

Example 2

Bob lets out a number of properties including a small farm.  In 1998-99 he makes a loss of £500. Expenditure on the farm amounted to £2,000 of which £1,800 related to expenditure on maintenance, repairs, insurance and management.  Bob can only claim £500 as agricultural relief against his other non rental business income of either 1998-99 or 1999-2000.  He cannot claim more relief than the total loss made in his rental business.  Assuming a valid claim is made, there will be no loss available to carry forward to set against future rental business profits.

If you are not sure what relief is due, ask your Tax Office or tax adviser.

Land managed as one estate - special rules for expenses

Under the rules in forced before 1963-64 both owners-occupied properties and let properties were taxed by reference to an annual value.  Land and property managed as one estate was treated as a unit as far as maintenance was concerned.  Income and expenses on properties managed as one estate could thus all be pooled together.  Where the expenditure on repairs and maintenance of owner-occupied (that is, unlet) property on such an estate exceeded the annual value of that property included in the assessable profits, the excess expenses could be set-off against the rents from the let properties on the estate.  From 1963-64 owner-occupied properties are no longer subject to tax on their annual value.  However, the current rules enable the owner of land and property managed as one estate to continue to get relief for expenses on owner-occupied property along the same lines, provided there is a valid election over the estate.

There must be a valid one estate election in force.  If, at the end of 1962-63 any land was managed as one estate, the owner could have elected that this arrangement applied to the estate for e future.  If an election was made the, any successor in title can also elect to continue the arrangement.  An election can only be made if all the previous owners of the estate since the end of 1962-63 have also made the same election.  The election must be made by notice in writing to your Tax office within twelve months from the end of the tax year in which the person making the election first became entitled to do so.

Where such an election has been made for land you continue to manage as one estate, you can get relief for repairs and maintenance expenditure on estate property that you use yourself, against the income from other let properties on the estate.  To obtain the relief you must include in your chargeable income in box 5.20 the full current annual value of the property that you are using personally.

How to arrive at the current annual value of owner-occupied properties

If the property is situated in England or Wales, you should use the rateable value last in forced for that property before the introduction of Community Charge and Council Tax.  If the property is in Scotland you should use the rateable value fixed in the 1978 revaluation and not those fixed in 1985.  If the property is in Northern Ireland you should use the current rateable value fixed in the 1976 revaluation.

In all cases the gross rateable value should be included.  If you have difficulty in converting a net value to a gross value, or finding the correct value, ask your Tax Office or tax adviser for help.

Rules regarding the set off of expenditure on land etc. managed as one estate

Where there is a valid election, expenditure on owner-occupied properties forming part of the estate cannot be set against rents of properties outside the estate that form part of your rental business.

Conversely, expenditure on let properties forming part of the estate can be set against rents from any other properties comprised in your rental business.  And, excess expenditure on properties outside the estate can be set against the profits from the estate.

How to calculate the amount of allowable expenditure on owner-occupied property

The rules only restrict the allowable expenditure on owner-occupied property where it is more than your total rental income you have included in box 5.20 in respect of the whole estate (that is, not merely the annual value of the owner occupied property).  To discover whether any restriction is required you should first separate income and expenditure on the estate, and separate expenditure on let properties in the estate from expenditure on owner-occupied properties.

What figure do I put in box 5.46?

Where the separation of expenditure and the restriction to the pooling rules illustrated in Example 3 (on page 3 of this Help Sheet) results in excess expenditure that cannot be set off in the tax year, you should enter this figure in box 5.46 on Page L2 of your Land and Property Pages.  You will also need to reduce the total expenditure  enter in box 5.29 by the same amount.  Income the figure in box 5.46 as an expense of your estate for next yea.

Example 3

Ruth owns a number of flats in Glasgow, which she lets to tenants.  She also owns an estate near Inverness in which she lives, which has been run as one estate and over which a valid election has been made.  The part of the estate that Ruth lives in comprises a mansion house and garden.  In 1998-99 Ruth’s rental business includes the following income and allowable expenditure.

Annual value of mansion house and garden  £600

Rents from let properties on the estate £5,000

Non-estate letting income  £20,000

Total income  £25,600

Mansion house repairs  £6,200

Expenditure on let properties in estate £4,300

Expenditure on non-estate properties £5,960

Total expenditure  £16,460

Without the special rules relating to ‘land managed as one estate’ neither the annual value of the mansion house nor the repairs expenditure on it would appear in Ruth’s rental business accounts.  The special rules bring the income and expenditure, but restrict the benefit of the relief on that expenditure, to properties in the estate.

At first sight the rental business profit would be £9,140  (£25,600 minus £16,460).

The effect of the restriction, however, is to set off first the mansion house expenditure against the annual value of the mansion house and garden and rents from let properties on the estate.

Rents from let properties on the estate £5,000

Annual value of mansion house and garden  £600

Total  £5,600

Mansion house repairs  £6,200

Surplus expenditure  £600

The excess expenditure of £600 cannot be set against other non-estate rental business properties.  But the £4,300 spent on other let properties in the estate can be deducted from the rental business income from property outside the estate.  Ruth’s rental business profits for 1998-99 are therefore £9,740 calculated as follows.

Non-estate letting income  £20,000

Expenditure on non-estate properties  £5,960

Expenditure on let properties in estate £4,300

Total £10,260

Profit  £9,740

Ruth has £600 expenditure to carry forward and include as repairs to the mansion house in her 1999-2000 rental business calculations.

What to do if land you manage as one estate includes agricultural land

Where land managed as one estate includes agricultural land as defined on page 1, the relief for losses in relation to any expenditure on maintenance, repairs, insurance and management of the agricultural land is not extended to relief for losses in relation to any agricultural land you use personally and do not let out.  Agricultural relief is available in the normal way on agricultural land on the estate that is let out and that you do not use yourself.

Example 4

George owns a number of flats in Manchester, which he lets to tenants.  He also owns an estate in Cornwall, which is managed as one estate and over which a valid election has been made.  Part of the state comprises a farm and a farm house that George lives in. He lets out the farm land.  The other properties on the estate are let out for residential use.  In 1998-99 George’s rental business includes the following income and allowable expenditure.

Annual value of farm house  £500

Rent a from let properties on the estate including farmland  £2,000

Non-estate letting income  £24,000

Total income  £26,500

Expenditure on farm house  £6,000

Expenditure on residential properties in estate  £4,500

Expenditure repairing fences on farmland  £500

Expenditure on non-estate properties £20,000

Total expenditure  £31,000

As first sight George would appear to have made a loss of £4,500 in his rental business. But the expenditure of £6,000 on the farm house can only be set against the income from the estate as follows:

Expenditure on farm house  £6,000

Annual value of farm house £500

Rent from let properties on the estate £2,000

total £2,500

Surplus expenditure £3,500

George, therefore, has excess maintenance expenditure of £3,500 to carry forward to the next tax year as expenditure on owner-occupied properties.  This is not a loss for the purposes of agricultural relief. The loss of £4,500 arising in his rental business is therefore restricted by £3,500 to £1,000.

Of the £1,000 rental business loss, George can claim the £500 spent on let agricultural land against his other income as agricultural relief.  Assuming relief is given against other income, his rental business loss available to carry forward to set against future rental business profits will be reduced to £500.

The total loss of £4,500 will then be dealt with as follows:

Set against other income  £500

C/F to set against future rental profits  £500

C/F as expenditure on owner occupied properties  £3,500

Total  £4,500

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR260

Overlap

This Help Sheet contains two Working Sheets.

Working Sheet 1 (see the instruction on this page, and page 4) will help you calculate the tax credit relief that must be recovered if you are now claiming overlap relief

Working Sheet 2 (see pages 2 and 3) enables you to work out your tax credit relief position if you have overlap profits.

Working Sheet 1 - Restriction of tax credit relief where overlap relief is allowed - instructions.

Fold this Help Sheet out flat.

Fill in the Working Sheet on page 4, using the following instructions if you are claiming overlap relief as a deduction from business profits, and you got tax credit relief in earlier years against tax due on the overlap profits contributing to the amount deducted this year.

box 1  Enter the figure of overlap profits brought forward from last year.

box 2  Enter the amount of additional tax credit relief allowed in the years when the overlap profits arose (that is, when the basis periods overlapped) and which has not been recovered subsequently.

box 3  Enter the figure of overlap relief deducted in arriving at your taxable profits for 1998-99 (from box 3.76 of your Self-employment Pages or box 4.10 of your Partnership Pages).

box 4  Enter the proportion of the figure in box 2 that relates to the amount of overlap relief claimed this year.

box 5  Enter the amount of foreign tax paid in the 1998-99 basis period for income from the same source as the overlap profits.

box 6  Enter the amount of tax credit relief that would be allowable in 1998-99 for the amount of foreign tax shown in box 5, if it were to be assumed that no overlap relief was deductible from 1998-99 profits.  For this purpose only you will need to add back the figure of overlap relief deducted (at box 3.76 of your Self-employment Pages), to arrive at taxable profits before overlap relief, and then complete a Tax Credit Relief Working Sheet (see pages FN12 to FN14 of the Notes to the Foreign Pages) to calculate the figure (from box 28 in the TCRWS), to be entered in box 6 in Working Sheet 1.

boxes 7, 8 and 9  If the amount at box 6 is greater than that at box 4, enter the difference in box 7 and copy the entry to column D of your Foreign Pages, then complete the rest of the page as indicated.

If the amount in box 4 exceeds that in box 6, enter the amount of the excess in box 8 and in box 9.  No tax credit relief is due this year for income from the same source as the overlap profits.  Instead, the excess of box 4 over box 6 will be recovered by way of a tax charge.

If you are calculating your tax copy the figure in box 9 to box 18.4 in your Tax Return.

Example 1

If your basis period for 1998-99 runs from 01.01.98 to 31.12.98 but accounts have been drawn up for the six months from 01.01.98 to 30.06.98 and for the 12 months 01.07.98 to 30.06.99, enter information, profits etc. drawn from your accounts for the period 01.01.98 to 30.06.98 in boxes 3 to 7 and half of the profits etc. shown by the accounts for the period 01.07.98 to 30.06.99 (that is, representing the profits etc. of the six months 01.07.98 to 31.12.98) in boxes 8 to 12.

Working Sheet 2 - Overlap profits and tax credit relief - Instructions

You only need to complete this if your basis period for 1998-99 overlaps with that for 1997-98 and you are claiming tax credit relief for 1998-99.  Fill in a separate Working Sheet for each business in which you have an overlap.

boxes 1 and 2  Enter the start and finish dates of your basis  period of 1998-99 (from boxes 3.71 and 3.72 of your Self-employment Pages) and its length in months.

Working Sheet 2

Basis period  Months

1998-99  1     /    /19    to    /    /19     2

Apportionment of accounts    Profits

3    /    /19    to    /    /19     4     5 £

8    /    /19    to    /    /19     9     10 £

13   /    /19    to    /    /19   14    15 £

18  total of boxes 4+9+14    19 £  total of column above

1997-8  22   /    /19    to    /    /19

overlap  23  /    /19    to    /    /19  24

Months

25

Overlap profits  26  x 27 £  =  28 £

29

Foreign source profits included  30   x  31 £  =

33

Foreign tax  34  x  35 £  =

Add foreign tax paid on whole of taxable profits for 1998-99 (including overlap profits)

Deduct the amount of tax credit relief allowed in 1997-98 for the overlap profits

Amount of foreign tax available for relief in 1998-99 on overlap profits

boxes 3 to 17  Use these boxes to show the results of all accounts that cover the period in box 1.

Where any period of accounts has had to be time-apportioned to determine the amount of taxable profits for 1998-99 (because it does not wholly coincide with the basis period) enter only the information relating to that part of the period of accounts which forms part of the basis period.  Where a complete period of account falls wholly within the basis period shown in box 1, enter the information requested without apportionment.

Foreign source profits   Foreign tax paid

6 £   7 £

11 £   12 £

16 £  17 £

20 £ total of column above   21 £ total of column above

32 £

36 £

37 £  from box 21

38 £  box 36 + box 37

39 £

40 £ box 38 minus box 39

boxes 18 to 21  Enter the totals for each column.  The number of months shown at box 18 must be the same as box 2.

box 22  Enter the start and finish dates of your basis period for 1997-98.

boxes 23 and 24  Enter the start and finish dates, and the length in months, of the period that is common to both your 1997-98 and 1998-99 basis periods (the ‘overlap’ period).

boxes 25, 29 and 33  Enter the number of months of the overlap period as shown in box 24.

boxes 26, 30 and 34  Enter the number of months of the same period or periods of account shown in boxes 3, 8 and 13 that include the overlap period.

Example 2

So, continuing the example.  If the overlap period is 01.01.98 to 05.04.98 (three months), ‘6’ would need to be entered in each of these three boxes, because this is the length in months of the period of account into which the three month overlap periods falls.

box 27  Enter the amount of total taxable profits (from boxes 5, 10 and 15) of the period or periods of account that includes the overlap period.

box 28  Multiply the figure in box 27 by the fraction (box 25 dividend by box 26) and enter the result in box 28,

box 31  Enter the amount of foreign source profits (from boxes 6, 11 and 16) included in the total taxable profits of the period or periods of account which include the overlap period.

box 32  Multiply the figure in box 31 by the fraction formed by the figure in box 29 divided by the figure in box 30 and enter the result in box 32.

box 35  Enter the amount of foreign tax paid (from boxes 7, 12 and 17) on the foreign source profits shown in box 31.

box 36  Multiply the figure in box 35 by the fraction formed by the figure in box 33 divided by the figure in box 34 and enter the result here.

box 39  enter the amount of tax credit relief allowed in 1997-98 on the foreign source overlap profits shown in box 32.

Copy the figure in box 20 to column E (in the line giving other details for the business) of the Foreign pages. Copy the figure in box 40 to column D (in the same line) of the Foreign Pages.

Working Sheet 1 - Overlap relief/tax credit relief

Overlap profits 1  £

Additional tax credit relief previously allowed  2 £

Overlap relief claimed in 1998-99  3 £

Corresponding tax credit relief (box 3 divided by box 1 then multiplied by box 2)  4 £

Foreign tax paid in the 1998-99 basis period from the same source as the overlap profits  5 £

Tax credit relief allowable in 1998-99 if no overlap relief deducted from 1998-99 profits (from Tax Credit Relief Working Sheet)  6 £

Box 6 minus box 4  7 £

or

Box 4 minus box 6  8 £

If the figure in box 6 is greater than the figure in box 4, the figure in box 7 is available for tax credit relief in 1998-99.  Transfer this figure to column D on Page F3 of the Foreign Pages.

If the figure in box 4 is greater than the figure in box 6, no tax credit relief is due for 1998-99 for income from this source.  Enter ‘0’ in column D on Page F3 of the Foreign Pages. Copy the figure in box 8 to box 9.  The amount of the excess is recoverable by way of a tax charge.

Tax credit relief to be recovered  9  £

Copy this figure to box 18.4 in your Tax Return.


IR261

Tax Credit Relief: Capital Gains

If you want to calculate your tax, use this Help Sheet to work out the tax credit relief available against your income and your capital gains.

It is divided into 2 parts

Part A  Contains instructions and a working sheet to tell you what figure to put in box 6.9 on your Foreign Pages.

Part B  Provides guidance, instructions and a working sheet to help you decide the figure to put in box 6.10 on your Foreign Pages.

Boxes 6.9 and 6.10 both feed into the working sheet in your Tax Calculation Guide (Capital Gains).  If you are using the Tax Calculation Guide (including Capital Gains and Lump Sums etc.) for example because you also have a lump sum, ask the Orderline for Help Sheet IR263: Tax Credit Relief: lump sums and capital gains and use that instead.

Part A: Tax credit relief working sheet (TCRWS): Income

Use the Working Sheet on page 3 to work out tax credit relief on your income.  The instructions on page 2 tell you what to do.

Part B: Tax credit relief working sheet (TCRWS): Capital Gains

Under the terms of a Double Taxation Agreement, or unilaterally, relief by way of credit for foreign tax paid (‘tax credit relief’) is available against UK Capital Gains Tax on the same gains.

Alternatively, the foreign tax may be deducted in calculating the gain or loss on a particular disposal (see page CGN16 of the Notes to the Capital Gains Pages).  However, this will only usually be to your advantage where no UK tax is chargeable on a disposal, for example, when a loss results in there being no UK tax against which the foreign tax can be set off.

This Help Sheet will enable you to work out the amount of tax credit relief you can claim.  You will also need to obtain and complete the Foreign Pages.  Ask the Orderline for a copy if you do not already have these.

General principles

The amount of credit for foreign tax is not to exceed the lesser of the foreign tax charged on the gain, and the UK tax on the doubly taxed part of the gain - see the next column.

If the foreign tax paid exceeds the UK tax on the gain, the excess can neither be deducted from the amount of the gain chargeable to Capital Gains Tax nor can it be repaid.

The foreign tax is not increased by any indexation allowance.

The amount of credit must be calculated separately for each gain. An excess of foreign tax over the UK tax on a particular gain cannot be credited against UK tax on any other gain.

Whether a gain is doubly taxed

Because different countries have different rules for determining the amount of a taxable capital gain, the amount chargeable to UK Capital Gains Tax will often be different from the amount of the gain charged to tax in the foreign country. It might therefore be the case that only part of a particular gain is regarded as doubly taxed in the UK and the foreign country.  In those circumstances, the amount of foreign tax eligible for relief needs to be restricted.  The flowchart on page 4 of this Help Sheet will help you to calculate the amount of foreign tax eligible for credit relief.

Method

Step 1  Make sure that you have completed Pages CG1, CG2 and CG3 of the Capital Gains Pages and boxes G1 to G54 of the Tax Calculation Working Sheet.

Step 2  Complete Page F3 of the Foreign Pages to show the amount of each gain in respect of which you are claiming tax credit relief; the period over which the UK chargeable gain accrued; the amount of gain under the foreign country’s tax rules; the period over which the foreign gain accrued and the amount of the foreign tax paid.

Step 3  Use the flowchart on Page 4 of this Help Sheet to calculate the amount of foreign tax paid that is available for credit against your UK Capital Gains Tax liability.

Step 4  Calculate separately the UK Capital Gains Tax chargeable in respect of each gain on which you have paid foreign tax and for which you are claiming credit.  Use the Working Sheet on page 5 of this Help Sheet to help you do this.

Step 5  Compare the UK Capital Gains Tax chargeable on each gain with the amount of foreign tax eligible for credit.  The relief you can claim is the lower of the two amounts.  Copy the total relief due to box 6.10 of the Foreign Pages and box G55 of the Tax Calculation Working Sheet.

Part A: tax credit relief working sheet (TCRWS): Income

Complete a separate TCRWS (see page 3) for each item of foreign income for which you have paid foreign tax and want to claim relief by way of credit.  Ask the Orderline for additional copies or take photocopies of the Working Sheet.

box 1  If you are completing your first TCRWS, enter in box 1 the figure in box G22 in the Calculation Working Sheet of your Tax Calculation Guide (Capital Gains). Otherwise, copy the figure from box 5 of the last TCRWS that you completed.

box 2  From your Foreign Pages, select the item of income subject to the highest rate of foreign tax, and for which you have yet to calculate tax credit relief. For that item, enter in box 2 the amount of income chargeable to UK tax, as shown in column E.

box 4   Look at boxes G13 to G19 in the Working Sheet in your Tax Calculation Guide (Capital Gains).  If any of the deductions from income that you have claimed in them relate specifically to, and depend upon the amount of, the item of income shown in box 2 above, enter in box 4 the amount of the deductions attributable to that item of income.

Example 1

Richard is 34 and his business profits of £12,000 include £4,000 which has been subjected to foreign tax, and he has paid personal pension contributions of £1,800.  On the income of £12,000, relief as a deduction is due for the whole £1,800.  However, if the £4,000 foreign profits are excluded the personal pension contributions deduction is limited to £1,400 (being 17.5% of the remaining ‘net relevant earnings’ - £8,000).  So the amount of the deduction attributable to the foreign profits is £1,800 minus £1,400 = £400.  This is the figure to enter in box 4.

box 6  Copy the figure from box G23 in the Working Sheet of your Tax Calculation Guide (Capital Gains).

box 8  If you (or if married, either you or your spouse) were born on or after 6 April 1934, copy the figure in box G25 of the Working Sheet in your Tax Calculation Guide (Capital Gains) to box 8.

If you (or, if married, either you or your spouse) were born on or before 5 April 1934, you need to work out the personal allowances that would be due if your income was the amount shown in box 5, rather than that shown in box G22 of the Tax Calculation Guide (Capital Gains).  Recalculate the figure of personal allowances due (using the notes on page 4 of your Tax Calculation Guide) based on the figure in box 5 in the TCRWS.  Enter the result in box 8.

box 11  Enter the total of any savings income in box G31 in your Tax Calculation Guide (Capital Gains) excluding the total of any figures in box 2 of this or previous TCRWS.

box 12  Deduct the figure in box 11 from the figure in box 9 and enter the result in box 12.

box 14  Deduct the figure in box 13 from the figure in box 12 and enter the result in box 14.

box 18  See the note after box 16 on the TCRWS.  If the figure in box 16 exceeds £27,100, enter in box 18 the figure in box 16 minus the figure in box 17.

box 22  Enter the total of the figures in boxes 10, 15, 19 and 21.  This is the amount of tax due on the income shown in box 3.

box 23  Enter the total of the amounts in boxes G58, G60 and G61 in the Working Sheet of your Tax Calculation Guide (Capital Gains).

box 24  Deduct the figure in box 23 from the figure in box 22 and enter the result in box 24.  If the figure in box 23 exceeds the figure in box 22, enter ‘0’ in box 24.

box 25  If this is the first TCRWS you are completing, enter in box 25 the figure in box G49 in the Working Sheet of your Tax Calculation Guide (Capital Gains) minus the figure in box 23.

Otherwise, enter the figure in box 24 of the last Tax Credit Relief Working Sheet which you completed.

This is the Income Tax (before tax credit relief) on  the income shown in box 1.

box 26  Subtract the figure in box 24 from the figure in box 25 and enter the result in box 26.

This is the amount of Income Tax at your marginal rate on the item of income shown in box 2 above.

box 27  Enter the amount of foreign tax paid on the item of income shown in box 2.

box 28  Enter the lower of the figures in boxes 26 and 27.

Now complete another TCRWS for your next item of income.  Otherwise, add up the figures in box 28 of each TCRWS and put the total in box 6.9 of your Foreign Pages.

Tax Credit Relief Working Sheet (TCRWS) for income

Income less deductions    1 £ see notes

Item of income subject to the highest percentage rate of foreign tax  2 £ see notes  3 £  box 1 minus box 2

Deductions specifically related to the income in box 2  4 £ see notes   5 £ box 3 + box 4

Other deductions for which tax relief is given at source  6 £ see notes  7  £ box 5 + box 6

Personal allowances  8 £  see notes  9 £ box 7 minus box 8  10 £ box 9 x 20%

If the figure in box 9 is £4,300 or loss, copy the figure in box 10 to box 22.  Do not fill in boxes 11 to 21.  If the figure in box 9 is more than £4,300, enter in box 11 the total of any savings income in box G31 in the Working Sheet of your Tax Calculation Guide, but excluding the total of any savings shown in box 2 above and in box 2 of all previous TCRWSs completed.

11 £ from Calculation Working Sheet box G31

12 £ box 9 minus box 11

13 £4,300

14 £ box 12 minus box 13

15 £ box 14 x 3%

16 £ box 9 minus boxes (6 + 12.9)

If the figure in box 16 is £27,100 or less, go straight to box 22. Do not fill in boxes 18 to 21.

17 £27,100

18 £ box 16 minus box 17

19 £ box 18 x 17%

You only need to fill in boxes 20 and 21 if there is a figure in box 19 and the figures in boxes 9 and 12 are different

20 £ lower of box 11 and box 18

21 £ box 20 x 3%

Total tax due on income in box 3  22 £ boxes 10 + 15 +19 +21

Reliefs (other than Double Taxation Relief) allowed in terms of tax  23 £ see notes

24 £ box 22 minus box 23

Income Tax due (before Double Taxation Relief) on income in box 1  25 £ see notes

Income Tax due on income in box 2  26 £ box 25 minus box 24

Foreign tax paid on income in box 2 above 27 £

Total Tax Credit Relief due against UK tax payable on item of income in box 2  28 £ lower of boxes 26 and 27

Now complete another TCRWS for your next item of income.  Otherwise, add up the figures in box 28 in each TCRWS and put the total in box 6.9 of your Foreign Pages.

Part B: Tax credit relief working sheet (TCRWS): Capital gains

Is the same period of ownership considered in arriving at both the UK and foreign taxable amounts?

Yes

Is the amount of the UK chargeable gain (the gain before deduction of allowable losses and any taper relief) equal to or greater than the amount of the foreign assessable gain?

Yes

The whole of the gain is doubly taxable and all the foreign tax paid is eligible for credit relief

No   No

Does the foreign taxable amount relate to a longer period of ownership than the period over which the UK taxable gain accrued?

Yes

The foreign tax eligible for credit is restricted to:

UK period x foreign tax paid

foreign period

No

The foreign tax eligible for credit is restricted to:

UK chargeable gain x foreign tax paid

foreign period

Completing the tax credit relief working sheet for capital gains

Column A (lines 1-16)

You should enter in rows 1-10 of column A details of your tapered chargeable gains and any gains attributed to you as settlor or beneficiary of a settlement.  Your tapered gains are those after all allowable losses have been set off and where appropriate taper relief has been applied.  You can find details of all of the gains to enter in column N on Page CG3 of your Capital Gains Pages.  For information on Taper Relief see the Notes to the Capital Gains Pages, page CGN15, and Help Sheet IR279: Taper relief.

Enter in rows 13 to 16 the figures as indicated from the appropriate boxes of your Tax Calculation Working Sheet.

Columns B and C (lines 1-16)

Use these columns to analyse the overall figures shown in column A.

Enter in column B the amounts corresponding to gains chargeable to UK Capital Gains Tax in respect of which you are not claiming tax credit relief, that is, any UK gains and any foreign gains that have either not been subject to any foreign tax or where the foreign tax paid has been deducted in computing the amount of the gain that is chargeable to UK tax - see page 1 of the Help Sheet.

Enter in column C (i) to (viii) individual gains that have been subject to foreign tax for which you are claiming tax credit relief.  If you have more than eight such gains, photocopy page 6 before making any entries.

When entering details of the annual exempt amount (line 11) and the amounts chargeable at the different rates of tax (lines 13 to 15), you should allocate the annual exempt amount and rate bands first against any gains in column B and then against gains in column C, beginning with the item that has been subjected to the lowest effective rate of foreign tax.

Column C (line 17)

Enter the respective amounts of foreign tax eligible for tax credit relief from column D of Page F3 of the Foreign Pages.

Column C (line 18)

For each separate column, enter the lower of the figures at lines 16 and 17.

Column A (line 18)

Add up all the figures in column C, line 18, and enter the total in column A.  This is the total tax credit relief allowable for the year.  Copy this figure to box 6.10 in your Foreign Pages and box G55 in the Tax Calculation Working Sheet in your Tax Calculation Guide (Capital Gains).

Example 2

You have gains after losses and taper relief of £32,000; consisting of UK gains of £15,000, Country A gains of £10,000 (foreign tax paid at 35%) and Country B gains of £7,000 (foreign tax paid at 40%).  You are liable to Capital Gains Tax, after deduct the annual exempt amount of £6,800, on £25,200 of the gains.  Your Tax Calculation Working Sheet shows the gains as being charged partly at the basic rate (23% - £12,000) and partly at the higher rate (40% - £13,200).

To maximise your foreign tax credits you would allocate your gains to the tax rate bands as follows:

Column A  Column B  Column C(i)  Column C(ii)

Gains  32,000  15,000  10,000  7,000

minus annual exempt amount  6,800  6,800

equals net taxable gains  25,200  8,200  10,000  7,000

Gains chargeable at

20%  -  -  -  -

23% 12,000  8,200  3,800  -

40%  13,200   6,200  7,000

Capital Gains tax chargeable  8,040    3,354  2,800

Foreign tax eligible for credit relief  3,500  2,800

Tax credit relief allowable  6,154  3,354 2,800

Tax credit relief working sheet for capital gains tax

Insert in rows 1 to 10 below details of tapered gains and attributed gains from column N on Page CG3 of your Capital Gains Pages

Total gains in respect of which no TCR is claimed

Items of gains in respect of which relief is claimed by way of foreign credit

A  B Foreign gain 1 C(i)  Foreign gain 2 C(ii)  Foreign gain 3 C(iii)

1.  £

2.  £

3.  £

4.  £

5.  £

6.  £

7.  £

8.  £

9.  £

10.  £

11. Minus annual exempt amount  £6,800  £  £  £  £

12. Equals net taxable gains (from box 8.8) £  £  £  £  £

13. Gains chargeable at 20% (from box G38) £  £  £  £  £

14. Gains chargeable at 23% (box G28 minus (G38+G51)) £  £  £  £  £

15. Gains chargeable at 40% (from box G51) £  £  £  £  £

16. Capital Gains Tax chargeable (from box G53) £  £  £  £  £

17. Foreign tax eligible for credit relief  £  £  £

18. Tax Credit Relief allowable, copy to boxes 6.10 and G55  £  £  £

Tax credit relief working sheet for capital gains, continued

Totals   Items of gains in respect of which relief is claimed by way of foreign credit

A  Foreign gain 4 C(iv)  Foreign gain 5 C(v)  Foreign gain 6 C(vi)  Foreign gain 7 C(vii)  Foreign gain 8 C(viii)

1.  £

2.  £

3.  £

4.  £

5.  £

6.  £

7.  £

8.  £

9.  £

10.  £

11. 6,800  £  £  £  £  £

12.  (from box 8.8) £  £  £  £  £

13. (from box G38) £  £  £  £  £

14. (box G28 minus (box G38 + G51)) £  £  £  £  £

15.  (from box G51) £  £  £  £  £

16.  (from box G53) £  £  £  £  £

17. £  £  £  £  £

18. Copy to boxes 6.10 and G55  £  £  £  £  £

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.


IR262

Tax Credit Relief: Lump Sums and Compensation Payments

If you want to calculate your tax, use this Help Sheet to work out the tax credit relief available against your income, if that incomes includes lump sums and compensation payments.

If you also have chargeable Capital Gains, ask the Orderline for Help Sheet IR263: Tax Credit Relief: lump sums and capital gains

References in this Help Sheet that start with the letter ‘L’ are to the Working Sheet in the Tax Calculation Guide (Lump Sums), SA153 which you should fill in if you have lump sums and compensation payments, and want to calculate your tax.

Complete a separate Tax Credit Relief Working Sheet for each item of foreign income on which you have paid foreign tax and want to claim relief by way of credit.  Ask the Orderline for additional copies or take photocopies of the Working Sheet on Pages 3 and 4.

Before beginning to fill in the Tax Credit Relief Working Sheet make sure that you have filled in the main Tax Calculation Working Sheet in the Tax Calculation Guide (Lump Sums) as far as box L66.

box 1  If you are completing your first TCRWS, copy to box 1 the figure in box L21 in your Tax Calculation Working Sheet.  Otherwise, copy the figure from box 5 of the last TCRWS (Lump Sums) that you completed.

box 2  From your Foreign Pages, select the item of income which has suffered the highest rate of foreign tax and for which you have yet to calculate tax credit relief.  For that item, enter in box 2 the amount of income chargeable to UK tax, as shown in column E

box 4  Look at boxes L13 to L19 in your Tax Calculation Working Sheet.  If any of the deductions from income that you have claimed there relate specifically to, and depend upon the amount of, the item of income shown in box 2, enter in box 4 the amount of the deductions which are attributable to that item of income.

Example 1

Christine is 34 and her business profits of £12,000 include £4,000 which has suffered foreign tax.  She has paid personal pension contributions of £1,800.  On the income of £12,000 relief as a deduction is due for the whole £1,800.  If the £4,000 foreign profits are excluded, however, the relief for pension contribution is limited to £1,400 (being 17.5% of the remaining ‘net relevant earnings’ - £8,000).  So the amount of the deduction which is attributable to the foreign profit is £1,800 minus £1,400 = £400.  This would be the figure to enter in box 4.

box 6  Copy to box 6 the figure from box L23.3 in your Tax Calculation Working Sheet.

box 8  If you were born on or after 6 April 1934, copy the figure in box L25.6 of your Tax Calculation Working Sheet to box 8.

If you were born before 6 April 1934, you need to work out the personal allowances to which you would be entitled if your income was the amount shown in box 5 above rather than that shown in box L21 of your Calculation Working Sheet. Refer to page 4 in your Tax Calculation Guide (Lump Sums) and recalculate the figure of personal allowances due based on the figure in box 5 above.  Enter the result in box 8.

box 10  Enter in box 10 the lower of box 9 and (boxes 12.8 + 12.12 + 7.18 + (box 6.7 x 100/23)).  Exclude any item that has appeared in box 2 of this or any previous TCRWS.

box 12  Enter in box 12 the total of boxes 10.23, 10.26, 10.29, 10.32 + (4.78 x 100/20) + 7.15.  Exclude any item that has appeared in box 2 of this or any previous TCRWS.

box 15  Enter in box 15 the total of boxes 10.1, 10.4, 10.7, 10.8, 10.11, 10.14, 10.17, 10.20, 6.2, 7.6, 7.12, 4.35 and 4.70 minus (4.78 x 100/20). Exclude any item that has appeared in box 2 of this or any previous TCRWS.

box 18  Enter in box 18 the total of boxes 12.5, 12.8, 12.12, 1.29, 6.8 and 7.18. Exclude any item that has appeared in box 2 of this or any previous TCRWS.

box 23  Enter in box 23 the total of boxes 12.5 + 1.29 + 6.8 minus (box 6.7 x 100/23). Exclude any item that has appeared in box 2 of this or any previous TCRWS.

box 29  Use the following boxes to work out the figure to put in box 29.

Non savings income (apart from gains on life policies and certain lump sums and compensation payments) from boxes 21 + 25 + 7.18 + 12.12     29.1 £

If the figure in box 29.1 is £4,300 or more, enter at box 29.7 the greater of boxes 29.2 or 29.3 and do not complete boxes 29.4 to 29.6

29.2 £ box 21 + box 24 + box 25

29.3 £ box 24 + £4,300

Otherwise add box 29.1 + savings income  29.4 £ box 29.1 + box 13 + box 16

If the figure in box 29.4 is £4,300 or more, complete box 29.5 and copy the figure to box 29.7  29.5 £ box 29.1 + £4,300

Leave box 29.6 blank

Otherwise complete box 29.6 and copy the figure to box 29.7  29.6 £ box 29.4 + box 24

From box 29.2 or box 29.3 or box 29.5 or box 29.6     29.7 £

Copy the figure in box 29.7 to box 29

box 44  To complete this box you will need to work out the amount of Top Slicing Relief which would have been due if your total income had been the figure at box 3 above.  Use the Top Slicing Relief Working Sheet on page 5 (ask the Orderline for extra copies if you are claiming tax credit relief in respect of more than one item of foreign income).

Add together the reworked amount of Top Slicing Relief (box TSR14) and the figures in boxes L63, L65 and L66 in the Tax Calculation Working Sheet and enter the result in box 44.

box 45  Deduct the figure in box 44 from the figure in box 43 and enter the result in box 45. If the figure in box 44 exceeds the figure in box 43 enter ‘0’ in box 45.

box 46  If this is the first TCRWS (Lump Sums) you are completing, enter the figure from box L60 of your Tax Calculation Working Sheet less the figure in box 44 above.

Otherwise, enter the figure in box 45 of the last TCRWS (Lump sums) you completed.

This is the income tax (before tax credit relief) chargeable on the income shown at box 1 above.

box 47  Subtract the figure in box 45, from that in box 46 and enter the result in box 47.

This is the amount of income tax at your marginal rate on the item of income shown at box 2 above.

box 48  Enter the amount of foreign tax paid on the item of income at box 2 above (from column D of the Foreign Pages).

Tax Credit Relief Working Sheet (TCRWS) (Lump Sums etc.)

Income less deductions   1 £ see notes

Item of income which has suffered the highest percentage rate of foreign tax  2 £ see notes   3 £ box 1 minus box 2

Deductions specifically related to the income at box 2  4 £ see notes   5 £ box 3 + box 4

Deductions from which tax relief is given at source  6 £ see notes  7 £ box 5 + box 6

8 £ see notes  9 £ box 7 minus box 8  10 £ see notes aside for box 10

If the figure in box 9 is zero do not complete boxes 12 to 42 and enter zero in box 43

11 £ box 9 minus box 10

12 £ see notes aside for box 12  13 £ lower of box 11 and 12  14 £ box 11 minus box 13

If the figure in box 14 is zero enter zero in boxes 16, 21, 24 and 25.  Do not complete boxes 15 to 23.

15 £ see notes aside for box 15   16 £ lower of box 14 or box 15  17 £ box 14 minus box 16

If the figure in box 17 is zero enter zero in boxes 21, 24 and 25.  Do not complete boxes 18 to 23

18 £ see notes aside for box 18  19 £ from box 3  20 £ box 19 minus box 18

If the figure in box 20 is zero enter zero in boxes 21, 24 and 25.  Do not complete boxes 22 and 23.

21 £ smallest of £4,300 box 20 or box 17   22 £ box 17 minus box 21

If the figure in box L39 is zero enter zero in boxes L41 and L42.  Do not complete box L40

23 £ see notes aside for box 23    24 £ lower of box 22 or box 23   25 £ box 22 minus box 24

26 £ boxes 13+16+21+24+25  27  £ box 26 x 20%

If the figure in box 9 is £4,300 or less go straight to box 43. Do not complete boxes 29 to 42

28 £ box 10 x 23%

box 49  Enter the lower of the figure in boxes 47 and 48.

This is the amount of tax credit relief allowable in respect of the income at box 2 above.

Now complete another TCRWS (Lump Sums) for your next item of income. Otherwise, add up the figures in box 49 of each TCRWS and put the total in box 6.9 in your Foreign Pages.

Tax Credit Relief Working Sheet (TCRWS) (Lump Sums etc.)

Income less deductions   1 £ see notes

Item of income which has suffered the highest percentage rate of foreign tax  2 £ see notes   3 £ box 1 minus box 2

Deductions specifically related to the income at box 2  4 £ see notes   5 £ box 3 + box 4

Deductions from which tax relief is given at source  6 £ see notes  7 £ box 5 + box 6

8 £ see notes  9 £ box 7 minus box 8  10 £ see notes aside for box 10

If the figure in box 9 is zero do not complete boxes 12 to 42 and enter zero in box 43

11 £ box 9 minus box 10

12 £ see notes aside for box 12  13 £ lower of box 11 and 12  14 £ box 11 minus box 13

If the figure in box 14 is zero enter zero in boxes 16, 21, 24 and 25.  Do not complete boxes 15 to 23.

15 £ see notes aside for box 15   16 £ lower of box 14 or box 15  17 £ box 14 minus box 16

If the figure in box 17 is zero enter zero in boxes 21, 24 and 25.  Do not complete boxes 18 to 23

18 £ see notes aside for box 18  19 £ from box 3  20 £ box 19 minus box 18

If the figure in box 20 is zero enter zero in boxes 21, 24 and 25.  Do not complete boxes 22 and 23.

21 £ smallest of £4,300 box 20 or box 17   22 £ box 17 minus box 21

If the figure in box L39 is zero enter zero in boxes L41 and L42.  Do not complete box L40

23 £ see notes aside for box 23    24 £ lower of box 22 or box 23   25 £ box 22 minus box 24

26 £ boxes 13+16+21+24+25  27  £ box 26 x 20%

If the figure in box 9 is £4,300 or less go straight to box 43. Do not complete boxes 29 to 42

28 £ box 10 x 23%

Tax Credit Relief Working sheet (TCRWS) (Lump Sums etc.)

29 £ see notes  30 £4,300  31 £ box 29 minus box 30  32 £ box 31 x 3%

33 £ box 9 minus (boxes 6 plus 12.9)

If the figure in box 33 is £27,100 or less go straight to box 43. Do not complete boxes 32 to 42

34 £27,100    35 £ box 33 minus box 34  36 £ box 35 x 17%

If the figure in boxes 13 and 16 are zero go straight to box 43.  Do not complete boxes 37 to 42

37 £ box 13 + box 16  38 £ boxes 21+25+37+7.18+12.12   39 £ £27,100 + boxes 6+12.9

40 £ box 38 minus box 39   41 lower of box 37 or box 40  42 £ box 41 x 3%

43 £ boxes 27+28+32+36+42

Reliefs (other than Double Taxation Relief) allowed in terms of tax  44 £ see notes

45 £ box 43 minus box 44

Income Tax due (before Double Taxation Relief ) on income in box 1  46 £ see notes

Income Tax due on income in box 2  47 £ box 46 minus box 45

Foreign tax paid on income in box 2  48 £ from column D

Total Tax Credit Relief due against UK tax payable on item of income in box 2  49 £ lower of boxes 47+48

Top Slicing Relief (TSR) Working Sheet (for use in connection with claims for foreign tax credit)

Do not complete this Working Sheet if you are not liable to higher rate tax (box TSR1 is £27,100 or less)

TSR1 £ box L33 minus (boxes 1.29 and 5.22)

Chargeable event gains  TSR2 £ from box 6.8, 12.5 + 12.8

TSR3 £ box TSR1 less box TSR2

If the figure in box TSR3 is £27,100 or more, no Top Slicing Relief is due.

Enter ‘0’ in box L61 on page 10.  If the figure in box TSR3 is less than £27,100 fill in the boxes below.

Page 15 of the Tax Return Guide and Help Sheets: IR320 and IR321 explain when it is necessary to give additional information if you have gains from a number of insurance policies.  You need to use a separate line below for each chargeable event gain, or total chargeable event gains from a cluster of identical policies.

Chargeable event gains from boxes 6.8+12.5+12.8

A

Number of years

from boxes 6.6+12.4+12.6 and 'Additional information' box on page 8 of your Tax Return

B

A divided by B

TSR4 £ Total column above

TSR5 £ TSR3 + TSR4

TSR6 £27,100

TSR7 £ TSR5 minus TSR6 (if result is a negative enter zero)

TSR8 £ TSR7 x 17%

If you had one chargeable event gain complete box TSR9

TSR9 £ TSR8 x number of years in col B

If you had more than one chargeable event gain complete boxes TSR10 and TSR11

TSR10 £ TSR8 x TSR2

TSR11 £ TSR10 divided by TSR4

Complete boxes TSR12 to TSR14 in all cases

TSR12 £ (TSR1 minus TSR6) x 17%

TSR13 £ from box TSR9 or TSR11

TSR14 £ TSR12 minus TSR13

Include this figure in box 44 of the Tax Credit Working Sheet


IR263

Tax Credit Relief: Lump sums and Capital Gains

If you want to calculate your tax use this Help Sheet to work out the tax credit relief available against your income and capital gains.

It is dividend into two parts

Part A: contains instructions and a working sheet to tell you what figure to put in box 6.9 on your Foreign Pages.

Part B: provides guidance, instructions and a working sheet to help you decide the figure to put in box 6.10 on your Foreign Pages.

Boxes 6.9 and 6.10 both feed into the working sheet in your Tax Calculation Guide (including Capital Gains and Lump sums etc.

Part A: Tax Credit Relief Working Sheets (TCRWS): Income

Use the Working Sheet on page 4 to work out tax credit relief on your income. The instructions on page 2 tell you what to do.

Part B: Tax Credit Relief Working Sheet (TCRWS): Capital Gains

Relief by way of credit for foreign tax paid (‘tax credit relief’) is available, under the terms of Double Taxation Agreement or unilaterally, against UK Capital Gains Tax chargeable on the same gains.

This Help Sheet will enable you to work out the amount of tax credit relief you can claim.  You will also need to obtain and complete the Foreign Pages.  Ask the Orderline for a copy if you do not already have these.

General principles

The amount of credit for foreign tax is not to exceed the lesser of the foreign tax charged on the gain, and the UK tax chargeable on the doubly taxed (see below) part of the gain;

If the foreign tax paid exceeds the UK tax on the gain, the excess can neither be deducted from the amount of the gain chargeable to Capital Gains Tax nor can it be repaid;

The foreign tax is not increased by any indexation allowance;

The amount of credit must be calculated separately for each gain. An excess of foreign tax over the UK tax chargeable on a particular gain cannot be credited against UK tax chargeable on any other gain.

Whether a gain is doubly taxed

Because different countries have different rules for determining the amount of a taxable capital gain, the amount chargeable to UK Capital Gains Tax will often be different from the amount of the gain charged to tax in the foreign country. It might therefore be the case that only part of a particular gain is regarded as doubly taxed in the UK and the foreign country.  In those circumstances, the amount of foreign tax eligible for relief needs to be restricted.  The flowchart on page 7 of this Help Sheet will help you to calculate the amount of foreign tax eligible for credit relief.

Method

Step 1  Make sure that you have completed Pages CG1, CG2 and CG3 of the Capital Gains Pages and boxes F1 to F59 of the Tax Calculation Working Sheet.

Step 2  Complete Page F3 of the Foreign Pages to show the amount of each gain in respect of which you are claiming tax credit relief; the period over which the UK chargeable gain accrued; the amount of gain under the foreign country’s tax rules; the period over which the foreign gain accrued and the amount of the foreign tax paid.

Step 3  Use the flowchart on Page 7 of this Help Sheet to calculate the amount of foreign tax paid which is available for credit against your UK Capital Gains Tax liability.

Step 4  Calculate separately the UK Capital Gains Tax chargeable in respect of each gain on which you have paid foreign tax and for which you are claiming credit.  Use the Working Sheet on page 8 of this Help Sheet to help you do this.

Step 5  Compare the UK Capital Gains Tax chargeable on each gain with the amount of foreign tax eligible for credit.  The relief you can claim is the lower of the two amounts.  Copy the total relief due to box 6.10 of the Foreign Pages and box F60B of the Tax Calculation Working Sheet.

Part A: Tax Credit Relief Working Sheet (TCRWS) (Lump sums and Capital Gains): Income

These instructions tell you how to fill in the Tax Credit Relief Working Sheet on pages 4 and 5.  References in the following notes are to the Working Sheet in the Tax Calculation Guide (including Capital Gains and Lump Sums etc.)

You only need to complete the Tax Credit Relief Working Sheet if you want to work out your own tax.

Complete a separate Tax Credit Relief Working Sheet for each item of foreign income on which you have paid foreign tax and want to claim relief by way of credit. Ask the Orderline for additional copies or take photocopies of the Working Sheet on Pages 4 and 5.

Before beginning to fill in the Tax Credit Relief Working Sheet make sure that you have completed the Tax Calculation Working Sheet as far as box F66.

box TC1  If you are completing your first TCRWS, enter in box TC1 the figure in box F21 in your Tax Calculation Working Sheet of your Tax Calculation Sheet. Otherwise, copy the figure from box TC5 of the last TCRWS (including Capital Gains and Lump Sum etc.) that you completed.

box TC2  From your Foreign Pages, select the item of income which has suffered the highest rate of foreign tax and for which you have yet to calculate tax credit relief. For that item, enter in box TC2 the amount of income chargeable to UK tax, as shown in column E.

box TC4   Look at boxes F13 to F19 in your Tax Calculation Working Sheet.  If any of the deductions from income which you have claimed there relate specifically to, and depend upon the amount of, the item of income shown in box TC2, enter in box TC4 the amount of the deductions attributable to that item of income.

Example 1

Pat is 34 and his business profits of £12,000 include £4,000 which has suffered foreign tax.  Pat has paid personal pension contributions of £1,800.  On the income of £12,000, relief as a deduction is due for the whole £1,800.  If the £4,000 foreign profits are excluded, however, the relief for pension contributions deduction is limited to £1,400 (being 17.5% of the remaining ‘net relevant earnings’ - £8,000).  So the amount of the deduction attributable to the foreign profits is £1,800 minus £1,400 = £400.  This is the figure to enter in box TC4.

box TC6  Copy the figure from box F23 in your Tax Calculation Guide.

box TC8  If you were born on or after 6 April 1934, copy the figure in box F25.6 of the Tax Calculation Working Sheet to box TC8.

If you were born on or before 5 April 1934, you need to work out the personal allowances to which you would be entitled if your income was the amount shown in box TC5, rather than that shown in box F21 of your Calculation Working Sheet.  Refer to page 6 of your Tax Calculation Guide and recalculate the figure of age-related personal allowances due based on the figure in box TC5 above.  Enter the result in box TC8.

box TC10  Enter in box TC10 the lower of box TC9, and boxes 12.8 + 12.12 + 7.18 + (box 6.7 x 100/23).  Exclude any amounts which have appeared in box TC2 of this or any previous TCRWS.

box TC12  Enter in box TC12 the total of boxes 10.23, 10.26, 10.29, 10032 plus (4.78 x 100/20), 7.15 and 3L39.  Exclude any amounts which have appeared in box TC2 of this or any previous TCRWS.

box TC15  Enter in box TC15 the total of boxes 10.1, 10.4, 10.7, 10.8, 10.11, 10.14, 10.17, 10.20, 6.2, 7.6, 7.12, 4.35 and 4.70 minus (4.78 x 100/20). Exclude any amounts which have appeared in box TC2 of this or any previous TCRWS.

box TC18  Enter in box TC18 the total of boxes 12.5, 12.8, 12.12, 1.29, 1M45, 6.8, 7.18, TC12 and TC15. Exclude any amounts which have appeared in box TC2 of this or any previous TCRWS.

box TC29  Use the following boxes to work out the figure to put in box TC29.

Non savings income (apart from gains on the life policies etc. and certain lump sum and compensation payments) from boxes TC21 + TC25 + 7.18 + 12.12

TC29.1 £

Is TC29.1 £4,100 or more?  If Yes

TC29.2 £ boxes TC21 + TC24 + TC25

TC29.3 £ box TC24 + £4,300

Enter at TC29.7 the greater of boxes TC29.2 and TC29.3 and do not complete TC29.4 to TC29.6.

Otherwise add box TC29.1 + savings income

TC29.4 £ boxes TC29.1 + TC13 + TC16

Is the figure in box TC29.4 £4,300 ore more?  If yes enter the figure in box TC29.5 at TC29.7.  Leave TC29.6 blank

TC29.5 £ box TC24 + £4,300

If no enter at TC29.7 the figure at TC29.6

TC29.6 £ box TC29.4 + F41

from TC29.2 or TC29.3 or TC29.5 or TC29.6

TC29.7 £

Copy the figure in box TC29.7 to box TC29.

box TC44  To complete this box you will need to work out the amount of Top Slicing Relief which would have been due if your total income had been the figure at box TC3 above.  Use the Working Sheet attached to the TCRWS for this purpose (ask the Orderline for extra copies if you are claiming tax credit relief in respect of more than one item of foreign income).  Enter the reworked amount of Top Slicing Relief (box TSR14) in box TC44.

box TC48  If this is the first TCRWS (including Capital Gains and Lump sums etc.) you are completing, enter the figure from box F60 of your Tax Calculation Working Sheet minus the total of the amounts at boxes F61, F63, F65 and F66.

Otherwise, enter the figure from box TC47 of the last TCRWS (including Capital Gains and Lump Sum etc.) you completed.  This is the Income Tax (before tax credit relief) chargeable on the income shown at box TC1 above.

box TC49  Subject the figure in box TC47 from that in box TC48 and enter the result in box TC49.

This is the amount of Income Tax at your marginal rate on the item of income entered in box TC2.

box TC50  Enter the amount of foreign tax paid on the item of income at box TC2 above (from the appropriate line in Column D of the Foreign Pages).

box TC51  Enter the lower of the figure in boxes TC49 and TC50.

This is the amount of tax credit relief allowable in respect of the income at box TC2 above.

Now complete another TCRWS for your next item of foreign income. Otherwise, add up the figures in box TC51 of each TCRWS and put the total in box 6.9 in your Foreign Pages. Copy that figure to box F67 of your Tax Calculation Working Sheet.

Tax Credit Relief Working Sheet (TCRWS) (including Capital Gains and Lump Sums etc.)

Income less deductions   TC1 £ see notes

Item of income which has suffered the highest rate of foreign tax  TC2 £ see notes   TC3 £ box TC1 minus box TC2

Deductions specifically related to the income at box TC2  TC4 £ see notes   TC5 £ box TC3 + box TC4

Deductions for which tax relief is given at source  TC6 £ see notes  TC7 £ box TC5 + box TC6

TC8 £ see notes  TC9 £ box TC7 minus box TC8  TC10 £ see note

If the figure in box TC9 is zero do not complete boxes TC12 to TC27 and enter zero in box TC43

TC11 £ box TC9 minus box TC10

TC12 £ see note    TC13 £ lower of box TC11 and TC12  TC14 £ box TC11 minus box TC13

If the figure in box TC14 is zero enter zero in boxes TC15, TC16, TC21, TC24 and TC25.  Do not complete boxes TC13 to TC23.

TC15 £ see notes aside for box TC15   TC16 £ lower of box TC14 or box TC15  TC17 £ box TC14 minus box TC16

If the figure in box TC17 is zero enter zero in boxes TC21, TC24 and TC25.  Do not complete boxes TC18 to TC23

TC18 £ see notes aside for box TC18  TC19 £ from box TC3  TC20 £ box TC19 minus box TC18

If the figure in box TC20 is zero enter zero in boxes TC21, TC24 and TC25.  Do not complete boxes TC22 and TC23.

TC21 £ smallest of £4,300 box TC20 or box TC17   TC22 £ box TC17 minus box TC21

If the figure in box TC22 is zero enter zero in boxes TC24 and TC25.  Do not complete box TC23

TC23 £ boxes 1.29+1M45+12.5+6.8 minus (box 6.7 x 100/23)  TC24 £ lower of box TC22 or box TC23   TC25 £ box TC22 minus box TC24

TC26 £ boxes TC13+TC16+TC21+TC24+TC25    TC27  £ box TC26 x 20%

If the figure in box TC9 is £4,300 or less go to box TC43. Do not complete boxes TC29 to TC42

TC28 £ box TC10 x 23%

TC29 £ see notes  TC30 £4,300  TC31 £ box TC29 minus TC30  TC32 £ box TC31 x 3%

TC33 £ box TC9 minus (box TC6 +box 12.9)

If the figure in box TC33 is £27,100 or less go to box TC43.  Do not complete boxes TC35 to TC42.

Tax Credit Relief Working Sheet (TCRWS) (including Capital Gains and Lump Sums etc.) - continued

TC34 £27,100    TC35 £ box TC33 minus box TC34  TC36 £ box TC35 x 17%

If the figure in boxes F30 and F33 are zero go straight to box F60.  Do not complete boxes F54 TO F59

TC37 £ box TC13 + box TC16  TC38 £ boxes TC21+TC25+TC37+7.18+12.12   TC39 £  £27,100 + boxes TC6+ box12.9

TC40 £ box TC38 minus box TC39   TC41 lower of box TC37 or box TC40  TC42 £ box TC41 x 3%

Income Tax due TC43 £ boxes TC27+TC28+TC32+TC36+TC42

Top Slicing Relief  TC44 £ see notes

Other Reliefs (except Tax Credit Relief) allowed in terms of tax  TC45 £ boxes F63+F65+F66

TC46 £ boxes TC44+TC45   TC47 £ TC43 minus TC46

Income Tax due (before Tax Credit Relief) on income at box TC1  TC48 £ see notes

Income Tax due on income at box TC2   TC49 £ box TC48 minus TC47

Foreign Tax Paid on income at box TC2   TC50 £ from Column D

Tax Credit Relief Due against UK tax payable on item of income at box TC2  TC51 £ lower of boxes TC49 and TC50

Now complete another TCRWS for your next item of income. Otherwise, add up the figures in box TC51 in each TCRWS and enter the total at box 6.9 of your Foreign Pages.

Top Slicing Relief (TSR) working sheet (for use in connection with claims for foreign tax credit)

Do not complete this working sheet if you are not liable to higher rate tax (box TSR1 is £27,100 or less)

TSR1 £ box TC33 minus (boxes 1.29 + 5.22)

Chargeable event gains  TSR2 £ from boxes 6.8, 12.5 + 12.8

TSR3 £ box TSR1 minus box TSR2

If the figure in box TSR3 is £27,100 or more, no Top Slicing Relief is due.

Enter ‘0’ in boxes TC44 and F61.  If the figure in box TSR3 is less than £27,100 fill in the boxes below.

Page 15 of the Tax Return Guide and Help Sheets: IR320 and IR321 explain when it is necessary to give additional information if you have gains from a number of insurance policies.  You need to use a separate line below for each chargeable event gain or total chargeable event gains from a cluster of identical policies.

Chargeable event gains from boxes 6.8+12.5+12.8

A

Number of years

from boxes 6.6+12.4+12.6 and 'Additional information' box on page 8 of your Tax Return

B

A divided by B

TSR4 £ Total column above

TSR5 £ box TSR3 + box TSR4

TSR6 £27,100

TSR7 £ TSR5 minus TSR6 (enter ‘0’ if the amount is negative)

TSR8 £ TSR7 x 17%

If you had one chargeable event gain complete box TSR9

TSR9 £ TSR8 x number of years in col B

If you had more than one chargeable event gain complete boxes TSR10 and TSR11

TSR10 £ TSR8 x TSR2

TSR11 £ TSR10 divided by TSR4

Complete boxes TSR12 to TSR14 in all cases

TSR12 £ (TSR1 minus TSR6) x 17%

TSR13 £ from box TSR9 or TSR11

TSR14 £ TSR12 minus TSR13

Copy to box TC44 of the TCRWS

Part B: Completing the tax credit relief working sheet for capital gains

Is the same period of ownership considered in arriving at both the UK and foreign taxable amounts?

Yes

Is the amount of the UK chargeable gain (the gain before deduction of allowable losses and any taper relief) equal to or greater than the amount of the foreign assessable gain?

Yes

The whole of the gain is doubly taxable and all the foreign tax paid is eligible for credit relief

No   No

Does the foreign taxable amount relate to a longer period of ownership than the period over which the UK taxable gain accrued?

Yes

The foreign tax eligible for credit is restricted to:

UK period x foreign tax paid

foreign period

No

The foreign tax eligible for credit is restricted to:

UK chargeable gain x foreign tax paid

foreign gain

Column A (lines 1-16)

You should enter in rows 1-10 of column A details of your tapered chargeable gains and any gains attributed to you as settlor or beneficiary of a settlement.  Your tapered gains are those after all allowable losses have been set off and where appropriate taper relief has been applied.  You can find details of all of the gains to enter in column N on Page CG3 of your Capital Gains Pages.  For information on Taper Relief see the Notes to the Capital Gains Pages, page CGN15, and Help Sheet IR279: Taper relief.

Enter in rows 13 to 16 the figures as indicated from the appropriate boxes of your Tax Calculation Working Sheet.

Columns B and C (lines 1-16)

Use these columns to analyse the overall figures shown in column A.

Enter in column B the amounts corresponding to gains chargeable to UK Capital Gains Tax in respect of which you are not claiming tax credit relief, that is, any UK gains and any foreign gains that have either not been subject to any foreign tax or where the foreign tax paid has been deducted in computing the amount of the gain that is chargeable to UK tax - see page 1 of the Help Sheet.

Enter in column C (i) to (viii) individual gains that have been subject to foreign tax for which you are claiming tax credit relief.  If you have more than three such gains, photocopy page 8 before making any entries.

When entering details of the annual exempt amount (line 11) and the amounts chargeable at the different rates of tax (lines 13 to 15), you should allocate the annual exempt amount and rate bands first against any gains in column B and then against gains in column C, beginning with the item that has been subjected to the lowest effective rate of foreign tax.

Column C (line 17)

Enter the respective amounts of foreign tax eligible for tax credit relief from column D of Page F3 of the Foreign Pages.

Column C (line 18)

For each separate column, enter the lower of the figures at lines 16 and 17.

Column A (line 18)

Add up all the figures in column C, line 18, and enter the total in column A.  This is the total tax credit relief allowable for the year.  Copy this figure to box 6.10 in your Foreign Pages and box F60B in the Tax Calculation Working Sheet in your Tax Calculation Guide (including Capital Gains and Lump Sums etc.).

Example 2

You have gains after losses and taper relief of £32,000; consisting of UK gains of £15,000, Country A gains of £10,000 (foreign tax paid at 35%) and Country B gains of £7,000 (foreign tax paid at 40%).  You are liable to Capital Gains Tax, after deduct the annual exempt amount of £6,800, on £25,200 of the gains.  Your Tax Calculation Working Sheet shows the gains as being charged partly at the basic rate (23% - £12,000) and partly at the higher rate (40% - £13,200).

To maximise your foreign tax credits you would allocate your gains to the tax rate bands as follows:

Column A  Column B  Column C(i)  Column C(ii)

Gains  32,000  15,000  10,000  7,000

minus annual exempt amount  6,800  6,800

equals net taxable gains  25,200  8,200  10,000  7,000

Gains chargeable at

20%  -  -  -

23% 12,000  8,200  3,800  -

40%  13,200   6,200  7,000

Capital Gains tax chargeable  8,040    3,354  2,800

Foreign tax eligible for credit relief  3,500  2,800

Tax credit relief allowable  6,154  3,354 2,800

Capital Gains Tax - Tax credit relief working sheet (including Capital Gains and Lump Sums etc.)

Insert in rows 1 to 10 below details of tapered gains and attributed gains from column N on Page CG3 of your Capital Gains Pages

Total gains in respect of which no TCR is claimed

Items of gains in respect of which relief is claimed by way of foreign credit

A  B Foreign gain 1 C(i)  Foreign gain 2 C(ii)  Foreign gain 3 C(iii)

1.  £

2.  £

3.  £

4.  £

5.  £

6.  £

7.  £

8.  £

9.  £

10.  £

11. Minus annual exempt amount  £6,800  £  £  £  £

12. Equals net taxable gains (from box 8.8) £  £  £  £  £

13. Gains chargeable at 20% (from box F49D) £  £  £  £  £

14. Gains chargeable at 23% (box F53A + box C of Working Sheet for box F53D) £  £  £  £  £

15. Gains chargeable at 40% (box F53B minus box C of Working Sheet for box F53D) £  £  £  £  £

16. Capital Gains Tax chargeable (box F44A+box F49G+(box F53C or box F53D)) £  £  £  £  £

17. Foreign tax eligible for credit relief  £  £  £

18. Tax Credit Relief allowable.  Copy to boxes 6.10 and F60B  £  £  £

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.


IR270

Trusts and Settlements - Income Treated as the Settlor’s

This Help Sheet will help you fill in the Trust etc. Pages of your Tax Return.  If you are a settlor and:

you have retained an interest in a trust or settlement, or

trust income or capital has been paid to or for the benefit of your minor (under the age of 18) unmarried child, or

the trustees of a settlement made by you have (or are deemed to have) paid a capital sum to you.

The Notes on Trusts etc. tell you how to include the income on your Tax Return.

Definitions of ‘Settlement’ and ‘Settlor’

A ‘settlement’ is defined as any disposition, trust, covenant, agreement, arrangement or, for certain purposes, transfer of assets.

Although this is a very wide definition, certain transactions are not regarded as settlements.  These are:

outright gifts of property between spouses, provided the gift carries the right to the whole of the income and the gift is not wholly or substantially a right to income only.  A gift will not be an outright gift if it is subject to conditions, or if the property or its income can be applied for the benefit of the giver in any circumstances whatever

settlements by one party to a marriage making provision for the other after the dissolution or annulment of the marriage, or while they are separated under an Order of the Court or under a separate agreement, or in such circumstances that the separation is likely to be permanent

settlements consisting of annual payments made by an individual for bona fide commercial reasons in connection with their trade, profession or vocation

settlements consisting of covenanted payments to charity

settlements in which one spouse allocates pension rights irrevocably to the other in accordance with the terms of a relevant statutory scheme

settlements that do not contain an element of bounty.

A ‘settlor’ is defined as any person by whom a settlement is made. A person will be deemed to have made a settlement if they have:

entered into the settlement directly or indirectly, or

provided or undertaken to provide funds directly or indirectly for the purpose of the settlement (see Example 1), or

made a reciprocal arrangement with another person for that person to make or enter into the settlement (see Example 2).

Example 1

You give a sum of money to your brother to settle on your infant children.  Your brother does so.  Although your brother is the actual named settlor, you will be the real settlor because you have indirectly provided the funds.

Example 2

You agree to settle a sum on your brother’s children on condition that he settles an identical amount on your children.  You will be the real settlor of your brother’s settlement and he will be the real settlor of your settlement because each of you has made a reciprocal arrangement with the other.

Have you retained an interest?

In general you will be regarded as having retained an interest in property that forms part of a settlement if that property, any substituted property or the income from the property, can be paid to you or your spouse, or can be applied for the benefit of either of you in any circumstances whatsoever.

Example 3

You settle funds on your grandchild contingently on her attaining the age of 30.  The settlement fails to say what is to happen to the property if your granddaughter dies under the age of 30.

You will have an interest in the property because under trust law the settled funds will come back to you if your granddaughter dies under the age of 30.  The capital can therefore be paid to you ‘in any circumstances whatsoever’.

Example 4

You settle funds on discretionary trusts for your children and remoter issue (grandchildren etc.)  The capital is given to such of the beneficiaries as are living on some particular date in the future.  There are no other gifts of capital.

You will have an interest in the property because the funds will come back to you if none of the beneficiaries is living on the chosen date.

Example 5

You settle funds on discretionary trusts for your children and remoter issue.  Included in the powers given to the trustees is a power to transfer the trust fund to the trustees of any other settlement whose beneficiaries include any of your children and remoter issue, even though other persons are also included.

You will have an interest in the settled funds because the trustees could use the power to transfer the funds to another settlement of which you or your spouse is a beneficiary.

Exceptions

Because the words ‘in any circumstances whatsoever’ are so wide there are certain circumstances in which you will not be treated as having an interest even though you may have. These are:

where you give money to another person absolutely (in other words, you give up any rights or control over the money).  That person could decide of their own accord to give the money back to you.  You will not be regarded as having an interest because the person has complete freedom to do what they want with the money.

where the interest depends on the bankruptcy of some person who is, or may become, beneficially entitled to the trust fund or the income from the funds

where your interest depends on the assignment of, or charge to, the trust property or its income by a person who is or may become beneficially entitled to it

where, in the case of a marriage settlement, your interest depends on the death of the parties to the marriage and all or any of the children of the marriage

where your interest depends on the death of a child or yours who would become beneficially entitled to the trust property or its income at an age not exceeding 25

so long as someone is alive, and under the age of 25, during whose life the trust property and its income cannot be paid to, or applied for, the benefits of you or your spouse except if that person should become bankrupt or assign their interest or by dealing with it in such a way that someone else acquired the right to take the interest to satisfy or discharge some obligations, for example, the beneficiary borrows money from you and provides their interest as a security for repayment.

If you have any doubts about whether you have an interest under a trust or settlement made by you, you may wish to consult the trustees of the settlement who will also need to know the answer in order to determine their own tax liability.

If you do have an interest, then the trust income arising without deduction for the expenses of trustee(s) is taxable as part of your own personal income. If this increases the amount of tax you have to pay, you can claim a refund from the trustees of any additional tax you pay on such income.  Ask your Tax Office for a certificate to do this.

Special provisions for non-domiciled settlors

If you are resident and ordinarily resident in the UK but are domiciled elsewhere, trust income which arises abroad is only treated as yours to the extent that it is remitted to the UK. The trustees will be able to advise you on this point.

How to return your trust management expenses

Additional entries in boxes 13.1 to 13.3

In arriving at the income you include on your Tax Return because you have an absolute entitlement to that income you will have deducted Trust Management Expenses.  But where you have retained an interest such expenses are not deductible.  That part of the income which is used to meet such expenses is treated as chargeable to tax at the basic rate even if it is income which is normally chargeable at the lower rate only.   That is why you need an entry in boxes 13.1 to 13.3.

The amount to be entered in box 13.1 is the amount of expenses which have been deducted in arriving at the income you have included on your Tax Return.

The amount you should enter in box 13.3 is:

a. if the expenses have been met out of income which is chargeable at the lower rate, the figure in box 13.1 multiplied by 5/4.

b. if the expenses have been met out of income which is chargeable at the basic rate, the figure in box 13.1 multiplied by 100/77.

c. if the expenses have, exceptionally, been met out of income which has not suffered UK tax (for example, because the trustees are non-UK resident) the same figure as in box 13.1.

Enter n box 13.2 the difference between boxes 13.3 and 13.1.

Payments to your minor unmarried children from settlements made by you

If you make a settlement in favour of your minor (under 18), unmarried children, any income paid to them or applied for their benefit is your income for tax purposes.

This will also apply to interest credited to a bank account, etc. in your child’s name where the capital in the account has been provided by you.  Where only part of the capital in an account has been provided by you, you will need to apportion the interest.

The income is not yours for tax purposes if the total income (from all settlements you made) paid to your minor unmarried child does not exceed £100 gross in any year.

Payments of capital to your minor, unmarried children may also be treated as your income in certain circumstances.  This will apply where a capital sum is paid and there is ‘available income’ that matches that payment.

To calculate the ‘available income’ you total the income arising each year since the settlement was made and deduct from it income:

that has already been treated as yours in earlier years, and

that has been treated as that of a beneficiary, and

that has been paid (either as capital or income) to, or for the benefit of, a beneficiary other than a minor, unmarried child of yours, and

that has been applied to meet expenses of the trustees that were properly chargeable to income (or would have been so chargeable but for any express provisions of the instrument).

If the deduction exceed the total income arising no part of the capital sum is treated as yours for tax purposes.

If the total income exceeds the deductions, the difference is treated as your income as follows:

if the excess is less than the capital sum, it is the excess that is treated as your income

if the excess is greater than the capital sum, it is the capital sum that is treated as your income.

Loans paid or repaid to you and other capital sums paid to you

An amount equal to the available income of a settlement (or the amount of the payment, if less) will be treated as your taxable income if the trustees:

lend money to you or your spouse, or

lend money to you or your spouse jointly with another person, or

repay a loan to you or your spouse, or

repay a loan to you or your spouse jointly with another person, or

pay a sum to a third party at your direction, or

pay a sum to a third part by virtue of an assignment by you of the right to receive it, or

otherwise pay or apply a sum for your benefit, provided the sum is not fully paid for in money or money’s worth.

If a body corporate connected with the settlement does any of the above things, it will be deemed to have been done by the trustees but only where the trustees have made an associated payment to that body corporate.

If a payment is made by or to a body corporate that is associated with another body corporate, the payments may be treated as paid by or to that other body corporate, ask your Tax Office or tax adviser for advice if in doubt.

Definition of ‘body corporate’

A ‘body corporate’ is connected with a settlement if it is a close company (or only not a close company because it is not resident in the UK) and the participators then include the trustees of the settlement.

An associated payment is

any loan or repayment of a loan to that body corporate by the trustees of the settlement, or

any other sum or asset transferred to that body by the trustees that is not paid or transferred for full consideration in money or money’s worth,

that is paid or transferred in the five years ending or beginning with the date on which the capital sum is paid to you.

How to calculate available income

You must first total the income that has arisen since the settlement was made.  You then deduct the following amounts:

1.  Sums paid (except those sums detailed below) by the trustees to any person in such a way that they fall to be treated as income of those persons for the purposes of Income Tax or would be so treated if those persons were domiciled, resident and ordinarily resident in the UK and the sums have been paid to them there.

Exceptions

a.  payments of interest

b.  payments made to bodies corporate connected with the settlement

c.  payments made to another settlement made by the trustees or by you

d.  payments that are treated as your income as a result of doing this calculation.

2.  Any expenses (except those detailed below) of the trustees that, in the absence of any express provisions of the settlement, would be properly chargeable to income.

Exceptions

a.  any expenses included in the sums detailed above

b.  any interest paid for which no relief from tax is allowable under any provisions of the Income Tax Acts and which is not paid to you or your spouse

c.  any interest paid (not falling within b. above) in any year where the only sums paid in that year (falling within 1. above) were paid to you or your spouse

d.  a fraction of any interest paid, not falling within b or c above calculated in any year using the fraction

A - B

A

where

A  is the whole of the income arising under the settlement in the tax year minus the expenses (apart from interest) detailed in 2 above

B is that part of the sum within 1 above that is paid to person other than yourself or your spouse.

3. The amount of the income which has been used to frank or set against the payments to you or your spouse in earlier years.

4. The amounts of any previous payments to you or your spouse.

5. The amount of the income that has not been distributed, but that has been treated as yours because you have retained an interest.

6. Any sums paid under the settlement to the extent that they have been disallowed as deductions from your total income because the trustees have not distributed them.

7. Any sums paid to or for the benefit of your minor, unmarried children that are treated for tax purposes as your income.

8. That part of the settlement income that represents income from a close company for an accounting period beginning before 1 April 1989 and that has or could have been apportioned to a beneficiary.

9. An amount equal to tax at the rate applicable to trusts (or the sum of the basic and additional rates for years prior to 1993-94) on

a. the aggregate income arising under the settlement that has not been distributed, minus

b. the aggregate amount of income and sums in paragraphs 5, 6, 7 and 8.

You can work out the amount of the undistributed income by deducting the figures from 1 and 2 from the total income arising.

How to measure the charge

Once the amount of the available income has been calculated you need to compare that figure with the amount of the capital sum paid (or deemed to be paid) to you.  If the available income is greater than the whole of the capital sum paid to you, it is treated as your income.

If the available income is less, it is that amount that is treated as your income. The balance of the capital sum is then carried forward and is set against the available income of future years for a maximum 11 years or until the capital sum is exhausted.

Complete repayment of loans - restriction of charge

If the capital sum paid to you is a sum paid by way of a loan, then if the whole of it is repaid then no part of it is treated as your income for any tax year after the one in which the repayment occurs.

Repeated loans

Where you have previously received the wholly repaid loans, only the excess of any new loan over the amounts of the previous loans that have been treated as your income will be regarded as a capital sum.

Repayment of loans to trustees

If:

1.  you receive a capital sum from the trustees that is a complete repayment of a loan made to them by you, and

2.  you subsequently lend to the trustees another amount not less than that capital sum received,

no part of the sum you received under 1 will be treated as your income for any tax year after the year in which you make the second loan.


IR279

Taper Relief

This Help Sheet provides information to help you complete the Capital Gains Pages of your Tax Return.

The Help Sheet explains how taper relief affects the way in which you calculate chargeable gains.  But it is only an introduction.  If you are in any doubt ask your tax adviser.  Your Tax Office will also be pleased to help.  You can ask to see a copy of the Inland Revenue Capital Gains Manual which explains the rules in detail.

For most people taper relief will have no effect on the calculation of gains chargeable to Capital Gains Tax for the year 1998-99.  Taper relief only applies in 1998-99 if you have disposed of an asset which you acquired before 17 March 1988 and which was a business asset (see page 3 below) to any extent in the period between 6 April 1998 and the date of disposal. Gains on assets that are not business assets are not tapered if they are disposed of in 1998-99.

What is taper relief?

Taper relief was introduced in the Finance Act 1998 for disposals after 5 April 1998.

For individuals, trustees of a settlement and a deceased individual’s personal representatives taper relief ensures that a reducing percentage of a gain is chargeable to tax, according to the number of whole years the asset has been held after 5 April 1998.  The greater the number of years you have held the asset from 6 April 1998, the smaller the percentage of the gain which is chargeable to tax.  The rate of taper depends on whether the asset is a business asset or a non-business asset.

The percentage of the gain that remains chargeable for business and non-business assets, depends on the number of whole years in the qualifying holding period and is set out in the following table

Gains on business assets

Number of whole years in qualifying period

Percentage of gain chargeable

1  92.5

2  85

3  77.5

4  70

5  62.5

6  55

7  47.5

8  40

9  32.5

10 or more  25

Gains on non-business assets

Number of whole years in qualifying period

Percentage of gain chargeable

1  100

2  100

3  95

4  90

5  85

6  80

7  75

8  70

9  65

10 or more  60

The complete taper relief table has been included for indexation, although for disposals in tax year 1998-99 that you include in your Tax Return.  It will only be possible to benefit from, at most, one whole year.   The percentage rates for two or more years (those that are shaded) will not be available until future tax years.

What is meant by ‘qualifying holding period’?

This is the period between 6 April 1998, or, if later, the date you first acquired the asset in question and the date that you disposed of it.  For assets acquired before 6 April 1998 you only count the holding periods from that date.

What is a whole year for taper relief?

A whole year is any continuous period of 12 months.  Fractions of a year are ignored.  An asset which you dispose of on the anniversary of its acquisition is accepted as having been held for a whole year.  A whole year does not have to coincide with a tax year, although it will do so for assets acquired prior to 6 April 1998, because only the holding period from that date is counted.   For an asset acquired or held on 6 April 1998 the anniversary for taper relief occurs on 6 April 1999.  It is therefore not possible to accumulate a whole year in tax year 1998-99 unless the bonus year (see below) is available to you in respect of the disposal of a business asset.

Bonus year for assets acquired before 17 March 1998

Assets which you acquired before 17 March 1998 (the date of the 1998 Budget) and still held at 6 April 1998 qualify for an additional one year in the qualifying holding period.  You add one year to the period for which they were actually held after 5 April 1998 to establish their qualifying holding period.

Examples of qualifying holding periods

Example 1

You acquire a non-business asset on 25 March 1998 and sell it on 30 March 1999.  You have owned the asset for 358 days (remember it is only the period after 5 April 1998 that counts).  As there are no whole years in the qualifying holding period the whole (100%) of your gain will be chargeable to Capital Gains Tax.

Example 2

You acquire a non-business asset on 1 July 1994 and sell it on 31 July 1998.  As the asset was acquired before 17 March 1998 and you still held at 6 April 1998 the bonus year will be available.  You have owned the asset for 116 days after 5 April 1998.  Your qualifying holding period will therefore include one whole year, consisting of the bonus year.  The percentage of gain chargeable for a non-business asset held for one year is 100%.

Example 3

You acquired a business asset on 6 April 1996 and sell it on 5 March 1999.  As the asset was acquired before 17 March 1998 and was still held at 6 April 1998 the bonus year will be available.  You now owned the asset for 333 days after 5 April 1998. Your qualifying holding period will therefore include one whole year, consisting of the bonus year.  The percentage of gain chargeable for a business asset held for one year is 92.5%.

Variations to the length of the qualifying holding period

If any of the following apply, the length of your qualifying holding period may be varied:

where you acquired an asset at no gain/no loss from your spouse or vice versa the qualifying holding period includes the period during which your spouse held the asset, see the section ‘Transfer to spouses’ on page 3.

where you acquire an asset by the exercise of an option the qualifying holding period for the asset is determined by reference to the exercise of the option and not by reference to the grant or acquisition of the option.

Example 4

In July 1996 you were granted an option to acquire a piece of land.  In November 1998 you exercised the option and acquired the land.  You sold the land in March 1999 and made a chargeable gain.  Your qualifying holding period will begin in November 1998.

where assets have merged or divided and the asset that you dispose of derives some part of its value from an earlier asset in your ownership the qualifying holding period may be extended.

Example 5

You acquired a lease of land on 8 January 1995.  You acquire the freehold of the same land on 4 February 1999.  The lease is extinguished by merger with the freehold.  You dispose of the freehold on 31 March 1999.

As the value of the freehold is derived to some extent from the extinguished lease your qualifying holding period begins on 17 March 1998.  You are treated as having acquired the asset before 17 March 1998 and as the asset was still held at 6 April 1998 you qualify for the bonus year.

where a gain would have accrued on a disposal or other event but is postponed to accrue on the happening of a later event the qualifying holding period is determined by reference to the date of the earlier disposal or event and not by reference to the time of accrual.

Example 6

In September 1993 you acquire a holding of shares in XYZ Ltd.  On 1 January 1996 the company is taken over by ABC plc.  You receive a loan note from ABC plc in exchange for your shares in XYZ Ltd.  The loan note is a qualifying corporate bond.  On 31 December 1998 the loan note is redeemed by ABC plc.

Under the rules for company take-overs, see Help Sheet IR285: Share reorganisations, company take-overs and Capital Gains Tax, you calculate the gain which would have arisen if the shares had been sold at their market value immediately before the take-over.  That gain does not come into charge at that time, but is postponed until you dispose of the loan note in December 1998.  But for taper purposes you have no qualifying holding period because you swapped your shares for the loan note before 6 April 1998.  If you had swapped your shares on, say 1 June 1998 your qualifying holding period would have ended on 1 June 1998, which is the date when you deferred gain would have been calculated.

where you acquire shares from the reconstruction of a mutual business the qualifying holding period cannot begin earlier than the date of issue of the shares.

Example 7

In 1992 you opened a share account with a building society.  On 1 June 1998 the society converted into a company and you received shares in the new company.  You sell the shares later that month.  Your qualifying holding period begins on 1 June 1998 when the new company shares were issued to you.

Anti-avoidance rules apply where:

you have entered into a transaction relating to an asset that you own, and the transaction limits your exposure to fluctuations in its value, or

you hold shares in a company which changes its activities, or

you hold shares in a company and, without disposing of them, enter into a transaction that affects their value.

In each of these cases taper relief is denied or reduced.

If you think any of the above variations or the anti-avoidance rules apply to you, or you are unsure whether they apply, ask your Tax Office or tax adviser for advice.

How is enhancement expenditure treated for taper purposes?

Where expenditure is made to enhance the value of an asset, the date of the enhancement expenditure is not relevant for the purposes of taper relief.  Taper relief is given on the whole gain by reference to the qualifying holding period.

How are rights issues, bonus issues and scrip dividends treated for taper purposes.

You may have acquired shares or securities in a company under a rights or bonus issue.  Under a rights issue shareholders have to pay for the new shares.  Under a bonus issue (sometimes described as a scrip or capitalisation issue) the new shares or securities are issued free.  For Capital Gains Tax purposes both these types of issues are treated as a reorganisation of a company’s share capital and not a new acquisition of shares.  Your qualifying holding period for taper relief purposes begins on the date of acquisition of the original shares or securities to which the rights or bonus issue relates and not the date that the new shares are issued.  Where the original shares or securities have been acquired on different dates the new shares will need to be apportioned to the respective acquisitions on a prop rata basis.

Example 8

You bought 1,000 shares in a company on 20 April 1998.  On 13 November 1998 you bought another 500 shares in the same company.  On 1 March 1999 the company makes a bonus issue of one extra share for every 10 held.

You are treated as having acquired 1,100 shares on 20 April 1998 and 550 shares on 13 November 1998.

A scrip dividend (sometimes described as stock dividend) is a dividend paid by a company in the form of additional shares as an alternative to a cash dividend.  Share or securities acquired in this way after 6 April 1998 are treated as a new acquisition.  The qualifying holding period for taper relief purposes therefore commences on the date you acquired the scrip dividend shares or securities.

Transfers to spouses

Where you dispose of an asset which has been transferred to you by your spouse your qualifying holding period for taper relief purposes is the combined period of ownership of both of you after 5 April 1998.  The bonus year may be added where the asset was acquired by either of you before 17 March 1998.

Example 9

Mrs Young acquired a business asset on 1 March 1998.  She transferred it to her husband on 31 May 1998.  Mr Young’s qualifying holding period will consist of the combined period of ownership from 6 April 1998 to 5 March 1999 when it was sold.  That period is less than a year, but his wife acquired the asset before 17 March 1998.  There is therefore one whole year (the bonus year) in his qualifying holding period.  The percentage of gain chargeable for a business asset held for one year is 92.5%.

What is a business asset?

There are different definitions of business asset depending on whether you are disposing of the asset as an individual, a trustee or a settlement, or as the personal representative of a deceased individual.

If you are an individual a business asset is:

an asset (other than shares or securities) which is used for the purpose of a trade, profession or vocation carried on by you (either alone or in partnership) or by your qualifying company

an asset held for the purpose of an office or employment with a trading employer to which you are required to devote substantially the whole of your time

share or securities held by you in a qualifying company.

if you are a trustee a business asset is:

an asset (other than shares or securities) which is used for the purpose of a trade, profession or vocation carried on by you as a trustee, an eligible beneficiary (either alone or in partnership) or by the trustees’ or eligible beneficiary’s qualifying company

an asset (other than shares or securities) held for the purposes of an office or employment with a trading employer to which an eligible beneficiary is required to devote substantially the whole of his or her time

shares or securities in a qualifying company held by you in your capacity as trustee.

If you are a personal representative a business asset is:

an asset (other than shares or securities) which is used for the purpose of a trade, profession or vocation carried on by you as a personal representative or by your qualifying company

shares or securities held by you in a qualifying company.

A qualifying company is a trading company (or the holding company of a trading group) in which you, whether as an individual, as a trustee of a settlement or as a personal representative of a deceased individual as the case may be, hold shares which entitle you to exercise at least 25% of the voting rights in that company.

If you are an individual or trustee of a settlement a qualifying company may also be a company in which you hold shares which entitle you to exercise at least 5% of the voting rights in the company and you as an individual, or an eligible beneficiary of the settlement as the case may be, are a full-time working officer or employee of that company (or group).

A full-time working officer or employee of a company is an individual or eligible beneficiary who:

is an officer or employee of that company or that company and one or more other companies connected with it, and

is required to devote substantially the whole of their time to the service of the company or service of those companies taken together.

We take ‘devoted substantially the whole of their time’ to mean at least 75% of normal working hours.

An eligible beneficiary is a person who at any given time has an interest in possession in the whole of the settled property of the settlement, or in part of it which consists of or includes the shares or the asset in question.

What if an asset has been used only partly as a business asset or for only part of the time as a business asset?

Where an asset has been used partly as a business asset and partly as a non-business asset at some time during its qualifying holding period the gain on the disposal of the asset will be appropriately apportioned between the two elements. Part of the gain will qualify for the business asset taper for the qualifying holding period and the other part for the non-business taper for the qualifying holding period.

Example 10  asset only partly used as a business asset

You acquire a property on 1 December 1993.  You sell the property on 31 march 199 and make a gain of £20,000 on the sale.  In your period of ownership falling after 5 April 1998, the property was used 4/5ths as a shop from which you conducted a trade and the remaining 1/5th of the property was let out as a furnished flat.

There is one whole year in your qualifying holding period (being the bonus year as the property was acquired before 17 March 1998 and still held at 6 April 1998).

In calculating your taper relief you first need to determine the proportion of the asset which relates to non-business use.  In this example this is 1/5th as the letting of the flat is non business use.  Next you need to apportion the overall gain into a gain on a business asset and a gain on a non-business asset as follows.

Business asset: £20,000 x 4/5 = £16,000. Your qualifying holding period is one year and so 92.5% of this part of the gain will be chargeable : £14,800

Non-business asset: £20,000 x 1/5 = £4,000.  On this occasion the taper relief table offers no reduction and so 100%,of this part of the gain will be chargeable : £4,000

The aggregated chargeable gain is £18,800.

Example 11 - asset used only part of the time as a business asset

You acquire a property on 16 March 1995.  You dispose of the property on 1 April 199 and make a gain of £20,000 on the sale.

You use the property for business purposes until 31 December 1998.  Between 1 January 1999 and when the property was sold on 1 April 1999 it remained empty.  The gain during this period will be treated as arising on the sale of a non-business asset.

There is one whole year in your qualifying holding period (being the bonus year as the property was acquired before 17 March 1998 and still held at 6 April 1998).

During the period of ownership falling after 5 April 1998 (6 April 1998 to 1 April 1999) the apportionments are:

business use of proportion  270/360 days (or) 3/4

non-business use proportion  90/360 days (or) 1/4

Computation

First calculate the gain on the period while the asset was a business asset £20,000 x 3/4 = £15,000.

The remainder of the gain will be treated as a gain on a non-business asset: £20,000 x 1/4 = £5,000.

So £15,000 of the gain qualifies for the business asset taper appropriate to a qualifying holding period of one year.  So 92.5% of this part of the gain will be chargeable : £13,875

£5,000 of the gain qualifies for the non-business asset taper appropriate to a qualifying holding period of one year.  On this occasion the taper relief table offers no reduction and so 100% of this part of the gain will be chargeable: £5,000

The aggregated chargeable gain is £18,875.

If you need to report details of gains, like those in the examples described on page 4, you should enter the information in either row 9 or 10 of the section headed ‘Gains on mixed business and non-business use assets’ on Page CG2 of your Tax Return (or Page TC2 of the Trust and Estate Return).  pages CG2 and CG3 (or Pages TC2 and TC3 of the Trust and Estate Return) have been designed to help you computer taper relief and then allocate any losses you may have against gains in the most beneficial way.  Using the details from the examples on page 4 you would first enter in the top part of either row 9 or 10 on Page CG2 (or Page TC2, under column I, the part of the gain that qualifies as a business asset. Underneath enter the part of the gain that will be treated as a non-business asset.  your Capital Gains Pages assuming these were your only transaction would look something like:

Completing the Capital Gains Pages

Taper relief is applied to the net chargeable gains after the deduction of any losses or other reliefs and before the deduction of the annual exempt amount.

If you do not have any allowable losses

You simply reduce the percentage of each chargeable gain made in the year to the percentage in the table and then deduct the annual exempt amount from the total tapered gains.  This will tell you the amount on which you are liable to pay Capital Gains Tax.

Example 12

You acquire a business asset on 1 June 1995 for £15,000.  You sell the asset on 1 July 1998 for £40,000.  Your untapered chargeable gain (after deducting indexation allowance of £1,275 for the period 1 June 1995 to April 1998) is therefore £23,725.  You have no other chargeable gains or allowable losses in the tax year 1998-99.  There is one whole year in your qualifying holding period for taper relief purposes (being the bonus year as the asset was acquired before 17 March 1998 and still held at 6 April 1998).  The taper percentage of gain chargeable for a business asset held for one year is 92.5%.

The amount liable to Capital Gains Tax is computed as follows

Chargeable gain £23,725 x 93.5%  £21,945

Minus annual exempt amount  £6,800 *

Amount liable to Capital Gains Tax £15,145

*  The annual exempt amount shown in this example relates to that available to an individual. The amount may vary if the disposal is made by the personal representatives of a deceased individual or by trustees of a settlement.

If you have allowable losses

The rules for allowing losses of this year and allowing losses carried forward from earlier years are explained in the Notes to the Capital Gains Pages.

You first deduct your allowable losses of 1998-99 from your chargeable gains of 1998-99 without taking account of taper relief.  If you net gains are equal to or below the annual exempt amount (£6,800 for individuals, the amount may vary for trustees or personal representatives) you do not have any Capital Gains Tax to pay and there is no need to taper your chargeable gains.

If, after deducting any losses you made in 1998-99 your net chargeable gains for 1998-99 exceed your annual exempt amount, you can further reduce them by deducting any allowable losses from earlier years that you have not yet used and that are available to be used in 1998-99.  deduct these losses to the extent necessary to reduce your chargeable gains to your annual exempt amount. (If as an individual you have gains attributed to you as settlor or beneficiary of a settlement, the set-off of losses is modified and restricted, see below.)  If you have sufficient losses to do this you do not have any Capital Gains Tax to pay and there is no need to taper your chargeable gains.

If, after deducting all the losses you can, you still have an amount of net chargeable gains greater than your annual exempt amount you will then need to taper your net gains.  Before doing this you should set losses against gains in such a way as to maximise the benefit of taper relief.  The examples on page 6 illustrate how this works.

You deduct losses from individual chargeable gains in turn, starting with those where there is no taper relief, and going on to those with the next lowest rate of taper relief (that is to say, the gains with the highest percentage of gain chargeable), and so on. You then apply the appropriate taper percentage to each chargeable gain after the deduction of losses.  This process enables you to make maximum use of taper relief on the gains that remain chargeable.  You then deduct the annual exempt amount from the amount of net tapered gains to arrive at the amount on which you are liable to pay Capital Gains Tax.

Your personal losses of any year cannot be set off against gains attributable to you as the settlor or beneficiary of a settlement, as this would involve setting untapered losses against gains which have already been tapered in the hands of the trustees of the settlement before they are attributed to you, see Example 15 in the next column.  If you have gains attributed to you in this way for 1998-99 and also have losses brought forward from earlier years the rules are modified and restricted in respect of the set-off of those losses.  The effect is that:

your annual exempt amount is set against any attributed gains first

any annual exempt amount left over can be used against your personal gains

losses of 1998-99 are set against personal gains while losses of earlier years are set against your personal gains only to the extent necessary to reduce those gains to the level of any left over annual exempt amount.

Further guidance together with examples covering the set-off of losses brought forward where there are also attributed gains is included in the Inland Revenue Capital Gains Manual which is available for inspection at any Tax Office or Tax Enquiry Centre.

Example 13 - one gain, one loss

You make a chargeable gain on a business asset of £10,000 in 1998-99.  There is one whole year in your qualifying holding period for taper relief purposes.  The taper percentage of gain chargeable for a business asset held for one year is 92.5%.  In 1998-99 you have an allowable loss of £1,000 (It is irrelevant whether the loss arises on a business or non-business asset or who long the asset has been held).

You set your allowable loss against your untapered chargeable gain as follows:

Chargeable gain  £10,000

Minus allowable loss £1,000

Net chargeable gain  £9,000

As £9,000 exceeds the annual exempt amount of £6,800 * then you compute the amount of taper relief and your Capital Gains Tax liability as follows:

Apply taper relief £9,000 x 92.5 %  £8,325

Minus annual exempt amount  £6,800 *

Amount liable to Capital Gains Tax  £1,525

*   The annual exempt amount shown in this example relates to that available to an individual.  The amount may be different if the disposal is made by the personal representatives of a deceased individual or by trustees of a settlement.

Example 14 - more than one gain, loss fully used against one gain.

You make untapered chargeable gains on two assets and a loss on a third asset in 1998-99, as follows:

Asset 1 - Untapered chargeable gain £10,000.  There is one whole year in the qualifying holding period and the asset was held as a business asset throughout.  The taper percentage is 92.5%

Asset 2:  Untapered chargeable gain of £8,000.  There are 0 (zero) whole years in the qualifying holding period.  The taper percentage is 100%.

Asset 3 - Loss of £5,000

You first establish whether you have to compute any taper relief by settling your losses against your untapered chargeable gains as follows:

Total chargeable gains  £18,000

minus allowable loss £5,000

Net untapered gains £13,000

As £13,000 exceeds the annual exempt amount of £6,800 * you then compute the amount of taper relief by setting the allowable loss against chargeable gains.  In the most favourable way.  In this case you set the loss of £5,000 wholly against your untapered chargeable gain of £8,000 on asset 2 since this qualifies for no taper reduction compared to 92.5% for asset 1.

So you then compute your taper relief and Capital Gains Tax liability as follows:

Asset 1  £10,000 x 92.5 %  £9,250

Asset 2 Balance of gain £3,000

(£8,000 minus £5,000) x 100%  £3,000

Total net tapered gains  £12,250

minus annual exempt amount £6,800 *

Amount liable to Capital Gains Tax £5,450

*   The annual exempt amount shown in this example relates to that available to an individual.  The amount may be different if the disposal is made by the personal representatives of a deceased individual or by trustees of a settlement.

Example 15 - Losses and attributed gains

In tax year 1998-99 you make a gain of £9,000 on the disposal of shares and also incur a loss of £10,000 on the sale of a property.  You also have gains of £15,000 attributed to you as beneficiary of a settlement. The annual exempt amount for 1998-99 is £6,800

Your computation is as follows:

Chargeable gain  £9,000

minus allowable losses £9,000

Nil

Attributed gains £15,000

Annual exempt amount £6,800

Chargeable  £8,200

The balance of your persona losses, £1,000 can be carried forward.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR280

Rebasing - Assets held at 31 March 1982

This Help Sheet gives you information to help you complete the Capital Gains pages on your Tax Return.

This Help Sheet is only an introduction.  If you are in any doubt about your tax circumstances, ask your tax adviser.

Your Tax Office will also be pleased to help.  You can ask to see a copy of the Inland Revenue Capital Gains Manual which explains the rules for particular situations in detail.

What is rebasing?

Capital Gains Tax was introduced in 1965 and the rules were designed so that the tax charged was effectively limited to the gain accruing from 6 April 1965 to the date of disposal.  In 1988 new rules were introduced to move the base date forward to 31 March 1982.

The rebasing provisions apply where:

you have made a disposal

on or after 6 April 1988

of an asset which you held on 31 March 1982.

The object is that only gains or losses accruing since 31 March1982 will be brought into account.

Basic rules of rebasing

Two calculations

The rebasing legislation requires two calculations of the gain or loss accruing on the disposal to be made where:

no election has been made (see page 4), and

the disposal is not a specified no gain/no loss transfer (so that the benefit of rebasing is deferred).

The first is by reference to a deemed acquisition of the asset as at 31 March 1982 (the rebased gain or loss); the second must accord with the old rules, that is, without rebasing.

Indexation allowance

In calculating both the rebased gain and the gain on the old rules, indexation allowance is given by reference to the higher of:

the 31 March 1982 market value, or

the relevant allowance expenditure (cost of acquisition and other allowable costs) incurred up to 31 March 1982.

However, indexation allowance cannot be used to create or increase a loss if the disposal is made on or after 30 November 1993.

If there is a gain after deducting costs from the net sale proceeds but a loss after deducting costs and indexation allowance, you are treated as making neither a gain nor a loss.

In the computation of chargeable gains accruing on or after 6 April 1998 indexation allowance has been frozen.  This means that indexation allowance will be given for periods up to April 1998, but not after then.

Kink test

The rebased gain or loss is compared with the gain or loss on the old rules.  The gain or loss to be compared is:

after indexation allowance (restricted if necessary), but

before any reliefs like private residence relief or retirement relief.

The comparison is known as the ‘kink test’ and the rules are:

if both calculations result in a gain, select the smaller gain

if both calculations result in a loss, select the smaller loss

if one calculation results in a gain and the other results in a loss, the disposal is deemed to be at no gain/no loss

if the calculation under the old rules results in no actual gain or loss, or the old rules deem there to be neither a gain nor a loss, then the disposal is deemed to be at no gain/no loss whatever the value of the rebased gain or loss.

This gives the gain or loss which, subject to any further reliefs or exemptions, is the chargeable gain or allowable loss.

Example 1

Rebased gain exceeds the gain on the old rules.  Asset cost £8,000 on 1 March 1980.  On 31 March 1982 market value was £7,000.  Asset sold (at arm’s length) for £35,000 on 30 June 1998.

1.  Rebased gain (new rules)

Disposal proceeds  £35,000

minus cost (value at 31 March 1982)  £7,000

Unindexed gain £28,000

minus indexation 8,000 x 1.047*  £8,376

Gain £19,624

2.  Gain on old rules

Disposal proceeds  £25,000

minus cost (1 March 1980)  £8,000

Unindexed gain  £27,000

minus indexation £8,000 x 1.047*  £8,276

Gain £18,624

Chargeable gain (the smaller)  £18,624

•	indexation is based on the higher of relevant allowable expenditure before 31 March 1982 and 31 March 1982 value, so that in both calculations indexation is based on the actual cost of £8,000.  Indexation has been calculated to April 1998.

Example 2

Rebased loss exceeds the loss on the old rules

Asset cost £14,000 on 6 April 1974

31 March 1982 market value £20,000

Asset sold (at arm’s length) for £10,000 on 31 July 1998

1.  Rebased loss

Disposal proceeds £10,000

minus cost (value at 31 March 1982)  £20,000

Unindexed loss £10,000

minus indexation*  zero

Loss £10,000

2.  Loss on old rules

Disposal proceeds £10,000

minus cost £14,000

Unindexed loss £4,000

minus indexation* zero

Loss £4,000

Allowable loss (the smaller)  £4,000

*  indexation allowance is restricted to zero in both calculations as indexation cannot increase a loss

Example 3

No actual gain or loss on old rules

Asset cost £1,424 on 1 May 1967

31 March 1982 market value £8,000

Asset sold (at arm’s length) for £9,800 on 1 August 1998.

1.  Gain on old rules

Disposal proceeds £9,800

minus cost £1,424

Unindexed gain £8,376

minus indexation £8,000 x 1.047*  £8,376

zero

As neither a gain nor a loss arises on the old rules, neither a gain nor loss is deemed to arise following rebasing.

*  indexation is based on the higher of relevant allowable expenditure before 31 March 1982 and the 31 March 1982 value, so that indexation is based on the 31 March 1982 value of £8,000.  Indexation has been calculated to April 1998.

Rebasing elections

Where you dispose of an asset on or after 6 April 1988 that you held on 31 March 1982, you can elect to have gains and losses on all assets covered by the election calculated by reference to 31 March 1982 values alone, that is without the restrictions imposed by the kink test.

But:

there is a time limit for making this election

the election cannot be withdrawn

indexation allowance is given by reference to the value of the asset at 31 March 1982 (and not by reference to the relevant allowable expenditure incurred up to 31 March 1982, even if that is greater)

there are special rules for married couples

certain assets are excluded from the election.

Example 4

Rebasing election in forced

Asset cost £8,000 on 1 March 1980

31 March 1982 market value £7,000

Asset sold (at arm’s length) for £35,000 on 30 June 1998.  Rebasing election made.

Rebased gain

Disposal proceeds £35,000

minus cost (value at 31 March 1982)  £7,000

Unindexed gain £28,000

minus indexation £7,000 x 1.047  £7,329

Gain £20,671

These are the same dates and amounts as in Example 1.  The difference is that a rebasing election has been made.

No comparison is made with the gain made by reference to the original cost of the asset.  The gain is the rebased gain £20,671.

Notice of election

An election must be made by notice in writing to the Tax Inspector:

within one year and 10 months of the end of the tax year in which the first relevant disposal is made, or

at such later time as the Board of Inland Revenue may allow.

An election cannot be withdrawn.  There is no special form for the election.

First relevant disposal

The first relevant disposal is the first disposal on or after 6 April 1988 of:

an asset held at 31 March 1982, or

an asset treated as having been held at 31 March 1982.

In most cases it is the first disposal to which the 1982 rebasing rules apply.

Three kinds of disposal can be disregarded in deciding what counts as a first relevant disposal from which the two year time limit for making an election is counted.

1.  Disposals on which the gain would not be a chargeable gain by virtue of a particular provision in the Taxes Acts.  Some common examples are:

private cars

chattels worth less than the chattel exemption

foreign currency acquired to meet personal or family expenditure abroad

betting and lottery winnings

2.  Disposals which in practice do not give rise to a chargeable gain or allowable loss.  The main examples are:

withdrawals from building society accounts

the disposal of an individual’s private residence where the whole of the gain would qualify for relief.

3.   Disposal of assets excluded from a rebasing election.  These are listed on page 4.

Husband and wife

There are special rules for elections where assets have been transferred between husband and wife before a disposal.

When an asset is transferred on or after 6 April 1988 between spouses, and the disposal is no gain, and no loss arises on the transfer, any election made by the transferee will be ignored.  The asset will be covered by the election or non-election of the transferor.

Where there is a series of such transfers the asset will be covered by the election or non-election made by:

the last person by whom the asset was acquired after 5 April 1988 (otherwise than by a husband and wife transfer), or

if there is no such person, the person who held the asset on 5 April 1988.

Elections by subsequent transferees are ignored.

Example 5

Transfer between husband and wife.

Mr A brought an asset costing £14,000 on 6 April 1974.  31 March 1982 market value £20,000.  Asset sold (at arm’s length) for £10,000 on 31 July 1998.

The dates and amounts are the same as in Example 2, therefore the loss is to be restricted by the kink lest to £4,000.

Mr A has not made a rebasing election and does not intend to do so.

If Mr A decided to transfer the asset to Mrs A before finalising the sale, and if Mrs A had already made, or could make, a rebasing election, should would realise the rebased loss on sale £10,000.

The special rules prevent this happening.  Any election made by the transferee, Mrs A, will not apply.   Only an election made by the transferor, Mr A, is recognised in these circumstances.

Therefore, in this case an election made by Mrs A is ignored and the allowable loss is restricted to £4,000, the same as if Mr A had sold the asset himself.

In what capacity is election made?

You may be the taxpayer in several different capacities.  For instance, in addition to your own personal affairs you may also be a trustee or a personal representative of a deceased person or a partner.  An election you make in one of these capacities does not cover disposals made by you in another capacity.

For example, an election you make as an individual will not cover your interest in assets held as trustee or partner.

A separate election is required in respect of each settlement or partnership.

Therefore there will be a separate time limit for making an election for each holding of assets held by you in different capacities.

If you do not hold assets in different capacities, you should indicate at the time you make an election in what capacity you are making it.

Excluded assets

An election does not apply to the disposal of the following assets:

plant and machinery in respect of which capital allowances have or could have been given to the person making the disposal

oil licences

shares which, on 31 March 1982, were unquoted and derived the greater part of their value directly or indirectly from oil exploration assets situated in the UK or on the continental shelf (for disposals on or after 22 January 1990).

Interest in such assets are also excluded from the election.

Who should make the election: Special cases

In some cases you may be personally liable to Capital Gains Tax even though you do not personally own or dispose of an asset.  For example:

gains made by certain non-resident companies

gains made by certain non-resident settlements of which you are a beneficiary

gains made by certain non-resident settlements of which you are a settlor

gains made by certain UK resident settlements.

In these circumstances, the person who must make an election, if one is to be made, is the person making the actual disposal:  the non-resident company, the trustees of the non-resident settlement or the trustees of the resident settlement, as appropriate.

Special rebasing rules

There are a number of rules to deal with particular situations which may arise.  These are briefly described below.  If you need further information, as your Tax Office.

Specified no gain/no loss disposals

Special rules apply to specified no gain/no loss disposal.  These allow the transferee to benefit from rebasing.  The most common specified no gain/no loss transfer is the transfer between husband and wife (see page 3).

Subject to certain conditions the transferee is deemed, for the purposes of the rebasing provision only, to have held the asset on 31 March 1982.Assets derived from other assets

Rebasing may apply on the disposal of an asset where the value of the asset is derived from another asset you owned on 31 March 1982.  For example, if you:

held a leasehold interest in property on 31 March 1982,

subsequently acquired the freehold reversion, and

sold the unencumbered freehold interest on or after 6 April 1988.

Rebasing following part-disposal

Where there has been a part-disposal of an asset:

after 31 March 1982, and

before 6 April 1988,

the allowable expenditure remaining after the part-disposal has to be recalculated by reference to the 31 March 1982 value rather than cost.

Deferred charges on gains before 31 March c1982

There are a number of provisions, apart from the no gains/no loss provisions, under which tax on capital gains on a disposal can be deferred until some later time.  The most common ones are the old-over relief provisions for gifts and roll-over relief for the replacement of business assets.

Where gains have been rolled over or held over on the acquisition of an asset, and the asset is later disposed of, the deferred gain is to be reduced by half, thereby increasing the allowable expenditure.  A claim has to be made within 2 years of the end of the tax year in which the disposal occurred.

Relief for certain postponed charges.

The amount of the gain accruing is to be halved where:

the charging of a gain has been postponed under certain provision, for example, postponement of charge where a depreciating asset is acquired as replacement for a business asset, and

the gain accrues on the occurrence of an event on or after 6 April 1988, and

the gain is attributable, directly or indirectly, in whole or in part, to the disposal before 6 April 1988 of an asset acquired before 31 March 1982,

subject to a claim being made.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR281

Husband and wife, divorce and separation

One important point to note is that if the husband or wife transferring the asset to the other spouse held the asset on 31 March 1982 and the final disposal took place on or after 6 April 1988, the asset is deemed, for rebasing purposes, to have been held at 31 March 1982 by the spouse who made that disposal.

Taper relief

Taper relief was introduced in the Finance Act 1998 to replace indexation allowance for periods after 5 April 1998.  For further information ask the Orderline for Help Sheet IR279: Taper relief.

Where an asset which has been transferred from one spouse to the other is later sold, the qualifying holding period for taper relief purposes is the combined period of ownership of both spouses after 5 April 1998.  A bonus year may be added where the asset was acquired by either spouse before 17 March 1998 and still held at 6 April 1998.

What counts as ‘living together’

You and your spouse are treated as living together unless:

you are separated under a court order, or

you are separated by a formal Deed of Separation executed under seal (in Scotland a deed should be witnessed), or

you are separated in such circumstances that the separation is likely to be permanent.

In each case the marriage must have broken down.  If the marriage has not broken down but the two of you do not live in the same house you are still treated as living together for Capital Gains Tax purposes.

Separation and Divorce

The remainder of the Help Sheet explains your Capital Gains Tax liability if you are separated or divorced and you have transferred assets to the spouse from whom you are separated, or to a former spouse for whom you are divorced.

Separated - year of permanent separation

If you or your spouse were living together at some time in a tax year, you can transfer assets between you at any time in that tax year at no gain/no loss.  There is no requirement that you should be living together at the time of transfer.

Example 3

Mr Brown transferred an asset to Mrs Brown on 30 June 1998.  Mr and Mrs Brown separated on 1 December 1998.  Mr Brown transferred another asset to Mrs Brown on 1 March 1999.

Both transfers take place for an amount which gives neither a gain nor a loss to Mr Brown. Transfers may take place on this basis until and including 5 April 1999 even though the couple were not living together from 1 December 1998.

If a transfer occurs between you and your spouse after the end of the tax year in which you stop living together, there are rules to decide the date of disposal and the amount of consideration on disposal.  These rules depend on your particular circumstances and the information you will need is as follows.

the date of any decree absolute

the date of the court order if the asset was transferred by such an order

the date of any other contract under which the asset was transferred.

As the rules are complicated, they are not included in this Help Sheet.  Once you hold the necessary information, ask your Tax Office or tax adviser for advice.

Private residence relief

You and your spouse, while living together, can only have one only or main residence between you, and private residence relief may only be due on any gain arising on disposal of that residence. Following separation, each of you may have a different only or main residence and each may be entitled to relief on any gains arising on the disposal of the residence(s).

Where, as part of a financial settlement on separation or divorce, the spouse who has ceased to occupy the matrimonial home transfers an interest in that home to the other spouse, and the date of transfer takes place more than three years after the time when the spouse last occupied the matrimonial home, full private residence relief will not be due.  However, the former matrimonial home can be treated as the only or main residence of the transferring spouse from the date his or her occupation ceased until the earlier of:

the date of transfer

the date on which the spouse to whom the property is transferred ceased to use it as his or her only or main residence.

However, relief for the same period cannot be given for another property (except for the final three years of ownership of the matrimonial home) so this concession may not be the best choice in every case.

Retirement relief

If you have acquired the whole of your spouse’s business interest you may be able to elect to have retirement relief by reference to the joint period in business.  But you and your spouse must have been living together in the tax year in which the business interest was transferred to qualify.  To find out more ask the Orderline for Help Sheet IR289: Retirement relief and Capital Gains Tax.

Hold-over relief

If an asset is transferred from one spouse to the other after the end of the tax year in which separation took place, the transfer is treated as taking place at market value. the conditions for a claim to hold-over relief may be satisfied.  However, the these circumstances, it is important to know whether any consideration was given by the spouse receiving the asset.

Usually the asset is transferred in exchange for a surrender, by the recipient, of rights they would otherwise be able to exercise to obtain alternative financial provisions. In such cases the value of the rights surrendered is actual consideration of an amount that would reduce the gain potentially eligible for hold-over relief to zero.  to find out more as the Orderline for Help Sheet IR295: Relief for gifts and similar transactions.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR282
IR282 Shares and Capital Gains Tax

Death, Personal  Representatives and Legatees

This Help Sheet gives you information to help you complete the Capital Gains Pages of your Tax Return.

It is only an introduction.  If you are in any doubt about your tax circumstances you should ask your tax adviser.

your Tax Office will also be pleased to help.  You can ask to see a copy of the Inland Revenue Capital Gains Manual which explains in detail the rules for particular situations.

In you need information regarding Inheritance Tax, please contact the Capital Taxes Office.

Meaning of expressions used

In general these notes refer to the legal terms used in England and Wales.  In most respects the taxation principles are the same where the law in Scotland and Northern Ireland applies.  However, the general law background may differ slightly.  Because of the differences in general law some of the terms used for cases outside England and Wales may be different from those used in these notes.

Personal representatives is the term used for the persons who are responsible for settling the affairs of a deceased person.  It includes both executors and administrators (in Scotland, executors nominate and executors dative).

The administration period is the period when the personal representatives are settling the estate.  It starts on the death of the deceased person and usually ends when the residue of the estate has been ascertained.

The residue of the estate is ascertained when the net balance of the estate has been identified and sufficient funds have been provided to enable any liabilities to be paid.

A legatee is defined for Capital Gains Tax purposes as including any person benefiting from a testamentary disposition (that is, normally a will), or on an intestacy or a partial intestacy.

General position

When a person dies leaving assets which will be passed on his or her legatees under the terms of a will, or under the rules where there is no will, there will be no Capital Gains Tax charged.  Instead there are special rules.

In broad terms, the assets which were owned by the deceased at the date of death are treated as though they had passed to the personal representatives at the date of death at their market value on that date.  When the administration of the estate has been completed and the assets remaining in the estate are passed to the legatees, they are treated as thought they had passed to the legatees at the date of death at their market value on that date.

Example 1

Mr Andrews dies on 10.10.98.  At the time of his death he owns a house, value £75,000, some shares, value £25,000 and money in a bank account, £20,000.  All of these are treated as passing to his personal representatives at those values.

The administration of the estate is completed on 31.01.2000.  At that date the house is worth £80,000 and the shares £35,000.  Those assets are passed to Mr Andrews’ legatees but are treated as having been acquired by the legatees on 10.10.98 at values of £75,000 and £25,000

Capital gains tax liability for periods up to the date of death

Before death the deceased may have disposed of assets. There may be Capital Gains Tax arising. Returns of the gains may not have been sent to the Inland Revenue, or the correct amount of tax may not have been agreed.   The personal representatives must agree the liability of the deceased up to the date of death with the Inspector.  This will include:

settling any points that are open for those years in which the Tax Returns have already been made

completing a Tax Return for the period from the previous 6 April to the date of death, plus Tax Returns for any years where a return is outstanding, and

agreeing the liability for those years and making appropriate payments.

Annual exemption

There is no restriction imposed on the amount of the annual exemption for a year in which an individual dies.  The whole of the exemption is available to set against gains arising in that year, however short the period from 6 April to the date of death.

Losses in year of death

If the deceased disposed of assets in the part of the tax year before death, there may have been losses on some assets rather than gains.  If so, those losses must first be set against any chargeable gains made in that period.  The losses must be set against all gains, even if this reduces the net chargeable gains to below the amount of the annual exemption.

If any allowable losses remain after this has been done, those excess losses may be carried back.  The losses can be set off against gains:

arising in the three tax years prior to the tax year in which death occurs, but

the losses must be set off against gains in a later year before making set offs against gains of an earlier year.

Losses carried back in this way are only set off so that the net chargeable gains are reduced to the amount of the annual exemption. The full benefit of the annual exemption is still enjoyed for those years.

Any losses which are not required to be set against gains of:

the part of the tax year before death

the three previous tax years

cannot be used.

Such losses cannot be used by:

the personal representatives, or

the legatees

against gains from disposals of assets acquired from the deceased.

Example 2 (losses carried back)

Mrs Gee dies on 30.09.98.  In the period 06.04.98 to 30.09.98 she had chargeable gains of £1,000 and allowable losses of £10,000.  In the three previous tax years her net chargeable gains were:

1995	£20,000

1996	£3,000

1997	£8,000

1.  First set the 1998-99 losses against her gains of that year.

1998-99

Chargeable gains  £1,000

Allowable losses £10,000

Set off £1,000  £1,000

Net chargeable gains  zero

Excess losses available to carry back  £9,000

2.  Set off excess losses against gains of earlier years, taking into account later years before earlier years.  Therefore consider 1997-98 first.

1997-98

Chargeable gains  £8,000

Covered by annual exemption  £6,500

Limit set off to  £1,500

Therefore reducing Capital Gains Tax to zero

Allowable losses brought back  £9,000

Set off 1997-98  £1,500

Excess loss to carry back  £7,500

3. Consider next 1996-97.  Net chargeable gains of £3,000 are already wholly covered by annual exemption.  Therefore none of the losses brought back should be set against these gains.

4.  Consider next 1995-96

1995-96

Chargeable gains  £20,000

Covered by annual exemption  £6,000

Available to set loss against £14,000

As this exceeds the losses brought back of £7,500 all those losses can be set against the 1995-96 assessment.

Net chargeable gains before set off  £20,000

Minus losses brought back  £7,500

Revised net chargeable gains for 1995-96  £12,500

Minus annual exemption  £6,000

Gains chargeable to tax  £6,500

Capital gains tax liability for the period of administration

During the period of administration, the personal representatives may be liable to Capital Gains Tax if they sell or otherwise dispose of any of the assets in the estate.  This does not apply when assets are passed to legatees under the terms of the will, etc.

During this period the personal representatives have absolute control over the assets.  They are not bare trustees or nominees for the legatees.

Where:

an asset has not been formally transferred to a legatee (usually at the completion of the period of administration), and

the asset is sold, and

a gain arises,

that gain is chargeable on the personal representatives and not the legatees.

Residence status of deceased

In general terms, only individuals who are treated for tax purposes as resident or ordinarily resident in the UK are liable to Capital Gains Tax.

The personal representatives of a deceased individual are treated as having the same residence status as the deceased.  So, if the deceased was not resident and not ordinarily resident in the UK before death, then the personal representatives will not be liable on any disposals even if they are themselves resident in the UK

Where, despite being not resident, the deceased would still have been liable to Capital Gains Tax on the disposal of particular assets (for example, where the assets had been used in a trade carried on in the UK through a branch or agency), then the personal representatives will also be liable on any disposal of those assets.

If you want further information on residence and ordinary residence, ask the Orderline for the Non-residence etc. Pages.

Calculating gains and losses

In calculating gains and losses, most of the normal Capital Gains Tax rules applies to personal representatives as to individuals, but there are some differences. These are explained in this section.

The assets that were owned by the deceased at the date of death are treated as though they had passed to the personal representatives at the date of death at their market value at the date of death.  This value is the ‘cost’ or acquisition value.

Where the personal representatives acquire assets during the course of administering the estate, the actual cost or value of those assets is used in calculating gains or losses on their disposal.

Annual exemption

The full amount of the annual exemption is allowed to personal representatives:

for the period from the date of death to the following 5 April (no matter how short this period is), and

for the two tax years following the year of death.

Where gains arise in a later year, no annual exemption is due.

Rate of tax

The chargeable gains, after deducting any annual exemption due, of the personal representatives are taxable wholly at the rate applicable to trusts. For 1998-99 the rate is 34%.  The lower rate and higher rate charges which apply to individuals do not apply to personal representatives.

For years to 1997-98 chargeable gains of the personal representatives are taxable wholly at the basic rate.

Expenses incurred by personal representatives

Personal representatives incur legal and other expenses in the administration of the estate, for instance, in obtaining a grant of probate.  If they sell or dispose of some of the assets of the estate, then some of that expenditure may be allowable in calculating the gains or losses.  Because of the way solicitors charge for their services, it is often more difficult to isolate the allowable expenditure from other expenditure which is not allowable.

The Inland Revenue will accept calculations which include deductions for cost of establishing title which are based on a published scale.  The scale is published as Statement of Practice SP8/94 (for deaths after 5 April 1993).  SP7/81 deals with deaths from 1981 to 1993.  (These statements are published in Inland Revenue booklet IR131: Inland Revenue Statements of Practice.  A copy of the booklet can be obtained from the Orderline.

Personal representatives are entitled to claim the actual expenditure where this is known.

This expenditure is only available where the personal representatives dispose of assets.

Transfer of assets to legatees

When the personal representatives have completed the administration of the estate, they will pass the assets to the legatees in accordance with the wishes of the deceased in the will, or under rules laid down where this is no will.  The administration is usually completed when the residue of the estate has been ascertained.

Where the personal representatives pass the assets to the legatees, no Capital Gains Tax is charged.  Under the special rules the assets which were owned by the deceased at the date of death are treated as though they had been acquired by the legatees at the date of death at their market value on that date (see Example 1).

Sometimes the personal representatives will themselves acquire assets during the course of the administration and these assets may be passed to legatees under the terms of the will, etc.  In that case those assets are treated as though they had been acquired by the legatees on the date the personal representatives acquired them, at the cost they were to the personal representatives or the value at which the personal representatives acquired them.

Treatment of legatees

All assets acquired by a legatee following the death, and which were assets owned by the deceased at the date of death, are treated as though acquired by the legatee:

at the date of death

at their market value on the date of death.

Asses acquired by the personal representatives during the course of the administration are treated as though they had been acquired by the legatees.

at the date of acquisition by the personal representatives

at the cost to the personal representatives or the value at which they were acquired by the personal representatives.

If the legatees sells or otherwise disposes of those assets, the normal rules of Capital Gains Tax will apply.

The legatee is not entitled to claim unused losses of the deceased or personal representatives of any of the expenses incurred by the personal representatives in establishing title to the estate.

Valuation of assets of deceased at date of death

A legatee is treated as though assets acquired from an estate where acquired at their market value.

A legatee may sometimes acquire only part of an asset. For instance, a holding of shares may be divided between a number of legatees, or several legatees may become joint owners of an indivisible asset such as land.  Where this happens, the acquisition cost of each legatee’s share is an appropriate fraction of the market value of the holding or asset acquired by the personal representatives.

Example 3

on 31.12.98 personal representatives acquired the deceased’s shareholding of 600 shares in a company  This represents a 60% holding in that company and is valued at £60,000 or £100 per share.  On the date of death a holding of 200 shares or 20% of the company would have been valued at £2,000 or £10 per share.

When residue is ascertained, each of the three legatees receives 200 shares from the personal representatives.  They are each treated as having an acquisition cost of one-third of £60,000 (the personal representatives’ acquisition value).  Their acquisition cost is thus £20,000, not the value of £2,000 that would have been placed on a 20% shareholding.

The value of an asset at the date may be needed in order to calculate the Inheritance Tax liability of the estate.  It may also be required for Capital Gains Tax purposes as an acquisition cost if either the personal representatives or the legatee subsequently disposes of the asset.  Because the valuation is used in arriving at the liability under both taxes, there are special rules to ensure that the same value is used in dealing with each tax.

Where:

the value of an asset is required for the purposes of both taxes, and

that value has been ‘ascertained’ for the purposes of Inheritance Tax,

that value is also to be used as the acquisition cost for Capital Gains Tax purposes.

In the course of their duties, the personal representatives will usually prepare a statement setting out the proposed values of all the assets in the estate.  This may then be sent to the Capital Taxes Office for Inheritance Tax purposes.  Such values are sometimes known as ‘probate values’.

Where a value is used by the Capital Taxes Office to arrive at a final charge to Inheritance Tax, and the amount of the liability is dependant on the valuation, the value has been ‘ascertained’.

In some cases the Capital Taxes Office may not need to accurately assess the values of some or all of the assets.  This can happen, for example, where all the assets pass to a surviving spouse and the entire estate is exempt, or where the estimated value of the estate is well below the threshold on which tax is payable.

In such cases, the values will either not have been considered in any detail or not considered at all and are no ‘ascertained’ under the special rules mentioned above.

If the asset is disposed of either by the personal representatives or legatees, the acquisition value will have to be agreed or determined.

Variation of the terms of the will or intestacy

Sometimes, the legatees of an estate decide that they want to change the way in which the estate is to be distributed.  This can be done by a deed of variation, or a similar legal document.

Where the document is legally valid, and if certain conditions are met, then the variation will be treated for Capital Gains Tax purposes:

as not being a disposal, and

as if the variation had been effected by the deceased.

In other words, the rules outlined in the Help Sheet apply as they would if the terms of the deed had been included in the will, etc.

The conditions, all of which must be satisfied, are that:

the variation must be effected by an instrument in writing made within two years of the person’s death

the persons who wish to give up all or part of their entitlement under the will or intestacy provisions must be parties to the instrument

there must be no consideration in money or money’s worth for the variation other than consideration in the form of a disclaimer or variation of other dispositions of the same estate

written notice must be given to the Board of Inland Revenue by parties making the variation with six months of the date of the deed, or such longer period as the Board may allow.

Sometimes proceedings are brought under the Inheritance (Provision for Family and Dependants) Act 1975.  Where the Court makes an order under Section 2 of that Act, the terms of that order are deemed to have applied from the date of death for all purposes.  There are therefore no capital gains disposals on the making of the order and the special rules outlined in this Help Sheet apply.

Where the conditions are not met, and the terms of the deed are no treated as though included in the will, the variations will involve disposals by some of the parties which may have Capital Gains Tax consequences.  This is a complex area and in such cases you may wish to seek professional advice.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR283
IR283 - Private Residence Relief

Private Residence Relief

This Help Sheet gives you information to help you complete the Capital Gains Pages of your Tax Return.

This  Help Sheet explains the relief available on the disposal of your private residence.  But it is only an introduction.

Your Tax office will also be pleased to help.  You can ask to see a copy of the Inland Revenue Capital Gains Manual, which explains the rules in detail.

Relief from tax

Private residence relief ensures that when you dispose of your home you will not ,with some exceptions set out below, pay Capital Gains Tax on any gain you make.

You may get full or only partial relief from tax.  The Notes to the Capital Gains Pages explain how you calculate any gain on the sale of your home.

This Help sheet explains how much relief you can deduct from that gain to calculate the chargeable gain on which you must pay tax. If you meet the conditions set out in the Help Sheet, you will also not pay tax on any gain you make from the disposal of a home you have provided for a dependant relative.

Private residence relief is not intended to relive speculative gains or gains arising from development.  Relief is not, therefore, available where you

acquire a welling-house, or

spend money on your dwelling-house

wholly or partly to realise a gain on its disposal.

For example, you may have bought the house to sell it quickly at a profit or, if you were a tenant, you may have bought out the freehold in order to increase your profit on sale.

If you make a loss on the disposal of your home and you would have go private residence relief if you had made a gain, your loss will not be an allowable loss.  If you would have got partial relief, part of your loss will be allowable.  The part should be calculated in the same way as you would have calculated the relief if you had made a gain.

Assets qualifying for relief

The relief is available where you make a gain from disposing of any part of:

your dwelling-house, if it has at some time in your period of ownership been your only or main residence, or

the garden or grounds of that residence up to the permitted area.

If your residence is outside the UK you may still qualify for relief.  If you have more than one home, you can only get relief for your main residence.  You can choose which this is to be.

The terms in italics are explained below.

Persons qualifying for relief

Any individual is entitled to the relief and so are:

trustees of settled property and

personal representatives.

Companies are not entitled to relief.

An interest in a residence

You are entitled to relief if you own the freehold of your home, or if you are a tenant owning a lease.  you are also entitled to relief if you jointly own the freehold or lease with someone else.

Tax Return

If you have disposed of your only or main residence, you should tick the first capital gains box in Question 8 on page 2 of your Tax Return.  You only need to complete the Capital Gains Pages if you have other gains, or you are not entitled to full private residence relief, of you want to claim a capital loss.

Identifying your dwelling-house

Your dwelling-home may be a single building, for example, a detached house. It may be more than one building, for example, a house with a detached garage.  Or it may be part of a building, for example, a flat.

If part of your dwelling-house is used exclusively for a trade or business, that part will not qualify for relief.

Example 1

Your house consists of a shop with living accommodation above.  You are only entitled to relief for the living accommodation.  If you sell the house, you should split any gain fairly between the gain on the shop, which may be chargeable, and the gain on the living accommodation, which will attract relief.

If you have a lodger, the rooms occupied by the lodger qualify for relief.  If you  have more than one lodger, or let part of the dwelling-house, those rooms will not qualify, but there is a further relief to which you may be entitled and which is explained below.

If you live in a fixed caravan or houseboat, you are entitled to relief in the same way as if you lived in a conventional house.

If your home includes more than one building, particularly if it has several outbuildings, your dwelling-house may not include all of the outbuildings.

Example 2

Your home consists of a house, a detached garage and granny flat near the house, half an acre of garden and a summer-house at the end of the garden.  Your dwelling-house is the house together with the garage and granny flat, but excluding the summer-house.

Deciding which buildings make up your dwelling-house is only important if your home has a garden or grounds larger than half a hectare (about one and a quarter acres).  You may not be entitled to relief for all of this land.  The amount of relief you get depends on the size, character and position of the buildings that make up your dwelling-house.

In large or extensive properties it may not be easy to decide which outbuildings are part of your dwelling-house.  Your Tax Office can help.

Identifying your gardens or grounds

You are entitled to relief if you dispose of land that you occupy as your garden or grounds at the time of your dispose.

The garden or grounds includes the building standing on that land.  So a building that is not part of your dwelling-house can still qualify for relief if it is within the permitted area of garden or grounds.

Not all land you hold with your dwelling-house is treated as the garden or grounds of that residence.  You are not entitled to relief for land let or used for a business; for example, surrounding farm land.

The garden or grounds will include any enclosed land surrounding or attached to your dwelling-house and serving chiefly for ornament or recreation.

The extent and location of the permitted area

If your garden and grounds do not exceed half a hectare, you are entitled to relief for all of it.  Look again at Example 2.  The summer-house was not part of the dwelling-house.  But the grounds do not exceed half a hectare and so the summer-house, which stands in the grounds, will still attract relief.

If your garden and grounds exceed half a hectare, you may not be entitled to relief for all of it.  The area for which you are entitled to relief is called the permitted area.  It consists of the area that is required for the reasonable enjoyment of your dwelling-house as a home. The size and character of your dwelling-house must be taken into account.

If your garden and grounds exceed half a hectare, and you have disposed of all or part of the garden and grounds, you should:

enter details of the disposal and gain on Pages CG2 and CG3, and

explain in column 0 why you think, if appropriate, all or part is exempt from Capital Gains Tax.

Your Tax Office may ask for further details in these cases.

Period of ownership

You are entitled to relief to the extent that your dwelling-house was used as your only or main residence during your period of ownership.

Your period of ownership began on the date you first acquired the dwelling-house, or on 31 March 1982 if that is later.  It ends when you dispose of it.

The final 36 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, if the dwelling-house has ever been your only or main residence.

Example 3

You bought your house in January 1989 and sold it in December 1998.  You lived in the property as your only or main residence apart from 18 months in 1991 and 1992, when you lived in a different house.  So the house qualifies for relief for 192 out of the 120 months you owned it.  A proportion of any gain you make from the disposal amounting to 102/120ths will qualify for relief.

If you had moved out of the house at some time after December 1995, your relief would not be restricted.

If you had bought the house before 31.03.82, the calculation above would begin from 31.03.82 and not from when you bought the house.

Periods of absence

Some periods when you were not using the house as your only or main residence will still qualify for relief.  These should be ignored when you are calculation the fraction of any gain that qualifies for relief.

if you do not occupy your new home when you acquire it because you are not able to sell your old home, or you need to carry out refurbishments, you can treat the first 12 months as if the house had been your only or main residence in that period.  In exceptional circumstances your Tax Office may allow you to treat a longer period (up to a total of two years) in the same way.  The same treatment applies when you buy land to build a house on it.

Example 4

You bought a house in January 1997 but I needed major refurbishment and you could not move in until January 1988.  Subsequently it was your only or main residence until you sold it in 1999.  You are entitled to full relief.

Certain other periods of absence from your dwelling-house may be treated as periods of residence if:

during the period, you have no other dwelling-house eligible for relief, and

both before and after the period there is a time when the dwelling-house is your only or main residence.

The qualifying periods of absence are:

a.  absence for whatever reason, totalling not more than three years in all

b.  absences during which you are in employment and all your duties are carried on outside the UK

c.  absences totalling not more than 4 years when

the distance from your place of work prevents you living at home, or

your employer requires you to work away from home in order to do your job effectively

You will keep the exemption for absences b. and c. if you cannot return to your dwelling-house afterwards because your existing job requires you to work away again.

Example 5

You bought a house in 1984 and used it as your only or main residence.  In 1985 your employer required you to work abroad and you did not come back to the house until 1990. You lived in the house again as your only or main residence until you sold it in 1998. You are entitled to full relief.

Job-related accommodation

Private residence relief is also extended where you live in accommodation that is job-related and you also own a dwelling-house that you intend to occupy s your only or main residence.

The dwelling-house you intend to occupy is treated as actually being occupied by you as a residence during the period in which you have the intention to occupy it.  This means that you may nominate that residence as your only or main residence.  If you intention to live in the dwelling-house ends, then the dwelling-house is no longer treated as a residence.

Relief is still available even if you never actually lived in that dwelling-house.

Accommodation is job-related if it is exempt from Income Tax for the reasons set out in Help Sheet IR202: Living accommodation.

This extension of Private Residence Relief also applies if you are self-employed.  The job-related accommodation must be provided by another person under the terms of a contract that requires you to live in the property and carry on a particular trade. This extension only applies to residence in such accommodation on or after 6 April 1983.  If you need help, ask your Tax Office.

Further relief for letting of residential accommodation

If relief is restricted because of letting, and some or all of your dwelling-house has been let as residential accommodation, you may be entitled to a further relief.  This further relief is due where:

you sell your only or main residence, and

part or all of it has at some time in your period of ownership been let as residential accommodation.

The amount of relief is the lowest of:

the amount of private residence relief already calculated, or

£40,000 or

the amount of any chargeable gain you make because of the letting.

The maximum relief of £40,000 should be applied to each disposal where private residence relief is due.

Example 6

You ran a guest house from your home.  60% of the house was used for letting to guests while 40% was used as your home.  You made a gain of £60,000 when you disposed of the property.  You are entitled to private residence relief for 40% of the gain - £24,000.  Your remaining gain is £36,000 and it all results from the letting.  The lowest of the three limits set out above is the amount private residence relief so you are entitled to further letting relief of £24,000.  Your chargeable gain will be £12,000.

Your main residence

If you have two or more residences, you can only have one main residence at a time.

You can nominate which residence is to be treated as your main residence for any period.  Your nomination must be made within two years of the date you first have a particular combination of residences.  If there is a change in your combination of residences, a new two-year period begins.  If you do not make a nomination, the question of which is your main residence will be determined on the facts.

Example 7

In May 1996 you bought a second home. You can nominate that or your original home to be your main residence.  Your nomination must be made by May 1998.

If you are married, and you are not separated from your spouse, you can have only one main residence between you.  If, when you married, you each owned a residence and you have continued to use both residences, you can nominate jointly which is to be the main residence, and the two-year period for doing so beings on the date of marriage.

If you are separated, each of you may have a different only or main residence and each may be entitled to relief on any gains arising on the disposal of the residence(s).

Residence provided for a dependant relative

In addition to the relief that may be due on disposal of your own residence, you may also be entitled to relief when you disposed of a residence when you have provided for a dependant relative.  But you cannot get relief for:

any residence acquired after 5 April 1988, or

any residence acquired before that date unless the conditions for relief were met by that date.

The conditions for relief are:

the dependent relative must occupy the dwelling-house rent free and without any other consideration

only one dependent’s dwelling-house can qualify at any one time

a husband and wife who are living together can claim relief for only one such dwelling-house between them

the dwelling-house must be the sole residence of the dependent relative.

Who is a dependent relative?

Dependent relatives are:

any relative of you or your spouse who is incapacitated by old age or infirmity from maintaining himself or herself, or

your own or your spouse’s mother who, whether or not incapacitated, is either widowed, or living apart from her husband, or a single woman in consequence of dissolution or annulment of marriage.

If you are in any doubt, ask your Tax Office or tax adviser.

Private residence relief on the disposal of settled property

Trustees of settled property are entitled to relief if they dispose of the only or main residence of a person entitled to occupy that residence under the terms of the settlement.  Ask your Tax office or tax adviser for more details.

Personal representatives

Personal representatives who dispose of the only or main residence of a legatee during the administration period are entitled to relief if the legatee would be entitled to at least 75% of the proceeds of the property.  Ask your Tax Office or tax adviser for more details.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR284

Shares and Capital Gains Tax

This Help Sheet explains the basic rules which apply to the acquisition and disposal of shares by individuals, personal representatives and trustees in the tax year 1998-99.  It helps you work out the capital gains or loss if you have disposed of shares in that tax year.  The Help Sheets explains:

why special rules are needed

how you identify the shares disposed of

how you work out the gain under the ‘bed and breakfasting’ rule

how you work out the gain if the shares were acquired after 5 april 1998

how you work out the gain if the shares are held in a Section 104 holding

how you work out the gain if the shares are held in a 1982 holding

how you work out the gain if the shares were held on 6 April 1965

the treatment of privatisation shares.

The Help Sheet refers to acquisitions and disposal.  These are not restricted to purchases and sales although they will be the most common events.  An important exception is that share reorganisations such as rights and bonus issues, or an issue of shares on a company take-over, are not treated as acquisitions.  See Help Sheet IR285: Share reorganisations, company take-overs and Capital Gains Tax available from the Orderline

This Help Sheet also assumes that the capital gain or loss will be calculated using the actual costs of acquisition and the actual disposal proceeds.  Pages CGN8 and CGN9 of the Notes on Capital Gains expalin the circumstances in which market value must be substituted for actual cost or disposal proceeds.

Help Sheet IR287: Employee share scheme and capital gains tax explains more about shares which you acquire in connection with your employment or be exercising an employee shareoption.  This is available from the Orderline.

Why are special rules needed?

Shares of the same class in the same company are identical.  Suppose you have a holding of 10,000 Bits and Bobbs plc 25p ordinary shares acquired at different times for different prices.  You then sell 2,00 shares.  To calculate the gain you need to know firstly, which shares you have sold and secondly, how much they cost.

You also need to know how long you held the shares you have sold in order to work out how much taper relief is due (see page CN13 orf the Notes on Capital Gains). The capital gains rules for shares enable you to do this.

For historical reasons shares of the same class in the same company may be grouped in different ways:

acquisitions of shares on or after 6 April 1998 are kept as separate acquisitions (but all acquisitions on one day are treated as a single acquisition)

acqusitions of shares between 6 April 1982 and 5 April 1998 are kept in a ‘pool’, called a Section 104 holding.  The cost of the shares in the pool is added together: each share in the pool is treated as if acquired at the same average cost

acquisition of shares between 7 April 1965 and 5 april 1982 are kept in a different ‘pool’, called a 1982 hodling.  Again, the cost of the shares in the pool is added together, with each share being treated as if acquired at the same average cost

shares held at 6 april 1965 are not pooled.

Example 1

Suppose you bought 10,000 Bits and Bobbs plc 25p ordinary shares as follows:

16 June 1979  2,000 shares

2 August 1982  2,500 shares

17 September 1987  2,500 shares

7 June 1998  3,000 shares

You would have:

a separate acquisition of 3,000 shares - the 1998 purchase

a Section 104 holding pool of 5,000 shares - the 1982 and 1987 purchases

a 1982 holding pool of 2,00 share s- the 1979 purchase

How to identify the shares disposed of

When you dispose of shares you cannot work out your capital gain or loss until you have matched the shares diposed of with shares you acquired.

You are treated as disposing of shares in the following order:

First, shares acquired on the same day

Second, shares acquired in the 30 days following the day of disposal (the ‘bed and breakfasting’ rule)

Third, shares acquired after 5 April 1998, taking the most recent acqusitions first (a last in, first out, or ‘LIFO’ basis)

Fourth, shares in the Section 104 holding

Fifth,  shares in the 1982 holding

Sixth, shares held on 6 April 1965

If the above rules fails to exhaust the shares disposed of, the remaining shares are matched with later acquisitions, taking the earliest one first.

Example 2

In May 1998Mr Smith owns 10,000 shares

500 were purchased on 30.04.98

2,500 are held in a Section 104 holding

7,000 are held in a 1982 holding

Mr Smith sells 4,000 shares on 11.10.98.

The disposals are identified as:

500 against the shares purchased on 30.04.98

2,500 against the shares in the Section 104 holding

1,000 against the shares in the 1982 holding.

How you work out the gain under the ‘bed and breakfasting’ rule

If a disposal of shares is identified with shares acquired within the following 30 days, the gain or loss on disposal is the difference between the net disposal proceeds and the acquisition cost.

Example 3

Mrs Robson bought 2,000 shares in 1984 for a total cost of £3,640.  (These shares form a Section 104 holding pool.)  On 26 February 1999 she sells 1,500 shares for £10,265 (net of disposal costs).  On 1 March 1999 she buys another 1,800 of the same shares at a cost of £12,420

The disposal of 1,500 shares is not matched with shares in the pool.  It is identified with the 1,500 of the shares bought on 1 March 1999.  The gain or loss on disposal is calculated as follows:

Disposal proceeds  £10,265

Allowable cost 1,500/1,800 x £12,420 = £10,350

Loss £85

Note: If Mrs Robson had bought only 1,000 share on 1 March 1999, 1,000 of the shares sold on 26 February would have been matched with that later acquisition, and the remaining 500 shares sold would have been matched with 500 of the shares in the pool.  The gain or loss would have been calculated accordingly.

How you work out the gain if the shares were acquired after 5 April 1998.

If a disposal of shares is matched, on the LIFO basis, with shares acquired after 5 April 1998, the gain or loss on disposal is the difference between the net disposal proceeds and the acquisition cost.

Example 4

Mr Quinn buys 1,000 shares on 23 April 1998 at a cost of £4,420.  on 30 November 1998 he buys 800 of the same shares for £3,935.  On 1 March he sells 1,050 shares for £4,910.

The first step is to match the disposal with acquisitions.  Taking the latest acquisition first (the LIFO basis), 800 of the shares sold are identified with the shares bought on 30 November 1998.  The remaining 250 are identified with 250 of the 1,000 shares bought on 23 April 1998.

The gains or losses are calculated as follows:

Disposal of 800 shares

Proceeds  800/1,050 x £4,910 = £3,741

Allowable cost £3,935

Loss £194

Disposal of 250 shares

Proceeds 250/1,050 x £4,910 = £1,169

Allowable cost 250/1,000 x £4,420 = £1,105

Gain £64

How to work out the gain for shares in a Section 104 holding

The Section 104 holding consist of two pools of expenditure, a pool of actual cost and a pool of indexed cost.  (Section 5 beginning on page CGN10 of the Notes of Capital Gains explains indexation.)  The pool of indexed cost is the actual cost plus indexation.  Both pools are adjusted each time an ‘operative event’ occurs.  An ‘operative event’ is anything which reduces or increased the value of the pool of actual cost. Purchases and sales of share are the most common examples of operative events.

Step 1

The Section 104 holding was opened when you first acquired shares between 6 April 1982 and 5 April 1998.  At this stage the pool of actual cost and the pool of indexed cost are the same.

Step 2

When you dispose of, or next acquire, shares before 6 April 1998 you add indexation to the pool of indexed cost.  You do this by multiplying the pool of indexed cost by the indexation factor for the period between Step 1 and Step 2 and by adding this figure to the pool of indexed cost.  If the event is an acquisition, you then add the allowable expenditure on the new shares to the pools of actual cost and indexed cost.   If the event is a disposal, the two pools are reduced by the fraction which relates to the share disposed of.  The fraction is:

Number of shares sold

Total number of shares in pool

Step 3

When you acquire shares on or after 6 April 1998, the shares are not added to the Section 104 holding.  Instead they are kept as separate acquisitions, as explained above.   The Section 104 holding will increase in size on or after 6 April 1998 only if there is a share reorganisation and you receive additional shares of the same class.  If you receive extra shares in a share reorganisation on or after 6 April 1998, the procedure in Steps 3 and 4 will be modified.  For further information see Help Sheet IR285: Share reorganisations, company take-overs and Capital Gains Tax.

When you first dispose of shares in the Section 104 holding on or after 6 April 1998, you add indexation up to April 1998 to the pool of indexed cost.  You then calculate the gain or loss.  If all the shares are sold, the allowable expenditure is the pool of actual cost.  indexation allowance is the difference between the pools of actual cost and indexed cost.  IF only some of the shares are sold, the allowable expenditure is a fraction of the pool of actual cost. The fraction is:

Number of shares sold

Total number of shares in pool

You apply the same fraction to the pool of indexed cost.   Indexation allowable is the difference between the fractions of the allowable cost and indexed cost.  The indexation allowance is given is restricted if it would create or increase a loss.

Step 4

If any shares remain n the pool, after Step 3, the allowable expenditure on a later disposal is the relevant fraction of the pool of actual cost remaining after deducting the cost of the earlier disposal.  You do not add any more indexation to the pool of indexed cost.  The indexation allowable on the later disposal is the difference between the relevant fractions of the allowable cost and indexed cost.  The indexation allowance given is restricted if it would create or increase a loss.

Example 5 on page 4 shows you how to work this out.

Example 5

In April 1992 Mrs Patel buys 1,000 XYZ plc shares for 400p per share plus dealing costs of £150 including VAT.  This is her first acquisition of XYZ plc shares.

In September 1994 she buys a further 500 XYZ plc shares for 410p per share plus dealing costs of £80 including VAT.

In May 1998 she sells 700 XYZ plc shares for 480p per share including dealing costs of £100 including VAT.

In February 1999 she sells 400 XYZ plc shares for 520p per share, including dealing costs of £105 including VAT.

Step 1

April 1992 The Section 104 holding pool is opened

Number of shares   Pool of actual cost  Pool of indexed cost

1,000  £4,150   £4,150

Step 2

September 1994

Give indexation from April 1992 to September 1994.  Multiply the pool of indexed cost at Step 1 by the indexation factor and add this to the pool of indexed cost £4,150 x 0.045 = £187.  Add the allowable expenditure on the new shares to the pools of actual cost and indexed cost

Add indexation  £187

Add cost of further shares  500   £2,130  £2,130

Step 3

May 1998

Give indexation from September 1994 to April 1998.  Multiply the pool of indexed cost by the indexation factor and add this to the pool of indexed cost:  £6,467 x 0.121 = £783

£783

1,500  £6,280  £7,250

Calculate the gain or loss

First, calculate the amount of allowable expenditure and indexation allowance.

Multiply the two pools of cost by:

Number of shares sold = 700

Number of shares held   1,500

Indexed cost  £7,250 x 700/1,500 = £3,383

Actual cost  £6,280 x 700/1,500 = £2,931

Indexation allowance £452

Second, calculate the gain or loss

Disposal proceeds  £3,360

minus allowable cost  £2,931

Costs  £100   £3,031

Unindexed gain  £329

minus indexation (restricted)  £329

Chargeable gain 0

Notes on calculation

1.  Indexation allowance cannot create or increase a loss. In this example, the indexation allowance given has been restricted to avoid creating a loss.  If the indexation allowance is restricted, you still reduce the pool of indexed cost by the full amount of the relevant fraction of indexed cost (£3,383 in this example).

2.  Indexation allowance has been calculated using the indexation factors rounded to three decimal places.

3.  Fractions of actual cost and indexed cost have been calculated by reference to the number of shares held.  Alternatively, you can use the fraction:

Disposal proceeds

Disposal proceeds + value of shares not sold

Third, adjust the two pool in the new holding

Brought forward £1,500  £6,280  £7,250

minus 700  minus £2,931  minus £3,383

Carried forward  £800   £3,349  £3,867

Example 5 (continued)

Number of shares  Pool of actual cost  Pool of indexed cost

Brought forward  800  £3,349  £3,867

Step 4

February 1999

Do not add any further indexation to the pool of indexed cost.

Calculate the gain or loss.

First, calculate the amount of allowable expenditure and indexation allowance.

Multiply the two pools of cost by:

Number of shares sold  = 400

Number of shares held  800

Indexed cost  £3,867 x 400/800 = £1,934

Actual cost £3,349 x 400/800 £1,675

Indexation allowance £259

Second, calculate the gain or loss

Disposal proceeds  £2,080

minus allowable cost  £1,675

Costs £105  £1,780

Unindexed gain  £300

minus indexation  £259

Chargeable gain  £41

Third, adjust the two pools in the new holding

Brought forward  800  £3,349  £3,867

minus  400  minus £1,675  minus £1,934

Carried forward  400  £1,674  £1,933

How to work out the gain for shares in a 1982 holding

A 1982 holding is also a pool of share.  Unless there is a rights or bonus issue (in which case see Help sheet IR285: Share reorganisations, company takeovers and Capital Gains Tax) you cannot add to the number or value of the shares in this holding.  In fact, most quoted companies have made share reorganisations and you will probably need to refer to the Help Sheet.  The ordinary rules applying to all assets held at 31 March 1982 also apply to 1982 holdings. These rules are explained in Help Sheet Inland Revenue280: Rebasing - assts held at 31 March 1982.

If you have made an election for the 31 March1982 value to apply to all your assets, the shares in the 1982 holding will be held at their value on that day.  If the shares were not quoted on a recognised Stock Exchange on 31 March 1982, you or your professional adviser will have to provide a valuation.  Your Tax Office will want to check that valuation.

How to work out the gain if you  have held the shares since 6 April 1965

Any shares you have held since 6 April 1965 will have been held on 31 March 1982. These shares will be covered by any election you have made to have the gain calculated only by reference to the 31 March 1982 value.

if you have not made an election, please ask your Tax office for details of:

how you make the comparison with the gain calculated by reference to the 31 March 1982 value

how you can make an election for quoted shares to be included in a 31 March 1982 holding.

Privatisation shares

Nearly all sales of shares in privatised companies by the Government have two features:

the shares are paid for by instalments

shareholders can choose different incentives.  Usually they include either the payment of lower instalments or the issue of bonus shares after a specified period.

Treatment of instalment payments

If you buy the shares from the Government, you are entitled to indexation allowance (up to April 1998 for disposals in 1998-99) on the full amount you agree to pay from the date you acquire the shares.  For example, shares in Loamshire Electricity plc cost 240p each, 100p payable on application, 70p by 22 October 1991 and 70p by 15 September 1992.  If, as a result of the application, you acquired 300 share sin December 1990 you would be entitled to indexation allowance on £720 from December 1990.

If you sell some or all of the shares before all the instalments have been paid you should either:

reduce the cost of the shares by the unpaid instalments, or

increase the disposal proceeds by the amount of the unpaid instalments.

You may buy shares from a broker before all the instalments have been paid by the previous owner. For Capital Gains Tax your allowable expenditure is the amount you pay the broker plus the cost of the further instalments you have to pay.  indexation allowance (up to April 1998f or disposal in 1998-99) is given on the full amount from the date you acquire the shares from the broker.  The same rules apply if you inherit the shares or are given them with instalments outstanding, but instead of the amount paid to the broker you take the market value of the shares on the day you acquired them.

Reduced instalments

Shareholders may choose the incentive which allows them to make reduced instalment payments.  For the original shareholder the tax treatment is the same as that described in the first two paragraphs of the ‘Treatment of instalment payments’ section but the references to instalments are to the reduced amount of the instalments.

The entitlement to pay reduced instalments may cease on a transfer of the shares.  If you acquire the shares from a shareholder who has chosen this incentive before all the instalments are paid and you have to pay the full amount on the remaining instalments, your acquisition cost will include the full amount of the instalments you have to pay.  If you take over the right to make the reduced payments, your acquisitions cost will include the lower instalments you have to pay.

Indexation allowance (up to April 1998 for disposals in 1998-99) is given on the amount paid to acquire the shares, together with the further instalments you have to pay.

Loyalty bonus shares

In most privatisations shareholders who acquire shares from the Government and hod them for a specified period, may if they choose this form of incentive, receive an issue of extra shares.  These shares are treated as acquired at their market value. For example, a shareholder in Big City Electric plc who acquired 400 50p share son the privatisation and still held them on 31 December 1993, may receive an extra 40 shares.  The market value of Big City Electric plc 50 share son 31 December 1993 was £6.575.  The total acquisition cost of the bonus shares would be £263.

As an alternative to receiving bonus shares, customers may have chosen to receive vouchers that can be set against bills received from the privatised company.  There is no tax liability on the receipt or use of these vouchers.  For Capital Gains Tax purposes the acquisition cost of the shares is reduced by the amount of the vouchers.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR285

Share Reorganisations, Company Takeovers and Capital Gains Tax

This Help sheet deals with share reorganisations involving shares held by individuals, personal representatives and trustees.  It explains the basic rules that apply to disposals in the tax year 1998-99.  It should be read in conjunction with Help Sheet IR284: Shares and Capital Gains Tax, which explains the basic rules applying to the acquisition and disposal of shares.  Help sheet IR284 explains the terms ‘ 1982 holding’ and ‘ Section 104 holding’.  Both Help Sheets assume the capital gain or loss will be calculated using the actual costs of acquisition and the actual disposal proceeds.  Pages CGN8 and CGN9 of the Notes on Capital Gains explain the circumstances in which market value must be substituted for actual cost or disposal proceeds.

This Help Sheet explains:

what a share reorganisation is

what information is available about share reorganisations

how the Capital Gains Tax rules deal with share reorganisations

how you work out indexation allowance if the shares are held in a Section 104 holding

how you deal with share reorganisations involving different classes of share

the special rules for scrip dividends

the special rules for demergers

the special rules for take-overs if the company making the take-over issues shares and/or securities.

This Help Sheet explains only the basic rules, as they apply in simple cases.  In more complex cases, ask your tax adviser or Tax Office for advice.  You can also ask to see the Inland Revenue Capital Gains Tax Manual at your local Tax Enquire Centre.

What is a share reorganisation?

A share reorganisation is a general term used to describe transactions in which:

new share are issued to the shareholders in a company, or

the rights attaching to share are altered, or

a company’s share capital is reduced.

The most common transactions are bonus issues and rights issues.  In both cases, new shares are allotted to some or all of the existing shareholders in proportion to their shareholdings.  In a rights issue the allotment is provisional until the shareholder accepts he or she will pay for the shares.  There are other transactions, such as open offers, which may be treated as share reorganisations where new shares are issued to existing shareholders in proportion to their shareholdings.

Other examples, not involving an issue of shares, include capita reorganisations and an alteration of the rights attaching to shares.

Example 1

Examples of share reorganisations which do not involve an issue of shares are:

five 10p ordinary shares may be consolidated into 50p ordinary share

an ordinary share with no voting rights may be given the right to vote.

What information is available about share reorganisations?

This Help sheet is concerned primarily with share reorganisations involving listed companies.  If a listed company makes a share reorganisation it will almost always issue circular or prospectus to its shareholders.  This will include the company’s explanation of the tax treatment.  Often it will be follows up with more detailed advice.  For example, the counterfoil attached to a new share certificate may give details of the allowable cost for a scrip dividend. You should keep this information.  It will help you complete your Tax Return.

How are share reorganisations dealt with for capital gains tax purposes?

The basic Capital Gains Tax rules that apply to share reorganisations are:

the issue of any new shares is not treated as an acquisition

the loss or alteration of any old shares is not treated as a disposal.

Because a share reorganisation is not treated as an acquisition, any new shares of the same class that you receive are added to the holding in respect of which they were issued.

Example 2

You own 1,000 shares in IJK plc, 800 shares in a Section 104 holding and 200 shares which you bought on 2 August 1998.  IJK plc make a bonus issue of one new share for every two shares you hold.  400 new shares are added to the Section 104 holding, giving a total of 1,200 shares.  100 new shares are added to the acquisition on 2 August 1998 giving a total of 300 shares.

Because you are not treated as acquiring the new shares, the same day rule and the bed and breakfasting rule, (see the section ‘How to identify the shares disposed of’ in Help Sheet IR284: Shares and Capital Gains Tax), do not apply.

Example 3

On 6 May 1998 you buy 1,100 shares in LMN plc.  On 4 February 1999 you sell 200 shares.  On 3 March 1999 LMN plc make a bonus issue of one share for every three shares held.  You receive 300 new shares.

The bonus issue is a share reorganisation.  Your 300 new shares are therefore not treated as acquired on 3 March 1999.  The 200 shares sold on 4 February 1999 are not matched with 200 of the new shares under the 30 day bed and breakfasting rule.

Instead the 200 shares sold are identified with 200 of your original 1,100 shares.  The 300 new shares are added to the 900 shares remaining after the dale of the 200 shares, bringing the total up to 1,200.

There are special rules that deal with the allowance of any amounts you have to pay on a share reorganisation.  These are explained on pages 3 and 4.  There are also special rules which apply to the taxation of any amounts you receive other than the issue of new shares.  These are explained in the Section on take-overs on page 6.

If the shares you acquire on the reorganisation are not of the same class, they will form a separate holding.  The cost of the original shares is apportioned (see the section on ‘Share reorganisations involving different classes of shares’ on page 5).

How to work out indexation allowance if the shares are held in a Section 104 holding

If the share reorganisation is a bonus issue there is no allowable expenditure to add to the pools of actual cost and indexed cost.  It is therefore not an ‘operative event’.  (For an explanation of this term see the section ‘How to work out the gain for shares in a Section 104 holding’ in Help Sheet IR284: Shares and Capital Gains Tax.)  You merely add the new shares to the total number of shares in the pool.  There is no other adjustment to be made for indexation purposes.

If the share reorganisation is a rights issue, it is an ‘operative event’.  You add indexation to the pool of indexed cost.  You then add the cost of the new shares to the pool of actual cost and the pool of indexed cost.  The amount of indexation which you add depends on the date you pay for the new shares:

if the date was before 6 April 1998, you add indexation up to the date of payment

if the date was on or after 6 April 1998, you add indexation up to April 1998, unless the pool of indexed cost has already been indexed up to that date, in which case no additional indexation is due.

The cost of the new shares is added to the pool of actual cost and the pool of indexed cost.

Example 4

In April 1996 you by 1,000 shares in OPQ plc for £7,000.  On 26.05.97 OPQ plc declare a 1 for 5 rights issue at a price of 9p per share.  You take up your full entitlement to 200 shares. on 02.06.98 you sell 300 shares for £12 per share.  Following the steps in the paragraph headed ‘How to work out the gain for shares in a Section 104 holding’ in Help Sheet UR284, you work out the gain as follows:

Step 1

April 1996 The pool is opened

Number of shares   Pool of actual cost   Pool of indexed cost

1,000 £7,000  £7,000

Step 2

May 1997

Give indexation allowance from April 1996 to May 1998.  Multiply the pool of indexed cost at Step 1 by the indexation factor and add this to the pool of index cost, £7,000 x 0.028 = £196.  Add the cost of the new shares 200 x £9 = £1,800 to the pool of actual cost and the pool of indexed cost

plus indexation  £196

plus cost of new shares   200  £1,800   £1,800

1,200  £8,800  £8,996

Step 3

June 1998

Give indexation allowance from May 1997 to April 1998.  Multiply the pool of indexed cost by the indexation factor and add this to the pool of indexed cost £8,996 x 0.036

£324

1,200   £8,800  £9,320

Calculate the gain or loss.  First calculate the allowable cost and indexation allowance.  Multiply the two pools of cost by the formula:

Number of shares sold  = 300

Number of shares held  1,200

Pool of indexed cost  £9,320 x 300/1,200 = £2,330

Pool of actual cost  £8,800 x 300/1,200 = £2,200

Indexation allowance = £130

Then, calculate the gain or loss:

Disposal proceeds £3,600

minus cost £2,200

Unindexed gain  £1,400

minus indexation allowance £130

Chargeable gain  £1,270

Then, adjust the two pools in Section 104 holding:

Brought forward    1,200  £8,800  £9,320

minus 300  minus £2,200  minus £2,330

Carried forward  900  £6,600  £6,990

How to work out indexation allowance if the shares are held in a 1982 holding

There is no allowable expenditure if a bonus issue is made in respect of shares in a 1982 holding.  The effect of the bonus issue is to reduce the average cost of the shares in the holding.

Example 5

Suppose you had made the election described in the section ‘ What is Rebasing’, on page CGN9 of the Notes on Capital Gains Pages, so that all your assets are held at their 31 March 1982 value.  You have a 1982 holding of 1,00 shares in RST plc with a cost equal to their 31 March 1982 value of £2 per share.  In 1997 RST plc makes a one for one bonus issue.  you now have 3,200 shares held at a capital gains cost of £1 per share.   If you sell 500 shares, indexation allowance will be given on £500.

You are entitled to an allowable deduction for the amounts you pay for the shares issued on a rights issue.  Any indexation allowance due on these amounts is only given from the date you pay or become liable to pay for the new shares.

Example 6

You have a 1982 holding of 1,000 shares in UVW plc.  In May 1994 the company declares a one for two rights issue at £4 per share.  You accept your full entitlement of 500 shares at a total cost of £2,000.  In June 1998 you sell 400 shares at a price of £8.50 per share.  The 31 March 1982 value of the shares is £2.50 per share.  You have made an election for the 31 March 19982 value to apply to all your assets.

In 1982 holding consists of the following shares:

Shares  Cost/31 March 1982 value

Shares held at 31 March 1982  1,000  £2,500

Rights issue  500  £2,000

1,500  £4,500

You work out the allowable expenditure as follows:

Shares sold  400 x £4,500 = £1,200

Total shares held   1,500

Indexation allowance on the shares held at 31 March1982 is due from that date. Indexation allowance on the shares issued on the rights issue is only due from the period May 1994 to April 1998:

£2,500 x 400/1,500 x 1.047 = £698

£2,000 x 400/1,500 x 0.124 = £66

£764

You work out the chargeable gain as follows:

Disposal proceeds £3,400

minus cost £1,200

Unindexed gain  £2,200

minus indexation allowance  £764

Chargeable gain  £1,436

Notes on computation

1.  You may not have made an election for the 31 March 1982 value to apply to all your assets.  If so you will have to work out the gain using the cost of the shares held at 31 March 1982.  As explained in the paragraph headed ‘What is Rebasing’ on page CGN9 in the Notes on Capital Gains Pages, you compare this gain with the gain used in the 31 March 1982 value.

2.  If you have acquired the rights issue shares on or after 6 April 1998 no indexation would be due on the cost of acquiring them.

Share reorganisations involving different classes of shares

The shares issued on a share reorganisation may be of a different class from the shares you already own.  Because the shares are of different classes you cannot identify the allowable cost of the shares using the number of shares disposed of.  Instead, you identify the allowable cost and the respective values of the shares using the formula:

Cost x Value of shares disposed of

Value of shares disposed of + value of shares still held

The time at which you split the cost of the different classes of share depends on whether or not the shares are quoted on the Daily Office List of the Stock Exchange, or any other recognised Stock Exchange.

quoted shares- you value the different classes of share immediately after the share reorganisation

unquoted shares - you wait until you dispose of some of the shares before splitting the cost.    The values you use in the formula are the values of the shares a the time of disposal.

Example 7

In May 1986 you buy 1,000 £1 ordinary shares in FGH plc, a quoted company, for £1,800.  In March 1995 FGH plc make a rights issue of one £1 ‘A’ ordinary share for every four £1 ordinary shares held at a price of £2.50 per share. You take up your full entitlement of 250 £1 ‘A’ ordinary shares at a cost of £625.  Immediately after the share reorganisation, the £1 ordinary shares had a value of £8 per share and the £1 ‘A’ ordinary shares a value of £2.60 per share.

You split the cost of the different classes of share as follow:

Step 1

Calculate the cost of indexation allowance due up to and including the share reorganisation

Number of Shares  Pool of Actual Cost  Pool of Indexed Cost

May 1996  1,000 ords  £1,800  £1,800

Indexation allowance May 1986 - March 1995 0.507  +£913

March 1995  250 ‘A’ ords   £625  + £625

1,000 ords/250 ‘A’ ords   £2,425  £3,338

Step 2

Split the cost of the two pools of expenditure. The amount allocated to the £1 ordinary shares is given by the formula

Value £1 ords

Value £1 ords + Value £1 ‘A’ ords

1,000 x £8 = 8,000

(1,000 x £8) + (250 x £2.60)  8,650

Pool of actual cost £2,425 x 8,00/8,650 = £2,243

Pool of indexed cost £3,338 x 8,000/8,650 = £3,087

and a Section 104 holding of ‘A’ ords

Number of shares   Pool of actual cost   Pool of indexed cost

250   £182  £251

Scrip or stock dividend

In a scrip or stock dividend, the company paying a dividend gives its shareholders the option of taking the dividend in the form of new shares rather than cash. It is a form on bonus issue as the shareholders do not pay for the new shares.   Shareholders who take shares are taxable on the dividend.  They are treated as having received an amount called ‘the appropriate amount in cash’, which attracts Income Tax.

For Capital Gains Tax purposes, shareholders are treated as though they paid the appropriate amount in cash for the new shares.  In other words, the appropriate amount in cash is the allowable expenditure on the new shares.  If the scrip dividend shares are issued before 6 April 1998 you would out the capital gains on any later disposal of shares in a Section 104 holding or 1982 holding by treating the stock dividend in the same way as a rights issue.  Indexation allowable is given from the month the dividend became payable.

If the scrip dividend shares are issued on or after 6 April 1998 they are treated as a separate new acquisition.  For further information on how to work out when these shares are disposed of an the gain or loss arising, see pages 2 and 3 of Help Sheet IR284: Shares and Capital Gains Tax.

If a stock dividend is paid by a listed company, the company will usually explain the tax treatment and tell you the value of the appropriate amount in cash.

This explanation may not apply to stock dividends received by trustees, so please ask your Tax Office, or tax adviser, for details.

Demergers

A demerger in which a company distributes shares in a subsidiary to its shareholders may be treated as share reorganisation.  Because the shareholder will then own shares in the original company and the subsidiary, this is a share reorganisation involving different classes of share.  It is therefore necessary to apportion the allowable cost of the shares using the rules explained in the section ‘Share reorganisations involving different classes of share’ above.  A listed company making a demerger will usually tell its shareholders whether the demerger is a share reorganisation.

Take-overs

When a company takes over another it may issue its own shares and/or securities in payment or part payment for the shares it is buying.  Under certain conditions this is treated as a share reorganisation. If the take-over is by a listed company, the information you receive about the take-over will usually say whether these conditions are met.  The payment can consist of a mixture of cash, shares and securities.  The treatment of these different elements is described below.

All shares

If the company making the take-over only issues shares, you are treated as though you acquired the new shares at the same time and at the same price as the old shares.  You may already own shares in the company making the take-over.  If the new shares and the existing holding are both Section 104 holdings, or are both 1982 holdings, the newly issued shares and your existing holding will be merged.

Example 8

You have the following holdings of shares:

1982 holding shares   Cost  Section 194 holding shares  Cost

KNO Ltd  1,000  £1,200  5,000 £6,000

RST Ltd 1,000  £1,800  2,000  £8,000

RST Ltd takes over KNO Ltd and issues 5 RST Ltd shares for every one KNO Ltd share held.  5,000 shares are issued in respect of the 1982 holding and 25,000 shares in respect of the Section 104 holding. You are treated as having acquired these shares at the same cost or 31 March 1982 value as the KNO Ltd shares.  The holding of RST Ltd shares now becomes:

1982 holding shares   Cost  Section 194 holding shares  Cost

RST Ltd   6,000   £3,000    27,000  £14,000

Shares and cash

If the company making the take-over pays cash and shares, you may nave to pay Capital Gains Tax on the cash you receive.  To work out the gain you will need to apportion the allowable cost of the shares in the original company between the cash received and shares received.  You do this by reference to the value of what you receive.  The formula is:

Value of cash received

Value of cash received + value of shares received

Example 9

You have a Section 104 holding of 20,000 shares in CDE Ltd. On 01.03.99 CDE Ltd is taken over by WXY Ltd.  WXY Ltd pays £4 in cash and issues 2 shares for each share in CDE.  On 01/03/99 each WXY Ltd share is worth £6.

The Section 104 holding of WXY Ltd shares including indexation allowance up to April 1998 is:

Number of shares   Pool of actual cost  Pool of indexed cost

20,000   £60,000    £94,440

The receipt of the cash on the take-over is treated as a capital distribution

Using consideration received the part disposal formula becomes:

20,000 x £4 = 1/4

(20,000 x £4) + (40,000 x £6)

Pool of indexed cost  £94,440 x 1/4 = £34,610

Pool of actual cost £60,000 x 1/4 = £15,000

Indexation allowance £8,610

Capital Gains Tax calculation

Disposal proceeds £80,000

minus cost  £15,000

Unindexed gain  £65,000

minus indexation allowance  £8,610

Chargeable gain  £56,390

You now have a Section 104 holding of 40,000 WXY Ltd shares.

Number of shares   Pool of actual cost  Pool of indexed cost

40,000  £45,000  £70,830

(£60,000 minus £15,000)  (£94,440 minus £23,610)

Securities

The company making the take-over may issue securities such as loan notes.  This is sometimes described as a ‘loan note alternative’ to the cash offer.  The tax treatment depends on whether the securities are Qualifying Corporate Bonds.  The information given to you at the time of the take-over should say whether the securities are Qualifying Corporate Bonds.

If the securities are Qualifying Corporate Bonds the rules are as follows.  You calculate the gain that would have arisen if the shares in the company being taken over were sold at their market value immediately before the take-over.  That gain or part of that gain becomes chargeable when the securities are disposed of.  There is no separate gain on the disposal of the Qualifying Corporate Bonds themselves.

Example 10

You own 1,00 shares in JLM Ltd.  JLM Ltd is taken over by NPR Ltd which issues securities worth £5 for every share in JLM Ltd you hold.  The securities are Qualifying Corporate bonds.  Your holding of JLM Ltd shares was worth £5,000 immediately before the take-over.  If the cost plus indexation due on these shares is £3,500 this would give a notional gain of £1,500 immediately before the take-over.  If you dispose of half the securities that will release a gain of £750.

If the securities are not Qualifying Corporate Bonds you follow the rules described in the paragraph on page 6 headed ‘All shares’.

Cash/shares/securities

The company making the take-over may offer a combination of cash, shares and securities.  You will have to apportion the allowable cost of the shares in the company being taken over between the different elements of the consideration received.  As shown in the examples above, you do this by reference to the values of what is given or received.

Earn-outs

Some company take-overs may include an earn-out right, where the amount of the consideration to be paid depends on (for example) the future profits of the company.  Because the amount cannot be calculated at the time of the take-over, the value of the rights itself represents disposal proceeds.  However, if you receive an earn-out right that can be satisfied only by an issue of shares or securities, you may elect for the right to be treated as if it was itself a security.  This allows the rules for take-overs described above to apply on receipt of the right.  The rules will also apply when you actually receive any shares or securities because of the earn-out.

The time limit for an election is 12 months from 31 January in the tax year following that in which the right was conferred. So if the right was conferred in 1998-99 the time limit is 31 January 2001.

The right cannot be treated as a qualifying corporate bond.  The detailed rules here can be a complex matter, and if you receive an earn-out right you are advised to consult your professional adviser, or see the Inland Revenue Capital Gains Tax Manual at your local Tax Enquiry Centre.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR286

Income Tax Losses for Shares you have Subscribed for in Unlisted Trading Companies.

This Help Sheet explains how you can make a claim for allowable capital losses on shares to be deducted from your income.  The losses you deduct from your income cannot also be deducted from your chargeable gains.  The losses must arise on the disposal of shares in an unlisted trading company.  You must have subscribed for the shares.  You may claim for relief against your income for the year the loss was made or the previous year.

The following notices are a simplified summary of the legislation as it applies in some common cases. If you are in any doubt about your liability, ask your Tax Office or tax adviser.

Example 1

You subscribed £10,000 for ordinary shares in a company making furniture.  The business failed in August 1998, the shares becoming worthless.  You may claim to set the allowable capital loss on the share either against chargeable gains in the normal way, or against your income for 1998-99 or against your income for 1997-98.

In what type of company should I have subscribed for shares?

The company must satisfy the following conditions:

it has always been resident in the UK, and

none of its shares have been listed on a recognised stock exchange since the company was incorporated or, if later, one year before you subscribed for the shares, and

the company must be:

if you subscribed for the shares before 6 April 1998, a trading company

if you subscribed for the shares on or after 6 April 1998, an eligible trading company.

See the section headed ‘Do all trading companies qualify?’ for further details.  A trading company is a company whose business consists wholly or mainly of the carrying on of a trade (or trades) or the holding company of a trading group.

The company or the trading group may have stopped trading before you disposed of the shares.  You may still be entitled to relief if this happened no more than three years before the disposal.  See the sectioned headed ‘What if the company has stopped trading?’ on page 2 for further details.

Do all trading companies qualify?

No. Companies carrying on some trades do not qualify.  If you subscribed for the shares before 6 April 1998, companies carrying on the following trades do not qualify:

those consisting wholly or mainly of dealing with shares, securities, land, trades or commodity futures

those not pursued on a commercial basis and in such a way that they would be reasonably expected to make a profit

building societies or registered industrial and provident societies.

If you subscribed for the shares on or after 6 April 1998, companies carrying on the following trades do not qualify:

those consisting wholly or mainly of dealing in land, in commodities or futures or in shares, securities or other financial instruments

those that are no eligible for the purposes of the Enterprise Investment Scheme (see Help Sheet IR297)

those not pursued on a commercial basis and in such a way that they would be reasonably expected to make a profit

building societies or registered industrial and provident societies

In addition there is no relief for losses on share sin the holding company of a non-trading group.

How long must the company have been a trading company?

If the company was a trading company when you disposed of the shares it must satisfy either of the following conditions:

it was a trading company throughout the six years to the date of disposal, or

it was a trading company throughout its active existence if that is less than six years.

If your share are in the holding company of a trading group, the group business as a whole must satisfy these tests.

What if the company has stopped trading?

You will still qualify for relief if the company has stopped trading when you disposed of the shares as long as all the following conditions are satisfied:

the company stopped trading no more than three years before the disposal, and

the company has not started a non-qualifying activity such as investment or a non-qualifying trade, and

at the date it stopped trading it satisfied the conditions set out in the paragraph above headed ‘How long must the company have been a trading company?’

Which shares qualify?

The shares must not be fixed rate dividend preference shares and you must have subscribed for them. You will also be treated as having subscribed for any shares your spouse subscribed for and transferred to you during their life time. You will have subscribed for shares if they were issued to you for money or money’s worth.

Which disposals qualify?

The loss must have been made on:

an arm’s length bargain for full consideration, or

a negligible value claim, or

the dissolution or winding up of the company.

How is the allowable loss calculated?

You calculate the loss in exactly the same way as other allowable capital losses.  If you subscribed for all the shares disposed of, all of the allowable loss is available for relief.  You may have a holding of shares some of which you subscribed for and some of which you bought or acquired by gift or inheritance. Only the shares you subscribed for will qualify for relief.  There are rules for determining what proportion of the allowable loss qualifies for relief.  Ask your Tax Office for details.  Any part of the allowable loss that is not set against income remains an allowable loss to be deducted from chargeable gains.  Remember any loss you use against your income is not available to use against capital gains.

How is the relief given?

The relief is given by deducting the allowable loss from your total income from all sources, before any deduction for your personal Income Tax allowances.  This means you cannot restrict the claim to leave your income equal to your personal Income Tax allowances.

You may claim that the loss be set against your income of the year in which the loss arose or against your income of the following year.  If the loss is sufficiently large you may claim that it be set against the income of both years.  If you claim for both years then the loss is set:

first, against the income of the year in which the loss occurred

second, against your income of the following year.

If there is still a balance of unused capital loss, it can be deducted from chargeable gains in the usual way.

An allowable capital loss made in 1998-99 can be claimed against your income in 1998-99 or 1997-98 or both years depending on the amount of your income and losses.

Example 2

In 1985 you subscribed £50,000 for ordinary shares in a trading company.  In 1998 the company falls and you make a negligible value claim in your 1998-99 Tax Return.  You have an allowable loss of £50,000 made in 1998-99.  your income and Income Tax personal allowances for 1997-98 and 1998-99 are as follows:

1997-98 1998-99

Income  £30,000  £32,000

Personal allowances  £4,000   £4,400

You may claim that the allowable loss on the shares be set against your income for 1998-99 and any balance 1997-98.  The relief is given as follows:

1998	1997-98

Income  £32,000  £30,000

minus loss £32,000  £18,000

zero  £12,000

minus personal allowances  £4,000

Taxable income  £8,000

Remember that the allowable loss on the shares used in 1998-99 may not be restricted to preserve your personal allowances.

There is an order of priority if you are also claiming a deduction for other losses.  In 1998-99 this is:

First, allowable capital losses on shares for 1998-99

second, allowable capital losses on shares carried back from 1999-2000

third, other Income Tax losses.

Remember, any allowable capital losses on shares not set against your income can be deducted from chargeable gains in the usual way.

How to claim the relief?

The relief has to be claimed within two years of 31 January in the year in which the loss was made.  An allowable loss made in 1998-99 has to be claimed on or before 31 January 2001.

If you make an allowable loss in 1998-99 you can claim the relief for 1998-99 or 1997-98.  You can make those claims as follows:

1998-99

You can claim the relief by making an entry in box 8.13A on Page Capital Gains1. You must also give details of your claim on Page CG2.  If you do this, please make sure you do not include the same loss in box 8.2 on Page CG2.

1997-98

Like 1998-99, you can claim the relief by making an entry in box 8.13B on Page CG1 and by giving details of your claim on Page CG2.  Any relief due for 1997-98 will be given as an adjustment to the amount of tax for 1998-99.

If you do not include your claim in your Tax Return you may instead write to your Tax Inspector giving full details of your claim within the time limit specified above.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR287

Employee Share Schemes and Capital Gains Tax

This Help Sheet provides information to help you complete the Capital Gains Pages of your Tax Return when you have disposed of shares you acquired by reason of your office or employment, or by exercising a share option granted because you are (or were) a director or an employee.

The Help Sheet tells you about the costs you can take into account in calculating your capital gains or losses.  It deals with the following topics:

approved profit sharing scheme

approved savings-related share option scheme (SAYE Schemes)

approved discretionary share option schemes

unapproved share option schemes

unapproved share schemes

amounts chargeable to Income Tax

shares subject to restrictions on disposal

indexation

taper relief

You may also need to look at Help Sheet: IR284 Shares and Capital Gains Tax, which explains the rules applying to disposals of shares, and the Notes on the Share Scheme Pages together with Help sheets IR216: Shares as benefits, IR217: Shares acquired: post-acquisitions charges, which explain the Income Tax rules, and IR219: Shares acquired from your employment.

If you are in any doubt about how to calculate your cost for capital gains purposes, ask your Tax Office or tax adviser.  You can ask to see a copy of the Inland Revenue Capital Gains Manual, which explains the rules in detail.

Some Employee Share Schemes are approved by the Inland Revenue and others are not.  The main difference is that people do not usually pay Income Tax when they acquire shares under an approved scheme.

Approved profit sharing schemes

The cost of your shares, for capital gains purposes, is the market value of the shares when the trustees of the scheme appropriate them to you.  The trustees will tell you what this is.

For capital gains purposes, you acquire your shares at the date the trustees appropriate them to you (even though you may not be able to sell them at that time).

Approved savings-related share option schemes (SAYE Schemes)

The cost of your shares for capital gains purposes is usually:

what you paid for the shares when you exercised the option, and

any amount on which you pay Income Tax on the exercise of the option.

You will only pay Income Tax on the exercise of your option under an approved savings-related share option scheme if you have exercised the option:

within 3 years of receiving it, and

because the company or part of the business you work for was sold or taken over.

If you pay Income Tax on the exercise of your option and you acquired the option before 28 November 1995, the capital gains cost of the shares includes the market value (if any) of the option when you acquired it.

Personal equity plans (PEPs)

You can transfer shares worth up to £3,000 at the date of transfer into a Single Company Personal Equity Plan directly from the approved profit sharing scheme or the approved savings-related scheme, providing certain conditions are met.  If you transfer your shares to a PEP in this way, no Capital Gains Tax is payable on the transfer into the PEP, or on the disposal of the share sin the PEP.  For general information about Personal Equity Plans, please read leaflet IR89  Personal Equity Plans (PEPs). A guide for potential investors.

Approved discretionary share option schemes

Approved discretionary share option schemes include:

approved executive share option schemes, and

approved company share option plans.

The cost of your shares for capital gains purposes is usually the total of:

what you paid for the option (if anything)

what you paid for the shares when you exercised the option, and

any amount on which you pay Income Tax on the exercise of the option.

You will only pay Income Tax on the exercise of your option under an approved discretionary share option scheme, if you have exercised the option:

when the scheme was no longer approved, or

less than three years, or more than ten years, after the date the option was granted to you, or

less than three years after the date on which you exercised an option under any approved discretionary share option scheme for which Income Tax relief was given.

If you pay Income Tax on the exercise of your option and you acquired the option before 28 November 1995, the capital gains cost of the shares includes the market value (if any) of the option when you acquired it, instead of the cost (if any).

Unapproved share option scheme

If you exercised your option and acquired shares, their cost for capital gains purposes includes the total of the following amounts:

in the case of an option acquired before 28 November 1995, the market value (if any) of the option when acquired

the amount (if any) paid for an option acquired on or after 28 November 1995

the price paid for the shares on exercising the option

the amount on which you pay Income Tax where the market value of the shares on exercising the option exceeds, their exercised price.

All share option schemes

You acquire your shares at the date when you exercised your option.

If you released your option in consideration of the grant of a new option and do not receive anything else you will not be liable to Capital Gains Tax on receipt of the new option.  You may be liable to Capital Gains Tax if you received consideration in addition to the new option and you do not pay Income Tax on this additional consideration.

If you do not exercise an option and it lapses you are not entitled to any allowable loss for capital gains purposes.

Unapproved share schemes

If you acquire free or cheap shares from your office or employment under an unapproved share scheme, the cost for capital gains purposes is generally the market value of those shares at the date you acquired them.

If you acquired shares after 16 March 1998 subject to the risk of forfeiture and pay Income Tax when the risk of forfeiture is lifted the capital gains cost of these shares is the amount, if any, actually paid for the shares subject to the risk of forfeiture.

Amounts chargeable to income tax

In certain circumstances there are Income Tax charges when apply to employee shares after you have acquired the shares.  Broadly these are where:

you acquire shares subject to the risk of forfeiture and the risk of forfeiture is removed

you acquire shares subject to restrictions and the value of these shares is increased by later changes to the restrictions

you acquired shares in a subsidiary company and these shares increase in value

you acquired shares for less than their market value and you would not otherwise pay Income Tax on the excess of the market value over the price you pay, for example, if you pay for the shares by instalments and you are released from any outstanding liability or you dispose of the shares

you receive special benefits relating to your share such as bonus or rights issues that are not made available to at least 90% of holders of shares of the same class as yours.

Amounts which are chargeable to Income Tax in these circumstances can be added to your capital gains acquisition cost and are treated as incurred when you acquired the shares.

For more information about Income Tax and share schemes please see the Notes on Share Schemes and Help Sheets IR215: Shares as benefits, IR217: Shares acquired: post acquisition charges and IR219: Shares acquired from your employment, available from the Orderline.

Shares subject to restrictions on disposal

If, by reason of your office or employment you acquire shares subject to restrictions on disposal, these shares are treated separately from shares otherwise of the same class until the restrictions are removed.

Indexation

Indexation allowance was frozen at April 1998 except for companies.  For disposals in 1998-99 any indexation allowance due is calculated by reference to the retail prices index in April 1998.

Taper relief

Taper relief may be available for disposals after 5 April 1998.  Taper relief reduces the amount of gain chargeable to Capital Gains Tax according to the number of whole years the asset has been held after 5 April 1998.  Assets which are acquired before 17 March 1998 and are still held at 6 April 1998 qualify for an additional one year.

For further information on how to calculate capital gains or losses when you dispose of shares, indexation and taper relief please see the Notes to the Capital Gains Pages of your Tax Return and Help Sheet IR284: Shares and Capital Gains Tax.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR288

Partnerships and Capital Gains Tax

This Help Sheet gives you information to help you complete the Capital Gains Pages of your Tax Return.  It explains how partners are treated for Capital Gains Tax.  But it is only an introduction.  If you are in any doubt about whether you have made a chargeable gain, or allowable loss, as a partner, ask your tax adviser.

Your Tax Office will also be pleased to Help. You can ask to see a copy of the Inland Revenue Capital Gains Manual; this explains the rules in detail

How are partnerships treated for Capital Gains Tax?

Partnerships are treated as transparent for Capital Gains Tax. Each partner is responsible for returning any capital gains arising on the disposal of their interests in the assets of the partnership.

This applies to Scottish partnerships as well as those in England, Wales and Northern Ireland.

While this also applies to partnership which include companies as members, the rules for computing gains of companies, which are chargeable to Corporation Tax, are different from those for individuals.  The contents of this Help Sheet do not therefore apply to companies who are members of partnerships.

When your Tax Office should be given details of any Capital Gains

You should fill in the Capital Gains Pages if you were a member of a partnership during the year and any of the following happened:

the partnership disposed of an asset during the year (for example, it sold part of its business premises), or

you left the partnership during the year, or

there was a change in the partnership during the year and you now have a reduced share in the partnership assets (for example, a new partner joined).

How do you know what your share in the assets is?

Partners are treated as each owning a fractional share in all the assets of the partnership.  The amount of your share will be decided by:

any written agreement showing how you and your partners will share the assets

any written agreement showing how you and your partners will share the profits

the rules in the 1890 Partnership Act which treats you all as having equal shares.

Example 1

Bill and Ted are in partnership and agree to share profits equally.  This means that they are each treated as having a 50% interest in the assets of the partnership.

When you dispose of all of your share

You dispose of all of your share in an asset if this is disposed of to someone outside the partnership

Example 2

Jack and Jill are equal partners in a farm.  They sell part of the farm land to their neighbour in May 1998.  Each has disposed of all of their 50% interest in that part.

You also dispose of all your share if you leave the partnership completely, for example, when you retire.

Example 3

Jack reaches retiring age and leaves the partnership in December 1998.  He disposes of all of his 50% share in the remaining assets to Jill.

When you dispose of part of your share

You may dispose of part of your share in an asset if the original agreement is altered.  This most commonly happens when a new partner joins.

Example 4

Bill and Ted are joined by a new partner Alice in July 1998. They now, agreed t share profits on a 40/40/20 basis.  This means that Bill and Ted have each disposed of 10/50 of their original shares.

It may also happen when the partners rearrange matters between themselves.

Example 5

After six months, Bill, Ted and Alice become equal partners.  They now share profits on 33 1/3 basis. Bill and Ted have now made a further disposal of 6 2/3 / 40 of their revised shares.

When you acquire your share

If the asset is acquired from someone outside the partnership, you acquire your original share in it then.

Example 6

The partnership of Bill, Ted and Alice buys a new piece of machinery in March 1999.  Each now has a 33 1/3 share in that asset

When you acquire a further share

You may acquire a share or a further share in the asset if the original agreement is altered.  This most commonly happens when a partner leaves.

It may also happen when the partners rearrange matters between themselves.

Example 7

Bill resigns from the partnership on 5 April 1999 and disposes of his share in the assets to Ted and Alice.  At the same time, they agree to revise the shares to 40/60.  As a result, Ted acquires a further 6 2/3 share from Bill, Alice acquires a further 26 2/3.

What do you need to do if you have disposed of part of your share?

If you have disposed of any part, or all, of your share in a partnership asset, then you need to calculate any chargeable gain and enter it in your Capital Gains Pages.

Points to remember:

you are treated as having a fractional share in the partnership assets

you can acquire that share

when an asset is acquired from someone outside the partnership

when there is a reorganisation within the partnership

you can dispose of that share

when an asset is disposed of to someone outside the partnership

when there is a reorganisation within the partnership

How you calculate any chargeable gains

Most of the normal rules for calculating chargeable gains still apply to disposals of shares in partnership assets.  This Help Sheet explains these briefly.  If you need help with these, you should ask your Tax Office or your tax adviser.

The normal rules do not apply if you acquired your share in the asset from , or disposed of it to, another partner.  See ‘The Special Rules’ section on page 3.

The normal rules

These are rules which you have to use if you are calculate a chargeable gain on the disposal of a share in a partnership asset.  These affect:

the amount you should include for the disposal proceeds of your share in the asset

the amount you can deduct for the allowable cost of your share in the asset

whether you should use your share of the 31 March 1982 value of the asset

the amount of indexation allowance you can claim.

The amount to be included for the proceeds of disposal

In calculate your chargeable gain on the disposal of your share in the asset to someone outside the partnership, you normally include your share of the actual disposal proceeds, minus any incidental expenses.

Example 8

When Jack and Jill sold the part of the farm land to their neighbour in May 1998, they received £25,000 for it and incurred legal fees of £5,000. In calculating their chargeable gains, each should include disposal proceeds of £12,500 minus expense of £2,500.

In certain circumstances, you may have to include your share of the market value of the asset at the date of disposal, rather than the actual disposal proceeds. If you think this might apply, you should consult your Tax Office or your tax adviser.

The normal rules do not apply if you have disposed of your share in the asset to another partner.  See the ‘Special rules’ section on page 3.

How much should you deduct for the cost of the asset?

Assets acquired after 31 March 1982

If the asset was acquired from someone outside the partnership after 31 March 1982 and you acquired your share when it was acquired, then you deduct your share of the original acquisition cost, plus any incidental expenses.

Example 9

When Bill, Ted and Alice bought their new machinery in 1999, they paid £30,000 for it with incidental expenses of £750.  If they sell it, each will be able to deduct acquisition costs of £10,000 and expenses of £250.

In certain circumstances, you may have to deduct your share of the market value of the asset at the date of acquisition, rather than the actual cost.  If you think this might apply, you should consult your Tax Office or your tax adviser.

Assets acquired before 31 March 1982

If the asset was acquired from someone outside the partnership on or before 31 March 1982 and you acquired your share when it was acquired, then you may be able to deduct your share of the market value of the asset at 31 March 1982, rather than the actual cost.

You should ask the Orderline for Help Sheet IR280: Rebasing - assets held at 31 March 1982.

The normal rules do not apply if you acquired your share in the asset from another partner.  See ‘The Special Rules’ section in the next column.

How much indexation allowance can you claim?

In calculating your chargeable gain on the disposal of your share in the asset to someone outside the partnership, you may be able to deduct an additional allowance, called the indexation allowance.

This applies if you acquired your share in the asset before 6 April 1998 and it is based on your share of the cost of the asset, or then 31 March 1982 market value, multiplied by the difference in the retail prices index between the months you acquired it and April 1998.

Example 10

If the partnership of John and Paul bought machinery in February 1989 for £20,000 and sell it in May 1999, they are each able to deduct an indexation allowance 0f:

(£20,000 x 0.454) = £4,540

2

Details of the indexation allowance for each month are given on page CGN14 of the Notes on Capital Gains.  The normal rules do not apply if you acquired your share in the asset from, or disposed of it to, another partner.  Read the ‘Special rules’ section later in this Help Sheet.

How much taper relief can your claim?

You may also be able to reduce the amount of any chargeable gain on the disposal of your share in a partnership asset by taper relief.  Details of this relief, which is based on the length of time you have owned your share in the asset after 6 April 1998, are given in the Notes to the Capital Gains Pages.

Points to remember

you should include your share of the disposal proceeds, less any incidental expenses

if you acquired your share in the assets

after 31 March 1982, you should deduct your share or the original acquisition cost, plus any incidental expenses

on or before 31 March 1982, you may have to use your share of the market value at that date.

The special rules

There are special rules that apply if you acquired your share in the asset from another partner or have disposed of it to another partner. These affect:

the amount you should include for the disposal proceeds

the amount you can deduct for the allowable cost

whether you should use your share of the 31 March 1982 value of the asset

the amount of indexation allowance you can claim,.

This Help Sheet summarises the way the special rules work. If you need further assistance, ask your Tax Office or tax adviser.

Disposal proceeds

If you dispose of your share in the asset to another partner, then the special rules treat the disposal proceeds as your share of the balance sheet value of the asset.

Example 11

When Bill resigns from the partnership, the chargeable asset in the balance sheet are:

Property £240,000

Machinery £180,000

Goodwill £60,000

Bill had a 33 1/3 share of the assets, so his disposal proceeds are

Property £80,000

Machinery £60,000

Goodwill £20,000

The rule does not apply if you have received actual consideration from the other partner over and above the balance sheet value.  In that case, ask your Tax Office or tax adviser.

This rule may not apply if you and the other partner are connected persons for example, father and son.  In that case, you should ask your Tax Office or your tax adviser.

Acquisition cost

If you acquired your share in the asset from another partner, then the special rules treat the acquisition cost as your share of the balance sheet value of the asset.

Example 12

When Bill resigned, Ted acquired 6 2/3 of his share in the assets. His acquisition cost of that share will be:

Property £16,024

Machinery £12,007

Goodwill £4,002

This rule does not apply if you have given actual consideration to the other partner over and above the balance sheet value.  In that case, ask your Tax Office or tax adviser.

Transfer at balance sheet value

Because the special rules treat acquisitions and disposal as taking place at balance sheet value, then you may have to use the same figure for both disposal consideration and acquisition cost.

This will depend on whether the assets have been revalued since you acquired your share in them.

Assets not revalued

Example 13

Charles became a member of a partnership in 1990.  He was entitled to a 25% share in the assets.  In the balance sheet, these were shown as:

Property  £400,000

Goodwill £80,000

Charles made no payment of his share, so his acquisition costs are:

Property £100,000

Goodwill  £20,000

In 1998 Andrew joins as a partner, and Charles reduces his share to 20%

The assets are still in the balance sheet at £100,000 and £20,000, so Charles will use 5/100 of those values as both his acquisition costs and disposal proceeds for the 5% he transfers to Andrew.  He therefore makes neither a gain nor a loss.

A situation such as this is referred to as a no gain/no loss disposal.

If, however ,the assets in the balance sheet have been revalued, then gains or losses may arise.

Asset revalued

Example 14

In 1999, Edwards joins the partnership and Charles makes a further 5% reduction in his share.  By now, the assets have been revalued to

Property £1,000,000

Goodwill £19,000

As the assets have been revalued, Charles’ acquisition costs and disposal proceeds are now different:

Property acquisition  5% x £400,000  £20,000

disposal  5% x £1,000,000  £50,000

gain before indexation and taper relief  £30,000

Goodwill acquisition  5% x £80,000   £4,000

disposal  5% x £10,000   £500

loss  £3,500

Rebasing ; indexation and taper relief

The special rules modify the way in which the normal rules for assets held at 31 March 1982 and for calculating the indexation allowance work.  They do not modify the way in which taper relief works.

The effect of the special rules depends on when the various disposals or acquisitions take place.  If you acquired a share in a partnership asset before 6 April 1988 and have now disposed of that share, ask your Tax Office or tax adviser for help.

There are detailed flow charts in Volume 2 (Partnerships) of the Capital Gains Manual which take you through the various stages.  You can ask to see copies of these.

Points to remember

transfer of shares between partners take place at balance sheet value unless actual consideration is paid

where no consideration is paid, gains or losses will only arise where the balance sheet has been revalued

the rules for rebasing and indexation may be different.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR289

Retirement Relief and Capital Gains Tax

This Help sheet will help you decide if you are entitled to retirement relief. It is only a simple guide and does not cover all cases.  You can get help from your tax adviser.  Your Tax Office will also be pleased to help.  You can also ask to see the Inland Revenue Capital Gains Manual.

Who can get relief?

Retirement relief is available to individuals and some trustees, but not to companies.  See page 4 for further details of the qualifying conditions for trustees.

Individuals

If you are entitled to the maximum amount of relief:

the first £250,000 of qualifying gains will be exempt in full, and

half of the next £750 of qualifying gain will also be exempt.

If the gain exceeds £1 million, the excess will be taxable in the normal way.

The calculation of the relief is described in more detail on page 5.

You can get relief if you retire at age 50 or more, or if ill-health forces you to retire below that age.

If you qualify for relief and were over 50 when you retired, tick the column H on Page CG2 of the Capital Gains Pages next to the relevant disposal and write ‘retirement relief’ in column 0.

Ill-health claims

If you are below 50 you may still be able to claim relief if you have to give up work because of your ill-health and it is unlikely that you will ever be able to go back to similar work in future.  If you are claiming relief on ill-health grounds ask the Orderline now for forms CG85 and CG85R.

Complete form CG85, following the notes on that form.  Then send both forms to your GP or other medical practitioner who you want to make a report on your health. The medical practitioner should complete the report on form CG85R and then send off both forms in the envelope provided.

The Inland Revenue’s medical adviser will examine the claim and may ask you to attend an examination to get more details from you.  The medical adviser will then advise the Inland Revenue on whether you meet the medical conditions for relief.

What can I get relief on?

To get retirement relief you have to meet the relevant qualifying conditions throughout a period of at least one year. This period is called the qualifying period.  It ends (in most cases) on the date when you disposed of the asset for which you want relief, or the date when the business ceased, if that was earlier.

The relevant qualifying conditions are described below.  If you meet the conditions you can get relief on the disposal of:

the whole or part of your business, whether you carried on the business in partnership or on your own. ‘Business’ does not include the letting of property unless this amounts to a trade, or the business is furnished holiday lettings

This relief is given on all business assets such as goodwill and business premises.  But it is not available for disposals of shares, securities or other investments held in the business

assets that had been in use for your business and which you disposed of within the ‘permitted period’ (see below) after the business ceased. ‘Business’ does not include the letting of property unless this amounts to a trade, or the business is furnished holiday lettings

shares in, or securities of, your ‘personal company’ (see below).  The shares must be disposed of while the company is trading or within the ‘permitted period’ (see below) after the trade has ceased.

assets that you use in an office or employment which was your full-time job

This relief is not available if you are an officer or employee of your personal company, or of a company in a group held by your personal company. But you may get relief on disposals of assets which are ‘associated with’ a disposal of shares in your personal company.  See page 2.

assets used in a business carried on either by you in partnership, or by your personal company for which you work full-time.

The ‘permitted period’ means a period of one year, or any longer time that the Inland Revenue allows.  In practice, a period of up to three years will usually be allowed provided the asset or, in the case of a company, any chargeable business asset held by it at the date trading ceased, is not used or leased for any purpose after the initial one year period.

Your ‘personal company’ is a company in which you can exercise at least 5% of the voting rights.

If the disposal is by trustees, there are other qualifying conditions to be met (see page 4).

Qualifying conditions

To get relief you have to satisfy a number of conditions throughout a period of at least one year. This is the ‘qualifying period’.  It usually ends on the date of disposal.  If the business or employment has already ceased by the time the disposal is made, the qualifying period usually ends on the date of cessation.

The qualifying conditions depend on the type of disposal you have made.

Disposals of the whole or part of your business

There is only one condition to be satisfied in the qualifying period.  You must own the business either:

directly, or

as a member of a partnership, or

through a trading company which is your ‘personal company’, or

through a company that is a member of a trading group, whose holding company is your ‘personal company’.

If the business is owned through a company, you must be a full-time working officer or employee of that company (or of one or more members of the group).

At the date of disposal you must also either be aged 50 or more or be retiring because of ill-health (see ‘ill-health claims’ on page 1).

Disposal of your assets following the cessation of a business

The conditions are similar to those set out in the previous paragraph.  But in this case the qualifying period ends on the date the business ceased rather than the date when the asset is disposed of.  The date of cessation must be within the permitted period before the date of disposal.

If the asset in question was owned by you personally, but in use by either a partnership or a company at the time business ceased, you cannot get relief under this provision.  But you may be entitled to relief as an ‘associated disposal’.  See the next column.

At the date the business ceased you must also either be aged 50 ore more or be retiring because of ill-heath (see ‘ill-health claims’ on page 1).

Disposal of shares or securities in your personal company.

Throughout the qualifying period the company must be:

your personal company, and

either a trading company, or

the holding company of a trading group

You must be a full-time working officer or employee of that company (or one or more of the members of the group) throughout the same period. But see also page 5, ‘Partial retirement’.

Periods when the company’s (or group’s) business was owned by you (on your own or in partnership) can also be taken into account.

The qualifying period ends on the date of disposal of the shares, unless the company (or group) ceased to trade within the permitted period before the disposal.  If so, it ends on the date of cessation.

You must also either be aged 50 or more or be retiring because of ill-health (see ‘ill-health claims’ on page 1) at the date of disposal of the shares or the date the business ceased, if that is earlier.

If the company (or group) has investments as well as business assets, the amount of the gain eligible for relief may be restricted.  See page 3.

Disposal of your assets used in your office or employment.

Your office or employment must be your full-time occupation throughout the qualifying period.  If your office or employment ceases within the permitted period before the disposal, the qualifying period runs up to the date of cessation.

You must also either be aged 50 or more or be retiring because of ill-health (see ‘ill-health claims’ on page 1) at the date of disposal or the date your office or employment ceases, if that is earlier.

This relief is not available if you are an officer or employee of your personal company, or of a company in a group held by your personal company.  But you may get relief on disposals of assets ‘associated with’ a disposal of shares in your personal company.  See the paragraph below.

‘Associated disposal’ of your assets used in a business carried on either by you in a partnership, or by your personal company (or group)

Your disposal must take place in association with a withdrawal (or partial withdrawal) from a business carried on either by you in partnership or by your personal company (or a member of your personal trading group).  A ‘withdrawal’ is a disposal of your interest in the partnership or of your shares in the company.  The asset sold must have been in use in the business immediately before the ‘withdrawal’ (or when the business ceased, if that is earlier).

In cases where:

the asset was in business use for only part of the time you owned it, or

you were concerned in the carrying on of the business for only part of the period during which the asset was in business use, or

for at least some of the period during which the asset was in business use, you received some form of rent for it

only a just and reasonable proportion of the gain will qualify for relief.   The periods involved and the level of any rent paid, should be taken into account when working out this proportion.   See Example 1 in the next column.

Disposal of shares - how much of the gains qualify for relief?

There are special rules for working out the relief on the disposal of shares and securities.  These are designed to ensure that relief is not given for assets held as investments.

Disposal of shares in a personal trading company

If you sell shares in your personal trading company, only a proportion may qualify for the relief.  This is worked out by dividing the value of the company’s ‘chargeable business assets’ (see page 4) by the value of its total chargeable assets.  If the company has no chargeable assets, the relief is not restricted.

Example 1

Mary Grant has held a one-third share in a trading partnership since 06.04.83.  In April 1988 she acquired a freehold shop, which was then let to the partnership and used by it for its trade.  On 01.04.99 at the age of 60 Mary Grant retires from the partnership and sells the shop to the remaining partners, making gain of £90,000.

Part of the gain (the ‘investment part’) must be excluded from the gains qualifying for relief.  That is worked out as follows:

1.  If no rent was paid, none of the gain is treated as the investment part. So the whole £90,000 will qualify for relief.

2.  If the partnership paid a full market rent throughout the period of ownership, part of the asset is treated as if it was rented by the other two partners and so is an investment.  2/3 of the gain does not qualify for relief.

So 1/3 of the gain qualifies - 1/3 x £90,000 = £30,000

3.  If the partnership paid a rent of £3,000 a year and the average market rent was £12,000 (in other words, they paid 1/4 of the market rent), then only 1/4 of the part rented by the other two partners is treated as an investment.

The amount which does not qualify is 1/4 of the 2/3 part rented by Mary Grant’s partners (that is 1/6).

So 5/6 of the gain qualifies - 5/6 x £90,000 = £75,000

Example 2

In October 1998 Carol Brown, aged 56, sells a 40% holding in her personal trading company for £520,000.  The chargeable gain is £400,000.

At the date of disposal the company’s assets and their market values are as follows:

Assets  Chargeable assets  Chargeable business assets

Factory and offices  £150,000  £150,000   £150,000

Goodwill  £200,000  £200,000  £200,000

Plant and machinery  £50,000  *£10,000  £10,000

Investments  £140,000  £140,000

Stock £50,000

Cash £10,000

Debtors £40,000

Totals  £640,000  £500,000  £360,000

*  Note: The plant and machinery consists mainly of small items and only one, worth £10,000, exceeds in value the exemption limit for chattels.  (see Help Sheet IR293).

The part of the gain qualifying for retirement relief is:

Chargeable business assets    - £360,000

Chargeable assets  £500,000

So retirement relief is available on gains of

£400,000 x £360,000  = £288,00

£500,000

If the company in this example had only stock, cash, debtors, and small items of plant, there would have been no chargeable assets.  So there would not have been any restriction and relief would be available on the total gains of £400,000.

Chargeable business assets are assets used for trade carried on by the personal company.  They include goodwill but exclude shares, securities and any other investments and any assets that are exempt from Capital Gains Tax.  Chargeable assets are all assets, including investments, that are not exempt from Capital Gains Tax.

Disposal of shares in the personal holding company of a trading group

Again, only a part of the gain qualifies for relief. In this case it is worked out by dividing the value of the group’s chargeable business assets by its total chargeable assets.

There are extra rules for dealing with the interests of group companies in other members of the group.  Ask your Tax Office or tax adviser for details.

Trustees

Retirement relief may be available to trustees who dispose of trust property that consist of either:

shares or securities in a beneficiary’s personal trading company or group, or

assets used in a beneficiary’s business.

The relief will only be available if there is a beneficiary with a life or absolute interest in possession under the trust, who satisfied the necessary conditions in the qualifying period.

‘Permitted period’ in the paragraphs below means a period of one year, or any longer time the Inland Revenue allows.  In practice, a period of up to three years will usually be allowed provided the asset or, in the case of a disposal of shares, any chargeable business asset held by the company, is not used or leased for any purpose after the initial one year period.

Disposal of shares in a company

The following conditions must be satisfied:

the company must have been the beneficiary’s personal trading company (or holding company of a trading group) for at least one year ending on the date of disposal, or within the permitted period before that date, and

the beneficiary must have

been a full-time working officer or employee of the company (or group) throughout the same period, and

ceased to have been a full-time working officer or employee at the date of the trustees’ disposal, or within the permitted period before that date, and

reached the age of 50, or retired on ill-heath grounds, at the date of cessation.

Disposal of assets

The following conditions must be satisfied

the asset must have been used in the beneficiary’s business for at least one year, and

the beneficiary must have

ceased to carry on the business at the date of the trustees’ disposal, or within the permitted period before that date, and

reach the age of 50, or have retired on hill-health grounds below that age, at the date of cessation.

Other information about trusts

If there are other beneficiaries of the trust who have interests in possession, only a part of the gain will qualify for relief.  This part is the proportion which the beneficiary’s interest in the income of the settled property bears to the interests in that income of all the other beneficiaries with interests in possession at the date the qualifying period ends.

Example 3

Richard Green has a life interest in a settlement that owns a farm.  But there are other beneficiaries.  Richard is entitled to only 25% of the income arising from the farm land.

He began farming the land owned by the settlement on 06.04.88.  He ceases to farm the land on 05.04.99 at age 50.  On that day the trustees sell the land for £500,000 giving rise to gains of £320,000.  The trustees and Mr Green jointly claim relief.

The gains eligible for relief are restricted to £80,000, because Richard was entitled to only 25% of the income from the farm land £320,000 x 25% = £80,000.

The trustees and beneficiary must jointly claim relief on the trustees’ disposal.  Claims must be made to the Tax Office by the 31 January that is 1 year 10 months from the end of the tax year in which the trustees’ disposal took place.  So for 1998-99 the claim must be made by 31 January 2001.

If the trustees and the beneficiary make disposals on the same day that both qualify for relief, the relief is given to the beneficiary’s disposal in priority to the trustees’ disposal.  If the beneficiary’s gains exhaust the maximum available relief, no relief is given on the trustees’ gains.

Relief given to the trustees reduces the beneficiary’s lifetime entitlement.

How the relief is calculated

If the necessary conditions have been satisfied throughout a period of at least 10 years (the maximum length of the qualifying period) for 1998-99, gains of up to £625,000 may be exempt from tax as follows:

Full relief on first £250,000 = £250,000

Plus 50% relief on next £750,000 = £375,000

Total amount exempt from tax £625,000

The 50% relief is given on the smaller of:

the gains eligible for relief (after giving the full relief due), and

the maximum figure of £750,000

Example 4

Janet Smith, aged 63, disposes of her business, which she has owned for more than 10 years on 30.11.98.

She makes a gain of £700,000.

The relief available is:

Full relief on first £250,000 = £250,000

Plus 50% relief on £450,000* (£750,000 - £250,000)* = £225,000

Total amount of retirement relief available = £475,000

*  Note: this figure (£450,000) is less than the maximum figure of £750,000.

If the qualifying period is between one and ten years, the maximum amounts qualifying for full and for 50% relief will be a percentage of £250,000 and £750,000 respectively. For each year of the qualifying period the percentage is 10%.  There are smaller percentages for part years.

Example 5

Suppose in Example 4 the qualifying period is exactly 6 1/2 years, the maximum relief available is:

Full relief on first £250,000 x 65% (6 ½ x 10%)  = £162,500

Plus 50% relief on £487,500* (£750,000 x 65%) = £243,750

Total amount of retirement relief available £406,250

* Note: this maximum figure £487,500 is less than the eligible gains £537,500 (£700,000 - £162,500)

If you have been in business for two or more separate periods and any gap between those periods is less than two years, the periods may be added together to work out the qualifying period.  But any part of this extended period that goes back more than 10 years before the date of the latest retirement is disregarded.

Example 6

Alan Jones was born on 01.06.37.  He:

carried on a trade from 06.04.72 to 05.04.91, when he sold his business

was then unemployed for four years

began a new trade on 06.04.95

finally retires, aged 62 on 05.04.99.

Disposal at 05.04.91 - no relief due as Alan Jones is below the qualifying age, which was 55 for disposals between 19.03.91 and 27.11.95.

Disposal at 05.04.99 - the gap between businesses is more than two years so the qualifying period does not include the earlier period of trading.  The qualifying period is 4 years (06.04.95 - 05.04.99).

The maximum relief is:

Full relief on first £250,000 x 40% (4 x 10%) = £100,000

Plus 50% relief on £300,000 (£750,000 x 40%) = £150,000

Total amount of retirement relief available £250,000

Example 7

Anne Robinson’s circumstances are the same as those of Alan Jones in Example 6 except that her first trade was carried on from 06.04.72 to 05.04.94

The gap between the two business periods in her case is less than 2 years so they can be added together.

Disposal at 05.04.94 - no relief due as Anne is below the qualifying age, which was 55 for disposals between 19.03.91 and 27.11.95.

Disposal at 05.04.99 - the qualifying period runs from 06.04.89 (that is 10 years before the latest retirement) to 05.04.94 and from 06.04.95 to 05.04.99, a total of nine years.

Full relief on first £250,00 x 90% (9 x 10%) = £225,000

Plus 50% relief on £675,000 (£750,000 x 90%) = £337,500

Total amount of retirement relief available £562,500

The maximum relief of £625,000 (including the £250,000 ceiling for full relief) is a lifetime maximum.  If you have made more than one disposal qualifying for relief there are rules to make sure that your relief on all the disposals does not exceed the maximum. Ask your Tax Office or tax adviser for advice.

Special Cases

Partial retirement by an officer or employee

If you are an officer or employee of your personal company, you must normally work full-time up to the date you sell your shares (or until the company’s business ceases, if that is earlier) in order to qualify for relief.

There is an exception to this rule.  You may stop working full-time and start to work part-time in the business, without disposing of your shares in the company. You may still get relief when the shares are disposed of later, if:

you have continued to work as an officer or employee for at least 10 hours a week up to the date of the disposal (or until the company ceased to trade, if that is earlier) and

you satisfied the various other conditions at the date on which you stopped working full-time, and

you continued to satisfy those conditions up to the date of disposal of the shares or the date trading ceased, if that is earlier.

If this special rule applies the qualifying period will end when you cease full-time working.

Husband and wife

A husband and wife are usually treated separately for retirement relief.  If the conditions are satisfied, each can have the maximum £625,000 relief.

A special rule may apply if your husband or wife passes to you his or her entire interest in a business or personal company by lifetime gift, or on death, and you were living together in the year the transfer took place.

In working out the relief due when you retire you can choose that the two periods of ownership be added together.  This can increase the amount of relief due, by extending the length of the qualifying period.

The relief calculated on this special basis is limited to the amount that would have been available if your husband or wife had continued to carry on the business. It also takes into account any disposals he or she made.

This election has to be made in writing to your Tax Office by the 31 January that is one year 10 months from the end of the tax year in which you made the relevant disposal.  So for 1998-99 you must make the election by 31 January 2001.

Example 8

Edna Jackson died on 30.04.92, having carried on a business as a sole trader since 06.04.82.  Her husband Bill inherits the business and carries it on until he sells it on 30.04.98, when he is 55 years old.

If Bill Jackson elects to add the business periods together, the qualifying period is the maximum 10 years (01.05.88 to 30.04.98).  The maximum relief available will be £625,000.

If he did not elect, the maximum relief available would be worked out on the basis of a qualifying period of six years (01.05.92 to 30.04.98).

Full relief on first £250,000 x 60% (6 x 10%)  =  £150,000

Plus 50% relief on £450,000 ( £750,000 x 60%) = £225,000

Total amount of retirement relief available £375,000

Reorganisations and exchanges

Under the Capital Gains Tax rules, if shares in one company are exchanged for shares in another the original shares may, subject to certain conditions, be treated as equivalent to the new holding so that the exchange does not count as a disposal.  This means that gains up to the date of exchange will be taxable only when the new shares are disposed of.

If you retire as an officer or employee of your personal company, you may exchange shares in the personal company for shares in another company.  If you do this, you may elect that the original rules about exchanges are not applied. Retirement relief may then be given against the gains arising when you dispose of your shares in your personal company.

You must make this election in writing to your Tax Office by the 31 January that is 1 year 10 months from the end of the tax year in which you made the relevant disposal.  So for 1998-99 you must make the election by 31 January 2001.

Capital distributions

Relief is available on disposals of shares or securities, including the receipt of a capital distribution in respect of shares on the liquidation of a company, as long as all the conditions for relief are satisfied.

However, relief will not be available if the capital distribution takes the form of chargeable business assets.  If only part or the distribution is a chargeable business asset, the gains eligible for relief will be restricted accordingly.

Page 3 explains that on the sale of shares in your personal trading company, only a part of the gain may qualify for relief.  The same rule applies where you receive a capital distribution for your shares.

There is a special rule if a company sells chargeable business assets in the last six months of the qualifying period (see page 2; normally this means the last six months before the company’s trade ceases).

You can elect for such assets to be treated as if they had not been sold but retained in business use.  The effect of this is to increase the proportion of the gains eligible for relief.

The election must be made in writing to your Tax Office by the 31 January that is 1 year and 10 months from the end of the tax year in which you receive the capital distribution. So for 1998-99 you must make the election by 31 January 2001.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR290

Business Asset Roll-over relief

This Help Sheet gives you information to help you claim business asset roll-over relief so that you can complete the Capital Gains Pages of your Tax Return.

What is business asset roll-over relief?

Business asset roll-over relief lets you defer any Capital Gains Tax due when you dispose of certain assets (called ‘old assets’).  If you acquire other assets (called ‘new assets’) costing the same as, or more than, the amount you got when you disposed of the old assets, the relief allows you to postpone paying tax until you dispose of those new assets.

Example 1

You sell your shop for £75,000 and buy a new shop costing £90,000.  If you claim relief you will not pay tax on the sale of the old shop until you sell the new one.

If you acquire new assets for less than the amount you got on the disposal of the old assets, you may get partial relief.

Example 2

You sell your shop for £100,000 and buy a new shop for £90,000.  If you have made a gain, you may still have some tax to pay but you may get some relief.

You may get a similar relief if you have land which is compulsorily purchased and you buy new land.  You will not pay tax until you dispose of the new land.

There is a system of provisional relief.  This system allows you to obtain provisional relief on any gains you make on the disposal of an old asset if you declare an intention to acquire a new asset and claim relief. Further details are in the section headed ‘Provisional relief’ on page 4.

Getting advice

If you have any questions about business asset roll-over relief that are not answered by the Help Sheet, ask your Tax Office or tax adviser before you make a claim. You can also ask to see a copy of the Inland Revenue Capital Gains Manual; this explains the rules for deferral in detail.

Getting relief

You can claim relief if you are:

trading

carrying on a business of furnished holiday lettings

occupying commercial woodland and managing them

commercially to make a profit

carrying on a profession, vocation, office or employment

providing an asset to your personal company

or if you have disposed of land by a compulsory purchase.

Traders

If you are a trader you can claim relief if you use the old and new assets in:

the same trade, or

another trade that you carry on at the same time or shortly after you have ceased that trade.

The Inland Revenue will accept claims to relief where there is a gap of three years or less between one trade ending and another beginning.

Example 3

You cease trading as a newsagent and sell you shop.  Later you buy a grocer’s shop and start trading again.  If your grocery trade began three years or less from the end of your previous trade, you can defer the gain on the sale of your shop.

The Inland Revenue will treat the other activities listed above as if they were trades except for when you provide an asset to your personal company (see below).  So, for example, you can claim relief when you sell an asset you have used in a trade and buy a new asset that you will sue in an employment

If you are not resident in the UK but are carrying on a trade here through a branch or agency, you can only claim relief when you acquire new assets for that branch or agency.

Furnished holiday lettings

If you let accommodation, you can treat it as a business of furnished holiday lettings if it meets the conditions set out on page LN2 of the Notes on Land and Property Pages.

If you do not have a copy of Notes on the Land and Property Pages, ask the Orderline for them.

Your personal company

Your personal company is any company in which you can exercise 5% or more of the voting rights.

You can claim relief if you dispose of assets that you have provided to your personal company and that have been used in its trade.  The new assets you acquire must also be provided to be used in the trade of that personal company.

Getting relief for the assets you have disposed of

Both the old assets you have disposed of and the new ones you have acquired must be:

interests in buildings or parts of buildings, or

interests in land, or

fixed plant or machinery, or

ships, aircraft, hovercraft, satellites, space stations or spacecraft, or,

goodwill, or

milk, potato or ewe and suckler cow premium quotas.

Occupation of land and buildings

You must occupy as well as use land and buildings for your trade if you wish to claim relief.

If the land or buildings have been provided you for use by your personal company, it is that company which must occupy and use them

Fixed plant and machinery

This means plant and machinery which is fixed in a particular location.  For example, you can get relief when you dispose of a printing press but not when you dispose of a lorry.

Improvements

You can treat any money you spend on improving assets, which you already own, as if it were spent on acquiring new assets.

Buying to make a gain

If you have acquired the new assets in order to make a profit by selling them, you will not be allowed relief.

Partial relief

if,

the old assets have only been used in your trade for part of the time you have owned them, or

only part of either the old or the new assets has been used or will be used in your trade,

you can only claim partial relief.  Examples 4 and 5 below illustrate the amount of relief you will get.

Example 4

You sell a shop for £100,000 and make a gain of £20,000.  You owned the shop for 10 years and traded from it for five years. It was let for the other five years.  Only 5/10 of the gain can be deferred and to claim that deferral you must acquire new assets costing £50,000 or more.

Example 5

You sell a building for £80,000 consisting of a shop together with a flat above and make a gain of £40,000.  You have always traded from the shop, which is worth £60,000.  You let the flat, which was worth £20,000. Only 6/8 of the gain can be deferred.  You can defer £30,000 of the gain if you acquired new assets costing £60,000.

Depreciating assets

If the new assets are depreciating assets you will get relief by a deferent method.  Instead of your tax being deferred until you dispose of the new assets, it will be deferred until the earliest of the following:

when you dispose of the new assets

when you cease to use the new assets in your trade, or

10 years from when you acquired the new assets.

A depreciating asset is any fixed plant or machinery or any asset which will have a life of 60 years or less from when you acquired it.

Example 6

You sell a shop and use the proceeds to buy fixed plant and machinery in 1997.  You can claim to defer the gain on the shop until the earliest of:

the date you sell the plant and machinery, or

the date you stop using the plant and machinery in your trade, or

2007

If you acquire a further asset which is not a depreciating asset during the period in which your tax is deferred, you can make a further claim to relief.  You can defer your tax until the further asset is disposed of.

Example 7

You sell an asset in 1997 and make a gain.  You buy a new depreciating asset in 1998 and use it in your trade.  The gain you made in 1997 will be deferred until 2008 at the latest.  If you buy a new non-depreciating asset in 2006, you can defer the 1997 gain until you dispose of that new non-deprecating asset.

Compulsorily purchased land

If you were the owner of land which was compulsorily purchased, you can defer your tax on that disposal by acquiring new land. There is no limitation on how the old or the new land are to be used except the new land must not contain a dwelling house:

when you acquire it, or

within six years after you acquire it

for which you would be entitled to private residence relief if you were to dispose of it.

You will not get relief if you have previously advertised your willingness to dispose of the land.

Example 8

Your local authority compulsorily purchases a house you own and have let.  You receive compensation of £50,000. If you use the money to acquire a new house, which will be let, you can defer the gain until you dispose of the new house.

Period of reinvestment

You must acquire the new assets in the period between:

12 months before, and

36 months after

the disposal of the old assets.

The Inland Revenue will extend these time limits if you had a firm intention to acquire the new assets:

within the time limit, and

you were prevented by some fact or circumstances beyond your control from meeting the time limit, and

you acted as soon as you reasonably could after ceasing to be so prevented.

Example 9

You sell a shop in August 1997 and make a gain.  To defer the gain you must acquire a new asset at some time between:

August 1996, and

August 2000

unless the Inland Revenue lets you have relief for a new asset acquired outside that period.

Relief available

If you use the whole amount you receive from the disposal of the old assets to acquire new assets, the whole of your gain will be deferred by deducting it from the cost of the new assets.

Example 10

You sell a shop for £50,000 and make a gain of £10,000. You buy a new shop for £75,000 and claim roll-over relief.  The cost of your new shop will be reduced to £65,000 when you calculate the gain or loss you will make if you sell it.

If you use part of the amount you receive for the disposal of the old assets and that part includes some of the gain you made, you will get relief for the part of the gain you have used.  You deduct that part of the gain from the cost of the new assets.

Example 11

You sell a shop for £75,000 and make a gain of £15,000.  You buy a new shop for £70,000 and claim roll-over relief.  You have used £10,000 of the gain to buy the new shop.  So the cost of the new shop is reduced by £10,000 to £60,000 and you may have to pay tax on the remaining gain of £5,000.

Sometimes:

the actual disposal proceeds you received, or

the actual cost of the asset you acquired

are replaced by the market value of the asset in order to calculate your chargeable gains.

For example, if you sell an asset to your brother, you can ignore the price he actually pays and you will be taxable as if you had received the full market value of the asset.

If you replace your actual cost or disposal proceeds in this way, then the amount you have to reinvest, or the amount you are treated as having reinvested, is the substitute figure.

Example 12

You sell a shop worth £80,000 to your son for £10,000. You make a gain of £30,000 and wish to claim roll-over relief. To get any relief you must acquire new assets costing more than £50,000.  To get full relief you must acquire new assets costing at least £80,000.

What is the claim time limit

You can make a claim up to five years from the 31 January in the year following the tax year in which the later of:

the disposal of the old assets, or

the acquisition of the new assets,

took place

Example 13

You sell a shop in May 1996 and acquire a new shop in August 1998.  You must claim roll-over relief by 31 January 2005.

How to claim relief

When you claim relief you must tell your Tax Office about:

the old assets you have disposed of

the amount you received for each of those assets

the date on which you sold each of them

the new assets you have acquired

the dates on which you acquired each of them

the cost of each asset acquired

the amount of proceeds from the disposal of each old asset that you have used to acquire each new asset.

There is a form on page 5 which you can use to make a claim.  Attach it to the Capital Gains Pages of your Tax Return.

If you want to make more than one claim, you may use a photocopy of the form.

Provisional relief

You can use the form on page 5 to make a declaration of your intention to use some or all of the proceeds of disposal of an old asset in the acquisition of new assets.  If you intend to reinvest all of the proceeds, you can obtain provisional relief on the gains you make on that disposal.

If you intend to reinvest part of the proceeds, you may be able to obtain provisional relief on part of the gains you make on that disposal.  The amount of Capital Gains Tax you can defer is the amount of tax that would have been deferred if you had actually acquired a new asset costing an amount equal to that part. Example 15 opposite shows how it works.

If you declare an intention to reinvest but do not acquire new assets and make a claim to roll-over relief, you will have to pay the amount of deferred tax, together with interest on that tax from the date on which it was originally due to be paid to the date on which you actually pay it.

Provisional relief will be allowed until:

the date you make a claim to roll-over relief.  If you make a valid claim to relief, the tax will be deferred until you dispose of the new asset or, for a depreciating asset, until the time determined in accordance with page 2, or

the date you notify us that your intention has changed and you no longer intend to reinvest. As interest will be charged on the deferred tax, you can minimise that interest by telling us as soon as possible if your intention has changed. This may be done by contacting your Tax Office directly.  You will then be asked to pay the additional tax due for the year in which the asset was disposed of, together with interest on that tax, or

three years from the 31 January next following the tax year in which you have made the disposal (see Example 14 opposite),

whichever is the earlier.

If you have not made a valid claim to roll-over relief, or withdrawn the declaration of intend to reinvest, by three years from the 31 January next following the tax year in which you made the disposal, you will be asked to pay the tax due for that earlier year, together with interest on that tax.  If you acquire a new asset after that time and claim relief, the tax and interest can be repaid to you if you meet the conditions set out on page 2 for the reinvestment time limit to be extended.  Your claim will need to be valid in every other respect.

Example 14

You dispose of an old asset in June 1997 for £50,000, making a gain of £20,000. You make a declaration that you intend to reinvest the whole of the disposal proceeds in the acquisition of new assets and intend to claim roll-over relief.  You will not pay tax on 31.01.99 on the gain of £20,000. If you have not claimed roll-over relief, or withdrawn your declaration of intent to reinvest and paid the tax and interest on that gain, by 31.01.02 (2002) we will ask you to pay the tax together with interest from 31.01.99.

Example 15

You dispose of an old asset in September 1997 for £80,000, making a gain of £30,000.  You only intend to reinvest £60,000 in acquiring new assets.  If you make a declaration to that effect you can defer the tax on £10,000 of the gain, £20,000 of the disposal proceeds is not to be used to acquire new assets and so a gain of that amount is still charged to tax.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Claim to business asset roll-over (including provisional relief

Claim to compulsory purchase roll-over relief

Name

Tax reference

Old assets

Description   Date of disposal   Disposal proceeds

  /  /    £

  /  /    £

Tick this box if you are claiming provisional relief

How much of the disposal proceeds do you intend to reinvest?  £

If you are claiming provisional relief you do not need to complete the remaining boxes until you wish to make a claim to relief.

New assets

Description   Date of acquisition   Acquisition proceeds

  /  /    £

  /  /    £

Application of proceeds

Enter the amount of proceeds from the disposal of each old asset listed above that has been used to acquire each new asset

The particulars given in this claim are correctly stated to the best of my information and belief

Signature    Date


IR291

Reinvestment Relief - Shares Acquired Before 6 April 1998

This Help Sheet gives you information to help you claim reinvestment relief so that you can complete the Capital Gains Pages of your Tax Return.

What is reinvestment relief?

Reinvestment relief was introduced with effect from 16 March 1993.  Some of the rules governing the relief have since been changed.  This Help Sheet describes the rules that apply to disposals after 5 April 1997 and acquisitions between 6 April 1997 and 5 April 1998. If you made a disposal or an acquisition before 5 April 1997, ask your Tax Office or tax adviser for help.

Reinvestment relief is not available for reinvestment in shares acquired on or after 6 April 1998.

You can claim reinvestment relief when you make a chargeable gain on the disposal of any asset, if you have invested an amount up to the gain in acquiring eligible shares in a qualifying company before 6 April 1998. The amount of relief you can claim is explained below.

You must have made your investment within the reinvestment time limit and you must claim relief within the claim time limit.

Your gain will not attract Capital Gains Tax in the year you make the disposal. Instead you deduct it from the cost of the shares. It will therefore increase any gain or reduce any loss you make when you dispose of the shares, unless there is an earlier clawback of relief.

The example below shows at it simplest how the relief works.

Example 1

You sell and asset for £50,000 realising a chargeable gain of £20,000.  You have invested £25,000 in acquiring eligible shares in a qualifying company.  If you claim full reinvestment relief your chargeable gain is reduced to zero and the cost of the shares is reduced by the amount of the gain to £5,000.  The reduction in cost will increase any gain or reduce any loss when you dispose of the shares.

Getting advice

This Help Sheet explains how the relief works.  But the Help Sheet is only an introduction.  If you are in any doubt about your entitlement to relief you should ask your tax adviser.

Your Tax Office will also be pleased to help.  You can ask to see a copy of the Inland Revenue Capital Gains Manual, which explains the rules in detail.

Qualifying for relief

You can claim relief if you are an individual who is resident or ordinarily resident in the UK, unless you are treated for double taxation relief as resident elsewhere, so that you are not liable to UK Capital Gains Tax.

The trustees of certain settlements may also claim relief.    Ask your Tax Office for details.

What are eligible shares?

Ordinary shares

The shares you have acquired must be ordinary shares in a company and they must not have any preferential rights over other shares in the same company, either when you acquired them or later.

Example 2

You acquired 10,000 £1 ordinary shares in a company together with 5,000 £1 shares that carry a preferential right to dividends.  Only the ordinary shares are eligible shares.

Not listed

The shares must not have been acquired in a company that had any shares:

listed on the London Stock Exchange, or

listed on any other recognised stock exchange.

Your Tax Office or tax adviser can tell you which stock exchanges are recognised.

A listing on the Alternative Investment Market (AIM) does not in itself prevent the shares from being eligible shares.

Not in a relevant company

If the gain for which you wish to claim relief was made by the disposal of shares in a company, any shares in that company, or in any company that is a member of the same group of companies as that company, cannot be eligible shares.

Example 3

You make a gain from the disposal of shares in XYZ Ltd, a company that has two subsidiaries, XY Ltd and YZ Ltd.  No shares in XYZ, XY or YZ can be eligible shares.

New issue of shares

Where shares were acquired from a company on issue, the acquisition will only qualify if the company, or a qualifying subsidiary of the company, intended to use the money raised for a qualifying trade.  The consideration paid for the shares must have been money, the transfer of an asset in exchange for the shares would not be a qualifying investment.

Not subject to a claim under the Business Expansion Scheme or the Enterprise Investment Scheme

If a claim to relief for the shares is made under either of these schemes, they will not be eligible shares.

What is a qualifying company?

A qualifying company can be either

a company that exists for the purpose of carrying on one or more qualifying trades, or

a company which is the parent company of a trading group.

The company must not be a subsidiary of, or be controlled by, any other company.

A company will either know its qualifying status or be able to contact its Tax Office to find out.

Company residence

There is no requirement that a company has to be resident in the UK.

What is a qualifying trade?

Any trade carried on wholly or mainly in the UK and conducted on a commercial basis with a view to profit will be a qualifying trade unless the trade or a substantial part of it consists of:

dealing with land, commodities, futures, shares, securities or other financial instruments, or

dealing in goods, unless in an ordinary trade of wholesale or retail distribution, or

banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities, or

leasing (including letting ships or other assets for hire) or receiving royalties or licence fees, or

providing legal or accounting services, or

providing services for any trade listed above which you control.

If the company is engaged in research and development wholly or mainly in the UK from which it is intended that a qualifying trade will be derived, that research and development will be treated as if it were a qualifying trade.

What is the reinvestment time limit?

You must have acquired the eligible shares before 6 April 1998 and in the period

beginning 12 months before, and

ending 36 months after

the date of the disposal for which you wish to claim relief.

The Inland Revenue has discretion to extend these time limits.  Your Tax Office can explain the circumstances in which they can do this.

Example 4

You dispose of an asset in June 1997.  You must have made an acquisition of eligible shares at any time between June 1996 and 5 April 1998.

What is the claim time limit?

You can make a claim up to five years from 31 January in the year following the tax year in which the later of:

the disposal giving rise to the gain, and

the acquisition of eligible shares,

took place.

Example 5

You dispose of an asset in May 1997 and acquire eligible shares in August 1998. You must make a claim to relief by 31 January 2005.

How to claim relief

Use the form at the end of this Help Sheet to claim relief.  Attach it to your Capital Gains Pages when you make your Tax Return.  If you are making more than one claim for relief, you should use a separate photocopy of the form for each claim.

If you have made more than one acquisition of eligible shares, you can claim relief for each acquisition.  If you make more than one claim, you must state the order of priority of your claims.

The amount of relief that can be claimed.

The amount of relief you can claim is limited to the smallest of:

the amount of the chargeable gain, see Example 1

the actual amount given for the eligible shares, see Example 6 below

the market value of the eligible shares if you acquired them from a connected person or otherwise than in an arm’s length transaction, see Example 7

the allowable cost for Capital Gains Tax of the eligible shares if you acquired them from your spouse, see Example 8

any smaller amount you wish to claim, see Example 9

Page CGN9 of the Notes to the Capital Gains Pages explain what is meant by ‘otherwise than in an arm’s length transaction’, while page CGN10 explains who are your ‘connected persons’.

Example 6

You make a chargeable gain of £50,000 and acquire eligible shares worth £60,000 from a connected person for £40,000. The maximum relief you can claim is £40,000, leaving a chargeable gain of £10,000.

Example 7

You make a chargeable gain of £50,000 and acquire eligible shares worth £30,000 from a connected person for £50,000. The maximum relief you can claim is £30,000, leaving a chargeable gain of £20,000.

Example 8

You make a chargeable gain of £50,000 and acquire shares worth £60,000 from your husband for £30,000.  The shares originally cost your husband £10,000 and, if indexation allowance is £5,000, you are treated for Capital Gains Tax as having acquired the shares from your husband for £15,000.  Pages CGN12 and CGN14 of the Notes explain indexation allowance and show you how to deal with transfers from your spouse.  The maximum relief you can claim is £15,000, leaving a chargeable gain of £35,000.

Example 9

You make a chargeable gain of £50,000 and acquire eligible shares in an arm’s length transaction for £60,000.  If the annual exempt amount is £6,000, you can claim relief of £44,000, leaving a gain of £6,000 to be covered by your annual exempt amount. Page CGN4 of the Notes to the Capital Gains Pages explains ‘annual exempt amount’.

Clawback of relief

If, at any time in the three years after you have acquired the eligible shares, any of the following events occur, the chargeable gain that has been deferred becomes taxable:

the shares cease to be eligible shares

the company ceases to be a qualifying company

you become neither resident nor ordinarily resident in the UK

you dispose of the shares in exchange for qualifying corporate bonds.

The following are exceptions to these rules:

you will not lose relief if any of these events occur after the three-year period has ended

if you dispose of the shares to your spouse within the three year period your spouse will be subject to the same clawback rules

if you have a gain that becomes taxable because of the clawback rules you can defer that gain if you have acquired other eligible shares before 6 April 1998 and within the reinvestment time limit by claiming reinvestment relief again.  You can defer such again by acquiring shares eligible for the Enterprise Investment Scheme deferral relief after 5 April 1998, see Help Sheet IR297: Enterprise Investment Schemes and Capital Gains Tax.

Shares acquired on issue

There is a full or partial clawback of relief if the company which received the investment does not use all the money for a qualifying trade within a time limit.  The time limit depends on the trading status of the company at the time of the investment.

Ceasing to be eligible shares

There will be no clawback if the shares cease to be eligible shares because they become listed.

Example 10

You make a chargeable gain of £50,000 and claim reinvestment relief when you acquire 50,000 £1 ordinary shares in a qualifying company for £50,000.  Two years later 25,000 of the shares you bought are given preferential rights to dividends over other shares in the company.  There is a clawback of relief and you are taxable on a gain of £25,000.

Ceasing to be a qualifying company

There will be no clawback if the company ceases to be a qualifying company because it is wound up for good commercial reasons, providing that the winding up is completed within three years from it beginning.

Example 11

You make a chargeable gain of £50,000 and made a claim to relief on the acquisition of eligible shares in a qualifying company.  The company trades as a retail grocer. After two years the company sells the grocery business and leaves the proceeds on deposit.  The company has ceased to be a qualifying company.  There is a clawback of relief and you are taxable on the gain of £50,000.

Becoming non-resident

There will be no clawback if you have become non-resident because you have taken up employment outside the UK, so long as you become resident again within three years and have not disposed of any of the eligible shares in the meantime.

Anti-avoidance rules

There are anti-avoidance rules that will prevent you getting relief for an acquisition of eligible shares, or will cause a clawback of relief, if you have made any of the following arrangements:

to dispose of or exchange the shares

for the company to stop trading or to dispose of a substantial part of its assets

for any part of the value of your investment to be returned to you.

Your Tax Office or tax adviser can explain the operation of these rules in more detail.  Some examples where the anti-avoidance rules apply are set out below.

Example 12

A qualifying company owes you £50,000.  You subscribe £50,000 for eligible shares in the company. The company uses the subscription to repay the debt.  No relief is due.

Example 13

In order to persuade you to invest in a qualifying company, someone loans you the capital.  No relief is due.

Example 14

In exchange for your investment in eligible shares, the qualifying company employs you as a director, but pays you more than your services would reasonably fetch.  No relief is due.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Use this form to claim relief.  Attach it to your Tax Return.  Use a separate photocopy of the form for each claim for relief.

Claim for reinvestment relief

Name    Tax reference

Asset you dispose of

Description   Date of disposal  Chargeable gain

  /  /  £

Number of eligible shares you have acquired

Description of shares, name of qualifying company, Inland Revenue company reference, or registered office address

Date of acquisition (before 6 April 1998)    Cost

  /    /   £

Amount of relief you are claiming   £

Show how the amount of relief you are claiming has been calculated

The particulars given in this claim are correctly stated to the best of my information and belief

Signature   Date


IR292

Land and Leases, the Valuation of Land and Capital Gains Tax

This Help Sheet gives you information to help you complete the Capital Gains Pages of your Tax Return.

It explains how certain disposals of land, including leases, are treated for Capital Gains Tax.  But it is only an introduction.  If you are in any doubt about your own circumstances, ask your Tax Office or tax adviser.

You can ask to see a copy of the Inland Revenue Capital Gains Manual which explains the rules in detail

Your capital gains tax liability

If you dispose of land or any interest in land, you may make a chargeable gain or an allowable loss.  The calculation of the gain or loss arising on a disposal is in many cases the same as for other assets, but there are some special rules which apply only to land.

Leases

This is only a summary of the main provisions.

Grant of lease

The grant of a lease, whether out of a freehold or leasehold interest, is a part disposal.  In certain circumstances, you may also be chargeable to Income Tax.  Grants of leases fall into three categories:

the grant of a long lease out of a freehold or long leasehold interest

the grant of a short lease out of a freehold or long leasehold interest

the grant of a short lease out of a short leasehold interest.

The tax treatment is different for each category.  A long lease is one with more than 50 years duration remaining, and a short lease has 50 years or less remaining.  The duration of a lease for Capital Gains Tax purposes will normally be the time remaining until the expiry of the current term of the lease, but can also be affected by any provision in the lease allowing the landlord or the tenant to give notice to terminate the lease, or by a provision allowing the tenant to extend it.

Grant of a long lease out of a freehold or long leasehold interest

To calculate the gain arising on the part disposal, any allowable expenditure (apart from the costs of disposal) is apportioned between the freehold reversion or superior leasehold interest retained and the lease granted. This is done by applying the fraction A/A+B to the allowable expenditure, as for part disposals of other assets (see page CGN11 of the Notes to the Capital Gains Pages), but with one difference.  For the granting of a lease:

A  is the premium or consideration received for the grant of the lease, and

B  is the value of the interest retained plus the value of the right to receive the rent due under the lease.

Example 1

On 30.06.88, Mr Jones bought the freehold of a property for £150,000.  On 30.06.98 he granted a 75 year lease on the property for a premium of £200,000.  Rent of £5,000 per year was due under the lease.  Mr Jones incurred legal fees of £3,000 on the grant of the lease.

The value of the freehold reversion at 30.06.98 was £30,000, and the value of the right to receive the rent was £70,000.

Mr Jones’ allowable expenditure is:

£150,000 (cost of property) x A/A+B

£150,000 x 200,000 = £100,000

200,000 + (30,000 + 70,000)

The gain accruing to Mr Jones is then calculated as follows:

Premium received  £200,000

Minus apportioned cost (as above)  £100,000

legal fees  £3,000   £103,000

Unindexed gain  £97,000

Minus indexation up to April 1998 £100,000 x 0.525  £52,500

Chargeable gain, subject to taper relief  £44,500

Note: In the computation of chargeable gains accruing on or after 6 April 1998 indexation allowance has been frozen.  This means that indexation allowance will be given for periods up to April 1998, but not after then.

Grant of a short lease out of a freehold or long leasehold interest

Part of the premium you may receive for the grant of a short lease is chargeable to Income Tax.  See Page LN5 of the Notes to the Land and Property Pages for further details.  If you need a copy, ask the Orderline.  The calculation is made as for the grant of a long lease (see previous column), except that the amount chargeable to Income Tax is:

left out of the consideration brought into the calculation of the gain or loss arising, and

left out of the numerator A in the A/A+B fraction used to apportion the allowable cost between the freehold or superior leasehold interest retained and the lease granted, but

is included in the A in the denominator of the A/A+B fraction.

Example 2

On 06.04.86 Miss Smith bought a freehold property for £45,000.  On 06.04.98 she granted a 46 year lease for a premium of £35,000 and a rent of £2,000 per year.  The value of the reversionary interest in the property was £30,000 and the value of the right to receive the rent over the term of the lease was £20,000.  The amount chargeable to Income Tax is:

£35,000 x £35,000 x 45) = £3,500

50

The consideration for Capital Gains Tax is:

Premium received £35,000

Minus amount chargeable to Income Tax  £3,500

Consideration for Capital Gains Tax purposes  £31,500

Allowable expenditure - applying the part disposal formula

£45,000 x £31,500 = £16,677

£35,000 + (£30,000 + £20,000)

Note: The A factor (see page 1) in the numerator is the consideration for Capital Gains Tax purposes, the A factor in the denominator is the entire premium.

The chargeable gain is then:

Disposal proceeds £31,500

Minus allowable expenditure  £16,677

Unindexed gain £14,823

Minus indexation up to April 1998 £16,677 x 0.665  £11,091

Chargeable gain, subject to taper relief  £3,732

Grant of a short lease out of a short leasehold interest

Part of any premium you may receive for the grant of a short lease is chargeable to Income Tax.  See page LN5 of the Notes to the Land and Property Pages for further details.  In calculating the amount chargeable to Capital Gains Tax:

the full amount of any premium payable for the granting of the lease is brought into the calculation of the gain or loss as the consideration received, but a deduction of the amount chargeable to Income Tax is made later in the calculation.

special rules apply to calculating the allowable expenditure to be deducted from the consideration in calculating the gain or loss

if a capital loss arises, it may be restricted in some circumstances.

Your Tax office will let you have the details necessary to calculate your chargeable gain or allowable loss.

Other sums received after you grant a lease

During the existence of a lease you may receive a capital sum in exchange for the surrender of the lease, or instead of rent, or for the variation of waiver of some of the terms of the lease.  Such a capital sum is chargeable to Capital Gains Tax.  To find out how to calculate your chargeable gain or allowable loss, ask your Tax Office or tax adviser.

Assignment or surrender of a lease

If you have assigned or surrendered a lease, you have made a complete disposal of that leasehold interest.  The amount of your gain or loss depends on whether the lease was a long lease or a short lease at the date of disposal.

A long lease is one with more than 50 years duration remaining, and a short lease has 50 years or less remaining.  The duration of a lease for Capital Gains Tax purposes will normally be the time remaining until the expiry of the current term of the lease, but can also be affected by any provision in the lease allowing the landlord or the tenant to give notice to terminate the lease, or by a provision allowing the tenant to extend it.

For a long lease, any allowable expenditure is allowed in calculating the gain or loss in the normal way.  For a short lease, the allowable expenditure is restricted and special rules apply. To find out how to calculate your taxable gain or allowable loss, ask your Tax Office or tax adviser.

Compulsory purchase

If your land is compulsorily purchased, you are subject to Capital Gains Tax in the normal way, but there are some special rules.  These:

determine the date of disposal

provide for some small disposals not to be treated as a disposal

allow for any gain arising to be rolled over against the acquisition of new land in certain circumstances

provide for an apportionment of the compensation between its constituent factors.

Date of disposal

Where land is acquired by an authority exercising compulsory powers, the date of disposal is the time as which the compensation for the acquisition is agreed, or otherwise determined.  Any variation on appeal is ignored.

Before 1996-97 this rule was different.  If you are in any doubt about your date of disposal, ask your Tax Office or tax adviser.

Small part disposals

Where the land compulsorily acquired is only part of a larger holding of land, and the following conditions are satisfied, you can claim that the compensation received should not be regarded as a disposal, but that it should instead be deducted from the allowable expenditure on the entire holding. On a later disposal, or part disposal, of the remainder of the holding, only the reduced expenditure is taken into account in calculating any subsequent gain or loss.  The conditions are:

the holding is not a wasting asset; for land this usually means that the land is not held under a lease with 50 years or less still to run, and

the market value of the land is small, compared to the value of the entire holding.  A holding for this purpose dos not necessarily comprise the whole of your estate, but means the smallest until of land with a separately identifiable cost, which includes all of the land compulsorily acquired.   See page CGN6 of the Notes to the Capital Gains Pages for the meaning of ‘small’, and

you must have taken no steps to make it known, by advertising or otherwise, that you were prepared to sell any part of the holding.

Example 3

The freehold of an area of land was purchased at a cost of £200,000 in 1988.  A small strip of the land is acquired by compulsory purchase for £8,000 in 1993.  A claim is made for the disposal to be disregarded.  The remaining land is sold for £250,000 in 1998.

there is no gain or loss on receipt of the compensation, and the gain before indexation on the sale in 1998 is:

Sale proceeds £250,000

Minus original cost £200,000

Compensation £8,000  £192,000

Gain before indexation and taper relief  £58,000

If you wish to claim this relief in your Tax Return, you should tick column H next the relevant disposal on Page Capital Gains of your Capital Gains Pages.

Compensation used to acquire new land

If you apply the compensation you receive for land compulsorily acquired in acquiring new land, you may claim to roll-over the gain you make against the cost of the new land.  In that case, the compulsory purchase is treated as giving rise to neither a gain nor a loss, and the cost of the new land is reduced by the amount of the gain which would otherwise have arisen.

The two main conditions which have to be met are:

you must have taken no steps to make it known, by advertising or otherwise, that you were prepared to sell any part f the holding, and

the new land cannot include a dwelling-house that is or may become your only or main residence.

If the new land will become a wasting asset within 10 years (typically a lease which on acquisition has 60 years or less to run), the rules are modified.  They are also modified where only part of the compensation is applied in acquiring the new land.  If you require further details, ask your Tax Office or tax adviser.  If you wish to claim this relief in your Tax Return, you should tick column H on Page CG2 of your Capital Gains Pages, complete the form attached to Help Sheet Ir290: Business asset roll-over relief and send it with your Tax Return.

Example 4

Mrs Davies bought some land for £50,000 in April 1991.  It is compulsorily purchased for agreed compensation of £80,000.  The date of disposal is May 1998.  The compensation is used to buy more land costing £100,000 and she claims that the gain should be rolled over.

The gain is:

Compensation  £80,000

Minus cost  £50,000

indexation to April 1998  £11,100    £61,1000

Gain  £18,900

The gain is reduced by the roll-over to zero, and the allowable cost of the new land becomes:

Cost  £100,000

Minus gain rolled over £18,900

Allowable cost £81,100

Apportionment of compensation

In law, compensation for compulsory purchase is a single sum but for tax purposes it is apportioned between its constituent factors, and is taxable accordingly. The categories for which compensation may be received are:

for the land itself

for disturbance

for severance or injurious affection.

Compensation for disturbance may include several items and the tax treatment varies accordingly.  The most common elements are dealt with as follows:

compensation for losses on stock and loss on profit is taxable as income

compensation for loss of goodwill is chargeable to Capital Gains Tax

compensation for expenses is set against those expenses

any remaining amounts are chargeable to Capital Gains Tax if they derive from chargeable assets.

Compensation for severance, or injurious affection, is paid for a fall in the value of land you retained caused by the compulsory purchase.  This is treated as giving rise to a part disposal of that retained land concerned. Any resulting gain or loss is calculated in the normal way, subject to the rules for small disposals referred to above.

Part disposals - alternative basis of calculation

Where part of a holding of land is disposed of, it is necessary to apportion the allowable cost of the land, and any other allowable expenditure, between the land sold and the land retained, in order to calculate the gain or loss arising.  The statutory rules for doing this require a valuation of the land retained.  In order to avoid the need for this, the Inland Revenue will usually accept an alternative basis of apportioning the expenditure.  Under the alternative basis,

the land disposed of its treated as a separate asset from the land retained and any fair and reasonable method of apportioning part of the allowable expenditure to it will be accepted.   The Inland Revenue may insist on the statutory rules if not satisfied that the resulting apportionments are fair and reasonable.

Example 5

Part of a holding in land which was acquired in 1975 is sold in 1998 for £50,000.  The market value at 31.03.82 of that part was £20,000.  The cost of disposal were £2,000.  The gain before indexation using the alternative basis is:

Sale proceeds  £50,000

Minus market value at 31.03.82  £20,000

cost of disposal £2,000  £22,000

Gain before indexation  £28,000

If the alternative basis is not used it would be necessary both to value the whole property at 31.03.82, and to value the whole of the land retained at the date of the sale.

To determine the cost of the land retained the cost of the part disposed of is deducted from the total cost.  Once the statutory rules have been applied to a part disposal of a holding of land, they also have to be applied to subsequent disposals.

Small part disposals

Where you have disposed of part of a holding of land you may, if certain conditions are met, claim that it should not be regarded as a disposal, and that the consideration you have received should instead be deducted from the allowable cost of the rest of the holding. On a later disposal, or part disposal, of the remainder of the holding, only the reduced expenditure is taken into account in calculating any subsequent gain or loss.  The main conditions, which must all be met, are:

the amount or value of the disposal does not exceed 20% of the market value of the holding, and

the amount or value of the disposal does not exceed £20,000, and

the total amount or value of all disposals of land you have made in the year does not exceed £20,000, and

the holding of land must not be a wasting asset (a typical example of land which is a wasting asset is a lease with 50 years or less to run).

If you wish to claim this relief in your Tax Return, you should tick column H on Page CG2 of your Capital Gains Pages and write ‘small part disposal of land’ in column O.

Valuations of land

You may need a valuation to calculate the gain or loss arising when you dispose of an interest in land.  The main circumstances where this will be so are where:

the land was owned at 31 March 1982, or

the disposal is not by way of a bargain at arms length, or is to a person with whom you are connected, or

there has been a disposal of part of a holding of land and the alternative basis for calculating the allowable cost (see page 3) is not being used.

You must calculate your gains and losses to make your Tax Return and so you must provide valuations where they are needed.  You may wish to obtain a valuation with professional assistance.  If you have used any valuation to calculate any gain or loss, you should put a tick in column C on Page CG2 of your Capital Gains Pages next to the entry for that calculation.

In each case your valuation must be of the asset you owned as it was at the date of valuation.  This can affect the basis of valuation, and some of the more common examples are explained below.

Valuations at 31 March 1982

Your valuation should not be on a like-for like basis.  If the land has been substantially altered since 31 March 1982, for example, by further building work, the valuation must nevertheless be of the land in the state that it was in at 31 March 1982.

Similarly, you may dispose of a property with vacant possession but if it was occupied by tenants at 31 March 1982, it must be valued taking account of the tenancies.  The converse applies if the property was sold with tenants in occupation; it should still be valued with vacant possession at 31 March 1982, if it was in fact vacant at that date.

Joint ownership

If you own land with one or more other persons, any valuations will need to take account of this. The valuation has to be of your interest, which in this case is an undivided share in the property. In view of the difficulties inherent in selling such a share, this will normally mean that the value is less than a proportionate share of the value of the entire property.  Thus for a property which is equally owned by two people, the valuation for each of them would normally be less than one half of the value of the entire property.

Post transaction valuation checks

If you need to provide any valuations, there is a fee service from the Inland Revenue to help you complete your Tax Return.  You can ask your Tax Office to check your valuations before you make your Tax Return.

You will need to complete a form CG34 for each valuation you want to check.  You can get the form from your Tax Office, any Tax Enquiry Centre or the Orderline, together with a leaflet CGT14: Capital Gains Tax: An introduction that gives more information about the service.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.


IR293

Chattels and Capital Gains Tax

This Help Sheet explains how chattels are treated for Capital Gains Tax.  But it is only an introduction.  If you are in any doubt whether you have made a chargeable gain, or allowable loss, you should ask your Tax Office or tax adviser.

Part 1 Introduction

What are chattels?

The word ‘chattel’ is a legal term meaning an item of tangible, moveable property.  Many day-to-day items are chattels.  These include:

items of household furniture

paintings, antiques, items of crockery and china, plate and silverware

motor cars, lorries, motor cycles

items of plant and machinery not permanently fixed to a building.

Private cars are exempt from Capital Gains Tax, but if you dispose of any other chattel, you may be liable to Capital Gains Tax.

Have you made a gain?

You only need to include in your Tax Return any gain on the disposal of a chattel where the disposal proceeds were more than £6,000.  Part 2 of this Help Sheet explains how to calculate gains and losses.

Part 3 explains the special rules that apply if you dispose of a set of chattels.

Parts 4 and 5 explain the rules for chattels that are wasting assets or that were used in a business.

Part 2 - Disposal of single chattels

How to calculate gains

You do not need to calculate any gain on the disposal of any single chattel if the disposal proceeds did not exceed £6,000.

If the proceeds exceeded £6,000, the amount of the gain depends on the amount of:

the disposal proceeds, and

the gain

To find out the gain you should include in the Capital Gains Pages, work through the following steps.

Step 1  Work out the amount by which the disposal exceeds £6,000

Step 2  Multiply this amount by 5/3

Step 3  The result is the maximum chargeable gain before taper relief

Step 4  Work out the net gain before taper relief using the Notes to the Capital Gains Pages

Step 5  Include in your Tax Return the lower of the net gain and the maximum chargeable gain, before taper relief.

Example 1

In August 1998 you sold an antique mirror for £7,500, that originally cost your £1,500 in September 1998.  There were incidental costs of sale totalling £250.  The disposal proceeds exceed £6,000 so you need to return any gain.

Calculate the amount by which the disposal proceeds exceed £6,000 (£7,500 - £6,000) = £1,500

Multiply this by 5/3 (£1,500 x 5/3) = £2,500

That is the maximum chargeable gain, before taper relief.

Then work out the actual gain, before taper relief.  Your calculation will be:

Disposal proceeds  £7,500

Expenses  £250

Cost £1,500

Indexation (0.5) to April 1998  £750

Actual gain  £5,000

Compare this with the maximum chargeable gain and enter the lower figure, which is £2,500.

What happens if a loss is made?

The amount you can claim as a loss on the disposal of any single chattel also depends on the amount of the disposal proceeds.

If the disposal proceeds were less than £6,000, then your loss is restricted by treating the disposal proceeds as £6,000.

If the disposal proceeds were £6,000 ore more, you can claim the full loss.

Part3  Sets of chattels

The normal rules for calculating gains or losses on the disposal of a single chattel may not apply if you dispose of a set of chattels.

What is a set?

A ‘set’ is a number of chattels that are:

similar and complementary to each other, and

worth more together than separately.

Examples of sets are:

chessmen

books by the same author, or on the same subject

matching ornaments such as vases or statuettes.

This is not a full list.  If you require more details, ask your Tax Office or tax adviser.

What happens when you dispose of a set?

If you dispose of a number of chattels that form a set, the £6,000 limit that normally applies to a single chattel, applies to the set.

There are special rules that apply to sets which have been broken up and sold separately.

If the parts of the set:

were owned by you at the same time, and

were disposed of by you to the same person, or a number of people acting together, or a number of people who are connected, then

the £6,000 limit applies to all of the set collectively and not to each member of the set individually.

Example 2

You own a full 32 piece set of antique chessmen which cost you £3,200 (that is, each piece cost £100).  Together the set is worth £32,000.

In 1998 you sell the pieces individually to an antique dealer for £1,000 each.  If the £6,000 limit were to be applied to each piece, disposals would be exempt from Capital Gains Tax.  But the pieces form a set, so the £6,000 limit applies to the total consideration of 332,000 and you must return the chargeable gain.

Part 4 Wasting assets

A wasting asset is an asset with a predictable life of 50 years or less.  If a chattel is a wasting asset, any gain on its disposal is exempt from Capital Gains Tax.

Certain chattels are always treated as wasting assets, for example, plant or machinery.

If capital allowances could have been claimed on the cost of the chattel, for example, because it was used in a business, any gain on its disposal will not be exempt.  Part 5 of this Help Sheet deals with such chattels.

You estimate the predictable life of a chattel as it appears to you when you originally acquired it.  You have to decide what its useful life would have been, bearing in mind the purpose for which you acquired it.

Calculating gains

A wasting asset is assumed to become less valuable over its predicable life. So, your acquisition cost, or any additional expenditure on the wasting asset is restricted to take account of the period of its predictable life which has elapsed when you disposed of it.  Your Tax Office can help you with the calculation.

Part 5  Business assets

If you dispose of a wasting asset that you have used in a business, trade, profession or vocation and you have, or could have, claimed capital allowances for it, then any gain you make will not be exempt and must be included on your Tax Return.

You need to take account of any capital allowances in working out your gain or loss.  Help Sheet IR222: How to calculate your taxable profits available from the Orderline explains how to calculate capital allowances.

If you dispose of a wasting asset that has been used in a business, any loss you make will be restricted to take account of the capital allowances you have received.

Example 3

You acquire an item of plant for £20,000 and use it in a trade.  You are entitled to claim capital allowances.  After three years, you sell it in 1998 for £7,500.  You claim net capital allowances, including any balancing charge or balancing allowance of £12,500.

You have had the whole of your loss of £12,500 as capital allowances.  So your Capital Gains Tax allowable loss is reduced to zero.


IR294

Trusts and Capital Gains Tax

The purpose of this Help Sheet is to explain briefly the way in which UK resident trusts are dealt with for Capital Gains Tax.

The overriding principle is that the trustees are taxable on the basis that the ‘settlement’ is an entity separate from the trustees, the settlor and the beneficiaries.

The principles of Scottish trust law are in a significant respects different from those of the rest of the United Kingdom. Trustees of Scottish trusts should note that the English express ‘life tenant’ used in this Help Sheet includes a ‘liferenter’, and that in Scotland the ‘settlor’ is more often referred to as the ‘truster’

This Help Sheet is only an introduction.  If you are in any doubt about your liability to Capital Gains Tax as trustee, settlor or beneficiary you should ask your tax adviser.

Your tax Office will also be pleased to help.  You can ask to see a copy of the Inland Revenue Capital Gains Manual which explains the relevant rules in detail.

Liability to Capital Gains Tax may depend upon the application of trust law to particular facts. Although the Capital Gains Tax Manual provides some information on trust law, in such circumstances you may need to take professional advice or consult specialist textbooks.  This Help Sheet assumes that you are familiar with the basic terms and principles of trust law.

Although as a general rule the Tax Office does not ask to see the deeds, an exception may be made where the liability to Capital Gains Tax depends upon the construction of the deed.

This Help Sheet does not deal with non-resident trusts, it does not deal with the liability of settlors or beneficiaries of such trusts in detail; nor does the Capital Gains Tax Manual.  If you need more information ask the Orderline for Help Sheets IR301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts, and IR299: Non-resident trusts and Capital Gains Tax, or contact the Financial Intermediaries and Claims Office:

FICO (Non-resident Trust)

St. John’s House

Merton Road

Bootle

Merseyside

L69 9BB.

(Help Sheet IR299 deals with the liability of settlors of non-resident trusts).

Who is liable to Capital Gains Tax on the gains of trustees?

As a general rule the liability to tax on the gains accruing to the trust falls on the trustees.  However there are certain exceptions:

if the settlor or the settlor’s spouse can or do benefit from the trust, the settlor is liable on the gains of the trustees

if the trust is a bare trust, see page 2, the trustees are ignored for Capital Gains Tax purposes, and the relevant beneficiaries are treated as if they had carried out the particular transactions themselves

in certain cases where assets are transferred to beneficiaries, the gain on that disposal can be the subject of a hold-over claim, see Help Sheet IR295: Relief for gifts and similar transactions.  Effectively this means that the gain of the trustees will become taxable when the beneficiary disposes of the asset

in the case of non-resident trusts, liability to Capital Gains Tax may fall on the beneficiaries or the settlor.  This Help Sheet does not deal with non-resident trusts in detail; more information is in Help Sheet IR299.

In the first instance the Inland Revenue regard the trustee who has completed the Tax Return as responsible for paying the tax, but if that trustee fails to do so, payment can be demanded from any person who was a trustee in the year in which the gain arose or subsequently.

In certain circumstances where a beneficiary has received trust property, and the trustees have not paid Capital Gains Tax, the Inland Revenue can recover the tax from the beneficiary.

What is a ‘settlement’?

Liability to Capital Gains Tax falls on the ‘trustees of a settlement’.

For Capital Gains Tax, the word ‘settlement’ has its normal meaning of a situation where property is held in trust, except where it is a bare trust.  ‘Settlement’ does not, so far as resident trusts are concerned, bear the wider meaning that it has for Income Tax purposes.  It does, however, cover all cases involving settled property, even though exceptionally they may not be regarded as settlements for Income Tax purposes.

The question often arises whether a particular situation means that there is one settlement or several.  This is important because liability is calculated on the basis that each settlement is a separate taxable entity.  So far example:

each settlement has its own annual exempt amount

appropriations of assets within a settlement have no effect for Capital Gains Tax

losses belong to the settlement

the rules for identification of shares apply by reference to the settlement.

The question whether there is one settlement or several is considered in detail in the Capital Gains Tax Manual.  If there are several settlements ultimately derived from one deed or will this can only be so if either:

the will (or exceptionally, deed) created several settlements from the outset, or

an event has occurred by which a new settlement came into existence and the trustees of the new settlement became ‘absolutely entitled’ as against the trustees of the original settlement.  This is a deemed disposal, for Capital Gains Tax.

The Inland Revenue accept that it is possible for a will to create several settlements if the property in each is entirely separate from the property in the other(s) and the trusts declared in the will are entirely separate or will merge only in totally unexpected circumstances.

Example 1

John Brown dies leaving his property to trustees to hold for his widow for life.  After her death they are to hold half for his son George for life and half for his daughter Mary for life, with the property going absolutely to their respective children alive at John Brown’s death.

After Mrs John Brown’s death the trustees divide the property into two separate funds.  This is one single settlement.  At the beginning neither the property nor the trusts are separate.  The appropriation into two funds does not change this.

What is a ‘bare trust’?

For Capital Gains Tax purposes a bare trust is one where the beneficiaries are ‘absolutely entitled as against the trustee’.  This means that either:

the trustee has no right to deal with the property except with the consent of the beneficiaries, or

the beneficiaries can take control of the property on giving due notice to the trustee.

Also, it is a bare trust where the beneficiaries could take control but for being infants or under some other legal disability.

The right of the trustees to retain the property until tax, an expense or other outgoings, have been met is disregarded for these purposes.

It is possible for a situation to arise in which a beneficiary is absolutely entitled to part of the property. In this case the trust is partially a bare trust.

Where there is a bare trust, anything done by the trustee is regarded as done by the beneficiary.  A transfer from the trustee to the beneficiary is disregarded.

Example 2

Mr Brown sets up a trust under which his grandchildren Trevor and Charlotte are entitled to the property if they reach the age of 25.  The assets are quoted shares.  On 01.05.98 Trevor reaches 25.  He is entitled to half the property, so the trustees are treated as having made a disposal of half the property for Capital Gains Tax purposes.  They retain the shares and then sell a block on 01.05.99.  Half of these shares are regarded as sold by them and the gain calculated by reference to the original cost.  The other half are treated as sold by Trevor who has a gain based on the value at 01.05.98.  On 01.10.99 the trustees hand over to Trevor half of the remaining shares.  That is ignored.  If Trevor then sells some of the shares, his cost is the value on 01.05.98.

What are the rates of tax?

The gains of the trustees are taxed at the rate applicable to trusts of 34%.

What is the annual exemption?

In the normal case the trustees are entitled to an annual exempt amount of half that allowed to individuals, namely £3,400.

If however the settlement was made after 6 June 1978 and the settlor (or one of them) made other settlements after that date, the annual exempt amount for each is reduced.  The settlement and other settlements made by the settlor form a group.  The annual exempt amount for each settlement is £3,400, divided by the number in the group (up to five).  If the settlement has two or more settlors, you take the largest group.  The unused annual exemption of one settlement cannot be transferred to another.

Certain types of settlement are not taken into account in the group.  These include:

charitable trusts

non-resident settlements

certain types of pension fund

settlements for a disabled person.

Settlements where all the gains are taxable on the settlor are taken into account in the group.  So are those with no income or chargeable gains.

Where the main beneficiary is a mentally disabled person or a person in receipt of attendance allowance or a disability living allowance by virtue of entitlement to the core component at the highest or middle tax rate, the annual exemption is £6,800.  Any other settlements for disabled person with he same settlor are grouped separately for the purpose of the post 6 June 1978 reduction.

A settlement qualifies for this larger annual exemption if the terms of the settlement are such that:

during the disabled person’s lifetime, not less than half the property which is applied is applied for his or her benefit, and

he or she is entitled to not less than half the income, or none of the income may be applied for the benefit of anyone else.

The test applies for each year separately.  So if, for example, the life tenant no longer qualifies for attendance allowance, the settlement’s status changes at the end of that year.

These provisions are significantly different from those which provide special treatment for Inheritance Tax purposes for trusts for disabled persons, See booklet IHT16, page 26, available from the Orderline.

What happens when the settlor can or does benefit?

Where the settlor or the settlor’s spouse has an actual or potential entitlement of any kind under the settlement or actually enjoys a benefit, such as a loan or use of property, the chargeable gains are taxable on the settlor.

The rules now correspond closely to those applying for Income Tax, except that a settlement for minor children does not come within these rules if that is the only reason for the Income Tax rules applying.

The chargeable gains and allowable losses of the trustees are calculated in the normal way, except that there is no annual exempt amount. An amount equal to the net gains is then treated for all purposes as gains of the settlor.

The settlor must set against these gains, so far as not already used, his or her own annual exemption.  If the trustees have more losses than gains, the surplus losses cannot be set against the gains of the settlor.  The settlor can no longer set his or her losses against these gains.

Any claims or elections that are considered appropriate must be made by the trustees.

These rules do not apply in the year of the settlor’s death nor, if the settlement is within these rules solely because of the spouse’s benefit, in the year of death of the spouse.

If the settlor’s spouse can only benefit after the death of the settlor, this benefit is not taken into account when determining whether the settlor is liable.

Disposals by trustees

Where trustees dispose of assets, the same principles apply in most cases as for individuals.

Two types of case which cause particular difficulties are:

enhanced stock dividends.  The Income Tax and Capital Gains Tax treatment for trustees is set out in the Inland Revenue Statement of Practice SP4/94, a copy of which can be obtained from the Orderline

exempt demergers.  The treatment for trustees for Capital Gains Tax is set out in the Inland Revenue Capital Gains Tax Manual, to which you can refer.

What happens when a beneficiary disposes of an interest in a settlement?

The basic rule is that where a beneficiary disposes of an interest under a settlement, including an interest in remainder, it gives rise to neither a chargeable gain nor an allowable loss.

This does not apply where the interest was acquired by the beneficiary or a predecessor in title for a consideration in money or money’s worth, except for an exchange of interest under the settlement.

Except where the disposal is as described in the next paragraph, it does not apply to interests in a non-resident settlement, or where the settlement has ever been non-resident, or the property has come from a non-resident settlement.

Where such a beneficiary becomes absolutely entitled to all or some of the property, that is a disposal of part disposal of the interest in question.

It is quite common for a life tenant to surrender his or her life interest, or for the life tenant to buy the interest of the remainderman or vice versa. If the result of such a transaction is that all the interests under the settlement are held by one person, then that person is absolutely entitled to the trust property, and there is a deemed disposal by the trustees.

What happens when the life tenant dies?

1.  Subject to paragraph 6 on page 4, this section applies where a life tenant or other person with an interest in possession dies.  A person has an interest in possession if he or she has the immediate right to receive the income from the property or to the use or enjoyment of it.

2.  If the property continues to be settled property, the trustees are deemed to have disposed of it and reacquired it at market value, but, subject to paragraph 4 on page 4, there is no gain or loss.

3.  If on the death of the life tenant a beneficiary becomes absolutely entitled to the property, subject to paragraph 4 on

page 4 , there is no gain or loss on that deemed disposal, but the beneficiary is treated as acquiring it at market value.

4.  If the trustees acquired the asset subject to a hold-over claim see Help Sheet IR295: Relief for gifts and similar transactions, their chargeable gain is the lower of the  held-over gain and the actual chargeable gain.

5.  Where the deceased had an interest in possession in part of the property, the uplift in paragraph 2 and the exemption in paragraphs 3 apply to the corresponding part of the property only.

6.  Where, on the death of the life tenant, the property reverts to the settlor, the trustees are treated as disposing of the property at a consideration that gives neither gain or loss.

7.  The death of a life tenant or other person with an interest in possession is likely to be a chargeable transfer for Inheritance Tax purposes.  Please refer to Booklet IHT16, pages 6 to 10, available from the Orderline.

What other reliefs are available to trustees?

Trustees may be entitled to, or be able to, claim many of the Capital Gains Tax reliefs, although some of these reliefs are limited to individuals, and for some the conditions of relief are different from those for individuals.

You may wish to refer to the following Help Sheets which can be obtained from the Orderline:

IR289: Retirement relief and Capital Gains Tax

IR283:  Private residence relief

IR295: Relief for gifts and similar transactions

IR297:  Enterprise Investment Scheme and Capital Gains Tax.

For other reliefs you may need to consult the Capital Gains Tax Manual or the relevant legislation to see whether trustees can make claims.

What is meant by becoming absolutely entitled and what are the tax consequences?

When one or more beneficiaries become absolutely entitled to trust property as against the trustees, for Capital Gains Tax purposes there is a deemed disposal at market value by the trustees of the property in question, and they thereafter hold the property as bare trustees.

The main examples of beneficiaries becoming absolutely entitled are:

the termination of a settlement after a term of years

the date of a life tenant

the exercise by the trustee of a power of advancement or appointment to release capital to a beneficiary

the acquisition of the life interest by the remainderman or the interest in remainder by the life tenant

the occurrence of a contingency such as a particular birthday or marriage

an agreement by the beneficiaries to terminate the settlement.

There is no further disposal for Capital Gains Tax purposes when the relevant property to formally transferred to the beneficiaries following the occasion of absolute entitlement.

Where a beneficiary becomes absolutely entitled as against the trustee of a settlement, other than an interest in possession settlement, the trustees should consider whether there is any liability to Inheritance Tax, see Booklet IHT16, available from the Orderline.

What happens when successive contingencies affect the property?

Suppose that a trust deed provides that the property is to be held for such of Tom and Sarah as reach the age of 25 and, if more than one, in equal shares.  Is there a deemed disposal when Tom reaches 25, or not until Sarah reaches 25?

Tom and Sarah have interest which are ‘contingent’ on their reaching their 25th birthdays.  A contingency is an event which may not necessarily happen.

The general rule is that when Tom reaches the age of 25 he becomes absolutely entitled to his share of the property. So the trustees then are treated as making a disposal of half the property.  But there are two important exceptions:

the first is where the trustees have an express power to appropriate the property in settlement of a particular interest and have not yet done so.  In this case absolute entitlement will occur when the trustees exercise their power.  If they do not do so then Tom and Sarah will become jointly absolutely entitled to the trust property on Sarah’s 25th birthday.  Where a settlement is governed by Scottish law, the trustees have such a power automatically unless it is specifically excluded in the deed or will.  This is not the case in the rest of the UK, where it must be specifically provided.

the second is that under English law, where the asset in question is land, absolute entitlement does not occur under the final contingency happens.  The same may apply in certain cases of other assets.

Separate settlements

Trustees (or other persons) may exercise powers of appointment or advancement, declaring new trusts over some of the settled property, in such a way that a new settlement is brought into existence.

If this is so, then this is a deemed disposal because the trustees of the new settlement become absolutely entitled, as against the trustees of the old one.

The question whether a new settlement has been created is dealt with in Inland Revenue Statement of Practice SP7/84, a copy of which can be obtained from the Orderline, and in the Capital Gains Tax Manual.

The Inland Revenue in particular considers that no new settlement has been created if either:

the trusts declared in the deed of appointment, etc, are not exhaustive, that is, they do not cover every possibility, or, in particular, can be revoked, or

the trustees do not have the power to delegate to other trustees.

The above paragraph does not apply, however, where the transfer is to another settlement that already exists.

It is possible, with the trustees’ consent, for all the beneficiaries to agree to vary the terms of the settlement.  If some of the beneficiaries are minors or unborn, or where there is an alimentary life rent, the consent of the Court must be obtained.  Depending on the facts, this may give rise to one or more new settlements.

Losses

The treatment of losses for trustees is the same as that for individuals:

1.  The allowable losses of the current year are deducted from the chargeable gains without any restriction, and any surplus losses are carried forward.

2.  Losses of previous years are deducted from gains of the current year:

after the current year’s losses have been deducted, and

only insofar as is needed to reduce the net gains, before taper relief to the annual exempt amount.

In the case of a settlement under which the settlor can benefit, there is no restriction of the losses brought forward.

When a beneficiary becomes absolutely entitled as against the trustee, allowable loss in respect of that property, or property represented by that property, which cannot be deducted from the gains arising prior to and including that occasion, are transferred to the beneficiary as if they were losses arising to him or her on that occasion.


IR295

Relief for gifts and similar transactions

This Help Sheet gives you information to help you make claims and calculate liability, where you have made a gift or sold an asset for less than market value, and will assist you in completing the Capital Gains Pages of your Tax Return.

Passages written in italics are only relevant if you are a trustee.

References to a person becoming entitled to trust property are references to the occasion upon which a person ‘becomes absolutely entitled as against the trustee’, so that there is deemed to be a disposal by the trustees to that person.  See Help Sheet IR294: Trusts and Capital Gains Tax.

What is meant by gifts and similar transactions?

If a person transfers an asset to another person for nothing, that is a gift in the strict sense.

Full or partial relief may also be available where the asset is transferred for less than its market value.  The hold-over relief described below extends to other cases where there is a disposal otherwise than by way of a bargain at arm’s length.  But if you receive anything in return, read the ‘What if you receive some payment for the asset?’ section on page 3 which explains how this restricts the hold-over relief.

Relief may also be available when a person becomes entitled to trust property, or in other cases where trustees are treated as if they had made a disposal.

When this Help Sheet refers to gifts, you should assume it includes these cases unless other definitions exclude them.

Nothing in this Help Sheet applies to transfers to your husband or wife.  She Help Sheet IR281: Husband and wife, divorce and separation.

How are gifts normally treated for the purposes of Capital Gains Tax?

If you dispose of an asset otherwise than by way of a bargain at arm’s length, then you are treated as if you had disposed of it for its market value.  See pages CGN9 and CGN10 of the Notes on the Capital Gains Pages.

Example 1

You sell a shop to your brother for £40,000.  The shop was then worth £100,000.  But for the hold-over reliefs your liability to Capital Gains Tax would be based on the value of £100,000.

What reliefs are available for gifts and similar transactions?

There are basically two types of relief:

hold-over relief, where the chargeable gain is postponed, usually until the transferee disposes of the asset.  A claim is required.

other reliefs, which are due automatically.

Hold-over relief is available for the following main types of disposals:

gifts of business assets

gifts of unlisted shares in trading companies

gifts of agricultural land

gifts which are chargeable transfers for Inheritance Tax purposes

certain types of gifts which are specifically exempted from Inheritance Tax.

The main types of gift, etc. where relief is due automatically are:

gifts to charities and certain other bodies

gifts (in the strict sense) of works of art etc. where certain undertakings have been given

sales of works of art to certain bodies, including transfers in settlement of Inheritance Tax liability.

Getting advice

This Help Sheet explains how the reliefs work.  But it is only an introduction. If you are in any doubt about your entitlement to relief, you should ask your tax adviser.

Your Tax office will also be pleased to help. You can ask to see a copy of the Inland Revenue Capital Gains Manual, which explains the relevant rules in detail.

How does hold-over relief work?

Example 2

You give an asset worth £50,000 to your brother.  It cost you £17,000 and the indexation allowance on that cost is £11,000.  The chargeable gain is therefore £22,000.  If a claim is made by you and your brother your chargeable gain, which is known as the ‘held-over gain’, is eliminated. His cost for the purposes of any future disposal, including the calculation of indexation, would normally be its value of £50,000, but this is reduced by the amount of the held-over gain £22,000, leaving a base cost of £28,000.

Please note that the chargeable gain referred to in example 2 is not adjusted in any way for taper relief. Furthermore when your brother disposed of the asset, only his own period of ownership is taken into account for taper purposes.

Which disposals qualify for hold-over relief?

Disposals that qualify for hold-over relief are in five categories:

1.  Business assets

Hold-over relief is available on the disposal of a business asset.  This is an asset which is used for the purposes of a trade, profession or vocation carried on by:

you, or

your ‘personal company’ (see the section ‘What are the different types of companies?’ below) or

a member of a trading group whose holding company is your personal company (see the section ‘What are the different types of companies?’ below).

In the case of trustees hold-over relief is available on the disposal of an asset which is used for the purposes of a trade, profession or vocation carried on by:

the trustees, or

a beneficiary with an interest in possession in the settled property immediately before the disposal.

The amount of the gain that can be held over is restricted, and part chargeable at once, if:

the asset is land or a building of which only part was used for the purposes of the trade, etc. or

at some time during your ownership it was not used of the purposes of the trade, etc.

2.  Shares and securities

The different types of companies are defined in the section ‘What are the different types of companies?’ below.  Hold-over relief is available on the disposal of shares or securities of a trading company or holding company of a trading group, if the shares or securities are not listed on a recognised stock exchange.

Exceptionally, listed shares and securities can qualify.  This is where the trading company or holding company is your personal company or, in the case of trustees, where the trustees have not less than 25% of the voting rights.

Where you have made a gift of a Qualifying Corporate Bond that you received in exchange for shares, that is a disposal which gives rise to a chargeable gain by reference to the original shares (see Help Sheet IR285: Share reorganisations, company take-overs and Capital Gains Tax).  This gain cannot be held over.

Where the company in question is:

your personal company, or

at any time in the previous 12 months the trustees making the disposal had a least 25% of the voting rights

the held-over gain is restricted by reference to those non-business assets of the company which would give rise to a chargeable gain (or allowable loss) if sold by the company.

What are the different types of companies?

A personal company of an individual is one where that individual has at least 5% of the voting rights.

A trading company is a company which is either

a company existing wholly for the purpose of carrying on one or more trades, or

a company that would fall within the above definitions apart from any purposes capable of having no substantial effect on the extent of the company’s activities.

A holding company is a company whose business (disregarding any trade carried on by it) consists wholly or mainly of the holding of shares in one or more companies which are its 51% subsidiaries.

A trading group is a group of companies the activities of which (if all the activities of the companies in the group are taken together) do not, or not to any substantial extent, include activities carried on otherwise than in the course of, or for the purpose of, a trade.

A group of companies consist of a company which is one or more 51% subsidiaries, together with those subsidiaries.

3. Agricultural land

Where agricultural land would not qualify as ‘business assets’ under 1. above, because it is not used for a trade carried on by an appropriate person, it can qualify for hold-over relief if it is agricultural property for the purposes of Inheritance Tax.

The Inheritance Tax relief for agricultural land is limited to its agricultural value.  So, where the value of agricultural land is in excess of its agricultural value, for example, because of possibilities of development, the excess does not qualify for relief.  This restriction does not apply for the purposes of hold-over relief.

4.  Chargeable transfers for Inheritance Tax purposes

Hold-over relief is available where the disposal is a chargeable transfer for Inheritance Tax purposes, but not a Potentially Exempt Transfer (PET).

A PET is a gift by an individual to another individual, an accumulation and maintenance trust, an interest in possession trust or a trust for the disabled.

The main examples of a lifetime chargeable transfer are where you give an asset to the trustees of a discretionary trust, or where you become entitled to the property of a discretionary trust.

Cases where there is no liability to Inheritance Tax, because the value transferred is within the zero-rated band, qualify for hold-over relief.

The ten yearly charge on the trustees of a discretionary settlement is not taken into account, because it is not a disposal for Capital Gains Tax purposes.

Some transactions that are disposed for Capital Gains Tax purposes are specifically not chargeable transfers for Inheritance Tax.  Examples are distributions from a discretionary trust set up by a will within two years of death, or transfers within three months of a ten-yearly charge. In such cases hold-over relief is not available.

5.  Certain occasions exempted from Inheritance Tax

Where the disposal would be a chargeable transfer or PET for Inheritance Tax purposes, but for one of a list of exemptions most of which are concerned with historic buildings or works of art, hold-over relief is available.

The most common case is where a qualifying beneficiary becomes entitled to the property of an accumulation and maintenance trust.

Where the beneficiary already has an interest in possession, including a statutory interest effective from his or her 18th birthday, this is not an accumulation and maintenance settlement.

Which transferors and transferees qualify for hold-over relief?

In categories 1, 2 and 3 the transferor must be:

an individual, or

the trustees of a settlement.

Any person resident or ordinarily resident in the UK may be the transferee, including a company.  In the case of companies with non-resident shareholders, hold-over relief may be excluded.  Persons treated as non-resident under a Double Taxation agreement may also be excluded.

In the case of categories 4 and 5 the transferor and the transferee must be individuals or trustees of a settlement.

The same restriction for non-residents applies as for the other categories.

What if you receive some payment for the asset?

If you receive something for the asset, such as money or another asset in exchange, and its value is greater than your base cost for the asset, then subject to taper relief you are immediately chargeable on the excess of the value of what you have received over the base cost.  Only the balance is held over.

Example 3

You sell a shop to your brother for £40,000 in June 1998.  The shop was then worth £100,000.  It cost you £23,000.  Indexation allowance is £19,000. The chargeable gain before hold-over relief is £58,000.  The amount chargeable at once, if a claim is made is £17,000, being the proceeds minus the original cost, times 92.5% if there are no losses set against it.  The held-over gain is £41,000.

Your base cost is the amount (excluding indexation) that you are allowed to deduct in your calculation of the gain.  This may be affected by a previous hold-over claim.

What if the transferee emigrates or dies?

If an individual transferee emigrates within six years of the end of the tax year in which the gift was made, and the asset has not been disposed of, they are chargeable on the held-over gain.

Different rules apply where the transferee is a trustee.

If the tax is not paid, in certain circumstances the Inland Revenue can collect it from the transferor.

If the transferee is an individual, and dies, the normal exemption on death applies.

If the asset was transferred to trustees and the life tenant dies, the trustee do not have the normal exemption on the death, but the chargeable gain is restricted to and held-over gain.  If this is an occasion of charge to Inheritance Tax, a claim can be made under category 4.

How to claim hold-over relief

Except where the claim is about a transfer to the trustees of a settlement, the transferor and the transferee should claim jointly. In the case of transfer to the trustees of a settlement the claim is made by the transferor only.  The next section deals with requests to defer the agreement of values.

Claims to relief should be made on the form at the back of this Help Sheet.  Each disposal for which further relief is claimed must be shown on a separate form. Further copies of the form can be obtained from the Orderline, but you can use photocopies if you wish.

Do you have to agree values?

The basic principle is that the held-over gain should be calculated and if possible agreed.

However, which such things as unlisted shares or land are involved this may cause complicated and unproductive work both for the Inland Revenue and you or your advisers, in agreeing values.  The Inland Revenue Statement of Practice SP8/92 enables you to defer agreeing the values, providing that there is no liability to Capital Gains Tax on the disposal except as described in the next paragraph.

Where the liability arises because you received some consideration from the person to whom you transferred the asset, liability is restricted as described in the section above ‘What if you receive some payment for the asset?’  Providing that the base cost represents actual expenditure and is not a value, in particular a value at 31 March 1982, it is not necessary to agree the value at the date of disposal.  However, if the base cost is a value, agreement of the value will be needed at both dates.

You can get a copy of the Statement of Practice SP8/92 from the Orderline.  The main conditions however are incorporated in the claim form on page 6 of this Help Sheet.

Where SP8/92 applies the claim is admitted on condition that the provisional values submitted with the claim are left to be agreed between the claimant(s) and the Inland Revenue at a later date, when and if it becomes relevant to the calculation on a further disposal by either claimant.  The Tax Return and the claim form require you to show estimated values.  These should be your considered estimates, but need not be formal valuations by an expert. They are not, however, regarded as in any way binding on claimants or the Inland Revenue.

Please note that although in the case of a transfer to a settlement the claim to hold over the gain is made by the transferor only, the trustees must be a party to a claim to defer the agreement of values.

How to get relief for gifts etc. to charities

This section applies to gifts to UK charities and certain bodies such as the National Gallery, local authority maintained art galleries and museums, local authorities and universities.  A full list is in Schedule 4 Inheritance Tax Act 1984.

If the asset is an outright gift, or the amounts given to you are less than your base cost, the disposal is treated as being at such a price that there is neither a chargeable gain nor an allowable loss.

If the amount paid is treated that base cost, or the amounts given to you are less than your base cost, the disposal is treated as being at such a price that there is neither a chargeable gain nor an allowable loss.

If the amount paid is greater than base cost, your calculation is based on what is actually paid to you.

Example 4

You sell a shop to a charity for £50,000. The shop was then worth £100,000.  It cost you £23,000.  Indexation allowance is £29,000.  The chargeable gain is based on the sale price of £50,000, and is therefore £8,000.

Where a charity becomes entitled to trust property, except where any consideration has been given to anyone to achieve this situation, the trustees are treated as disposing of the property at a price that gives no chargeable gain or allowable loss.

Are any other cases treated similarly?

Similar treatment applies to

gifts to certain kinds of trusts for employees

gifts to registered housing associations.

How to get relief for gifts of heritage property?

This relief covers works of art, historic houses and other property of sufficient standard to be regarded as part of the national heritage.  There are reliefs for both Capital Gains Tax and Inheritance Tax.

Exemption from Capital Gains Tax may be available for certain transactions in respect of designated property.

A detailed explanation is set out in the booklet IR67: Capital Taxation and National Heritage which is available from the Inland Revenue Library, Room 28 Ground Floor, Somerset House, London, WC2R 1LB, price £5.20.

Can tax be paid by instalments where there is liability on a gift?

This section applies to gifts in the strict sense only, and to cases where a person becomes entitled to trust property.

Where hold-over relief is not available, or only partial relief is available (see page 2 paragraphs 1 and 2), and the asset is of the kind listed below, you may elect to pay the tax in 10 equal instalments.

The main types of asset are:

land or an interest in land

shares or securities of a company that gave you control before the gift

shares or securities of a company not listed on a recognised stock exchange.

There is no restriction to business assets.

The unpaid instalments carry interest.

In certain circumstances the tax becomes payable immediately if the donee disposes of the asset.

What relief can be claimed for Inheritance Tax paid on a gift?

Inheritance Tax is not usually taken into account in calculating liability to Capital Gains Tax.  In exceptional circumstances it may be taken into account when the transferee disposes of the assets.

The transferee can claim the Inheritance Tax on the gift as a deduction in calculating the chargeable gain, but not so as to turn it into an allowable loss.

This also applies where a transfer that is initially a PET becomes retrospectively a chargeable transfer provided that it was a case where a claim was made within Categories 1 to 3 on page 2 above.

In certain circumstances, Capital Gains Tax on a disposal can be taken into account for Inheritance Tax.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Claim for hold-over relief - Sections 165 and 260 TCGA 1992

Transferor   Transferee

Name     Name

Address   Address

Tax Office  Tax Office

Tax reference   Tax reference

Except in case of a gift in settlement, the claim must be made by both transferor and transferee.  If the transferor or transferee has no Tax office or reference please explain why.

We/I hereby claim relief under Section 165/Section 260 TCGA 1992 in respect of the transfer of the asset specified below.  The particulars given in this claim are correctly stated to the best of my/our information and belief.

Description of asset and date of disposal.

tick one box

The gain held over is £   A calculation is attached

We apply for deferment of valuations and have completed the second page of the claim form.

We qualify for relief because     tick one box

the asset is used for the business of

Please insert name of person

the asset consists of unlisted shares or securities of a trading company or holding company of a trading group

the asset is agricultural land

the asset consists of listed shares or securities of the transferor’s personal company or, where trustees are the transferors, a company in which they had 25% of the voting rights

the disposal was a chargeable transfer, but not a Potentially Exempt Transfer, for Inheritance Tax purposes

the disposal was exempt from Inheritance Tax under IHTA Section

Please insert Section number

Signed    Signed

Date  /   /      Date  /   /

Request for valuations to be deferred

The disposal meets the conditions of Inland Revenue Statement of Practice SP8/92.  We jointly request that SP8/92 be applied, so that formal agreement of values can be deferred.  We accept the terms upon which SP8/92 applies.  We are satisfied that the value of the asset at the date of transfer is such that there would be a chargeable gain but for the claim.

Transferor   Transferee

Signed    Signed

Date  /   /      Date  /   /

The details required are as follows; where estimated figures are used please use the codes at the bottom of the form.

If there is insufficient space or you find it more convenient, please give the details on a separate sheet.  You can give the information in the form of a calculation if you prefer.

1  Date of acquisition and cost   /     /     £

2  Date of cost of additional allowable expenditure   /    /    £

3  Value at 31 March 1982 if relevant    £

4  Value of asset at date of transfer   £

5  Details of any relevant bonus issues or reorganisations if asset consists of shares or securities

6  If the disposal is a part disposal, details of and value of part retained

Notes

The disposal of part of a shareholding may be a part disposal.  If there is an entry in box 6, the figures at boxes 1 to 3 are those for the whole asset, not just the part disposed of.

Where the figures given are values and not actual costs, please write whichever of the following letters is appropriate in the box, after the figures:

A:  Value agreed by Inland Revenue

V:  Valuation by professional valuer but not agreed by Inland Revenue

E:  Our estimate of the value.

Acceptance of the claim does not bind the Inland Revenue to accept the values shown.  The claimants are not bound by the values shown.


IR296

Debts and Capital Gains Tax

This Help Sheet explains:

how debts are dealt with for Capital Gains Tax purposes

how you can claim an allowable loss if a loan you have made to a trader cannot be repaid

how you can claim an allowable loss if you have guaranteed a loan to a trader and have to pay up under the guarantee

This Help Sheet only explains the basic rules as they apply in simple cases. In more complex cases, you may need to obtain professional advice or consult the Inland Revenue Capital Gains Tax Manual, available at your Tax Office.

What is a debt?

A debt exists whenever money is owed to someone else.  A debt is an asset in the hands of the creditor or lender.  That asset will be disposed of when the debt is repaid or if the lender sells or transfers the debt.  But there are only a limited number of circumstances in which such a disposal gives rise to a chargeable gain or allowable loss.

A debt is not an asset but a liability in the hands of the debtor or borrower. Capital Gains Tax is concerned with the disposal of assets, not liabilities.  Therefore a borrower will not make a chargeable gain or allowable loss from the disposal of a debt.

How are debts dealt with for Capital Gains Tax purposes?

For Capital Gains Tax purposes, debts can be divided into three broad categories

Simple debts

A simple debt is a straightforward loan or amount owing by one person to another.  Simple debts are not chargeable assets in the hands of the original lender.  But you may be able to claim a loss if a loan you have made to a trader cannot be repaid.  Please see ‘Losses on loans to traders’ in the next column.

It is possible to buy debts.  A debt will be a chargeable asset if you are not the original lender.  But a loss on the disposal of a simple debt, by a person who is not the original lender, may not be allowable for Capital Gains Tax purposes.  Ask your Tax office or tax adviser for details.

Securities

Securities are more formal loans made to companies.  Securities are chargeable assets in the hands of the original lender. But many securities are exempt from Capital Gains Tax because they are qualifying corporate bonds (QCBs).  If you buy or subscribe for listed securities, your broker or the company should be able to tell you whether they are QCBs.  There are also published lists shown which listed securities are QCBs.  Your Tax Office has copies of these lists.

If you acquire the QCB on a company share reorganisation or take-over there may be a chargeable again or allowable loss on disposals.  Further information is in Help Sheet IR285: Share reorganisations, company take-overs and Capital Gains Tax in the section on company take-overs and Capital Gains Tax.

Loans made to unlisted companies may also be securities and QCBs.  This can be a complex subject, ask your Tax Office or tax adviser for help.

Gilt-edge securities

Gilt-edge securities, or ‘gilts’, are UK Government securities issued by the Treasury. Gilts are exempt from Capital Gains Tax.

Losses on loans to traders

If you make a loan to a trader you may be able to claim an allowable loss if the loan cannot be repaid.  The loan must have been used for trade purpose and have become irrecoverable.

Example 1

You lend £30,000 to your brother to start a bicycle shop.  After trading successfully for a number of years, the business fails.  £5,000 of the loan is repaid to you, but £25,000 is irrecoverable.  You can claim an allowable loss of £25,000.

If you claim the relief you will be taxable on any amounts of the loan subsequently repaid.

Example 2

Continuing Example 1, two years after you make the claim your brother is able to repay £10,000.  You are treated as having made a capital gain of £10,000 in the tax year in which the £10,000 is repaid.

What loans qualify?

To qualify for relief the loan must be to a borrower who:

is resident in the UK, and

uses the money for the purposes of a trade, or

who uses the money to set up a trade, as long as they start trading.

A trade includes a profession or vocation, but does not include money-lending.  If the loan is made to a company, that company can pass the money to another company in the same group, to be used in that other company’s trade.

Loans include credit balances on a director’s loan account but not ordinary trade debts. Exceptionally, trade debts may qualify for relief if there is a specific agreement to extend the period of credit beyond what is customary for the trade concerned.  But you cannot claim an allowable loss if you have claimed the bad debt as a trading expense.

The loan must not be a security, (see ‘How are debts dealt with for Capital Gains Tax purposes’ on page 1).  If the loan is a security but not a QCB, the ordinary rules of Capital Gains Tax will allow you to claim an allowable loss if the loan becomes worthless.  If the loan is a QCB, you may be able to claim a separate relief. Ask your Tax Office for details.

Does the loan still have to exist when claims are made?

Yes.  Relief is only due if an amount of the loan is outstanding at the date you make the claim.  You cannot claim relief if you have waived the loan or converted it into shares before making the claim.

What does ‘irrecoverable’ mean?

Relief is only due if the loan has become irrecoverable.  This does not mean merely that the borrower cannot repay the loan at the date you make the claim.  You have to show that there was no reasonable prospect of the loan ever being repaid.  If the borrower continues to trade, this test is unlikely to be satisfied.

The loan must have become irrecoverable. Relief will not be due if the loan was irrecoverable when it was made.  If you make a claim shortly after making the loan, this may cast doubts on whether the loan was ever recoverable.

The loan must not have become irrecoverable as a result of the terms of the loan or some act or omission by the lender.

How is relief given?

The relief is given by treating the irrecoverable loan as an allowable loss.  Normally you cannot claim that part of a loan that has become irrecoverable.  But you can make a claim for the outstanding balance of a loan if:

the borrower has been placed in bankruptcy, receivership or liquidation, and

the receiver or liquidator has announced an anticipated dividend in respect of unsecured debts and has indicated that no further dividends are likely.

Example 3

You have lent £10,000 to a company.  The company goes into liquidation.  The liquidators say they hope to make a payment of 20p in the pound to unsecured creditors but there will be no further payments.   You may claim an allowable loss of £8,000.

How to make a claim.  Are there any time limits?

After the loan has become irrecoverable there is no time limit in which to make the claim.  But remember the loan must still exist at the time you make the claim.  The loss will arise:

in the year you make the claim, or if you want,

in either of the two previous tax years, provided all the necessary conditions for relief are satisfied at the date you make the claim and at the earlier time.

So, if you make a claim in 1999-2000, the loss will have arisen in 1999-2000.  Alternatively you can cask for the relief to be given in 1997-98 or 1998-99, provided all the necessary conditions for relief were satisfied then.

If you want to make a claim for 1999-2000, send a notice to the Tax Inspector.

If you want to make a claim for 1998-99 in your Tax Return for 1998-99, you should include the loss in box 8.2 of your Capital Gains Pages.  Details of the claim should be included on Page CG2 of the Capital Gains Pages by making entries in columns 4, 7 and 8.

In the tax year 1999-2000 you can also ask for the relief to be given in 1997-98 by amending your 1997-98 Tax Return on or before 31 January 2000.  If you decide to ask for the carry back to 1997-98, some time between 1 February 2000 and 5 April 2000 you will have to send the Tax Inspector a separate notice.

What happens if you recover the loan?

If you recover any amount for which you have claimed relief, the amount you receive is treated as a chargeable gain.  The chargeable gain arises in the tax year the payment is received.  If you received any such payments in 1998-99, the amount should be added to other chargeable gains, and shown in box 8.1 of the Capital Gains Pages.

Relief for payments made under guarantees given on behalf of traders

Instead of making a loan to a trader yourself you may act as guarantor for a loan.  If the loan, or the interest on it, becomes irrecoverable, and you have to pay up under your guarantee, you may claim an allowable loss.  The relief will be reduced by any amounts payable by co-guarantors. The conditions for relief are very similar to those which apply to losses on loans to traders.

Example 4

Your brother borrows £20,000 from the bank to set up a bicycle shop.  You provide a personal guarantee for the loan.  After a period of trading successfully the business fails.  The loan cannot be repaid. The bank calls on you to pay £20,000 under the guarantee.  You can claim an allowable loss of £20,000 in the year the payment is made.

What are the conditions for relief?

The guarantee must be made in respect of a loan which satisfied all the conditions set out under ‘What loans qualify’ on page 1.  The only difference is that relief can be given for a guarantee of a loan which is a security.

Some part of the loan or the interest on the loan must be outstanding at the date of the guarantee payment.  This amount must be irrecoverable from the borrower.

How is the relief calculated?

The amount you pay under the guarantee will be treated as an allowable loss.  But the amount of relief will be limited if you are entitled to receive any payments from co-guarantors.  This restriction is not limited to amounts you actually receive from co-guarantors. However, you must take account of their ability to pay. If a co-guarantor is unable to make a payment, the liability of the other guarantors will be increased accordingly.  If you think this restriction applies, you should ask your Tax Office or tax adviser for advice.  On the other hand, you can claim relief for amounts you have to pay as a co-guarantor.

How to make a claim

The appropriate proportion of the payment is treated as an allowable loss for the year in which the payment is made.

If you make a guarantee payment in 1998-99, you can claim an allowable loss by making an entry in box 8.2 of the Capital Gains Pages.  Details of the claim should be included on Page CG2 of the Capital Gains Pages by making entries in columns 4, 7 and 8.

The claim has to be made within six years of 31 January in the year in which you make the payment under the guarantee.

What happens if any part of the amount paid is recovered?

If, after you have made a claim, you recover any amount of the loan or interest, or any part of the guarantee payment, the amount you receive is treated as a chargeable gain.  The chargeable gain arises in the year the payment is received. If you have received such a payment in 1998-99, the amount should be included with any other gains and shown in box 8.1 of the Capital Gains Pages.

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.


IR297

Enterprise Investment Scheme

This Help Sheet explains capital gains aspects of Enterprise Investment Scheme (EIS) for investors.  But it is only an introduction.  If you are in any doubt about your entitlement to relief you should ask your tax adviser.  Your Tax Office will also be pleased to help and you can ask to see a copy of the Inland Revenue Capital Gains Manual, which explains the rules in detail.

You may find it useful to refer to leaflet IR137: The Enterprise Investment Scheme, which provides a general outline of the EIS, and Help Sheets IR284: Shares and Capital Gains Tax and IR286: Income Tax losses for shares you have subscribed for in unlisted trading companies, available from the Orderline.

This Help Sheet describes the rules that apply to shares issued on or after 6 April 1998. If you acquire shares before 6 April 1998 ask your Tax Office or tax adviser for help.

There are two Capital Gains Tax reliefs within the EIS:

disposal relief, where shares in an EIS company are disposed of and certain criteria are met, and

deferral relief, where a gain arising on a disposal of any asset is deferred against subscription for shares in any EIS company and the shares are issued on or after 6 April 1998.

What is disposal relief?

If disposal relief is due you will not have to pay Capital Gains Tax on a gain on your disposal of the EIS shares.  The following conditions have to be met:

you must have held the EIS shares for more than five years

you must have received Income Tax relief in full on the whole of your subscription(s) for the EIS shares and none of the Income Tax relief must have been withdrawn.

EIS Income Tax relief is given for subscriptions for shares in unquoted companies which meet certain conditions explained in leaflet IR237.  The maximum subscription which can qualify for Income Tax relief is £150,000 in any Income Tax year. (The figure was £100,000 in 1997-98 and earlier years.)

You may not have to pay Capital Gains Tax on a gain on your disposal of the EIS shares, even if you did not receive Income Tax relief in full on all your EIS shares, if you have held them for more than five years and you received some Income Tax relief.  In this case, to qualify for disposal relief, you must have received some Income Tax relief (none of which has been withdrawn) and the only reason you did not receive Income Tax relief in full was that your claim reduced your Income Tax to nil.

When is disposal relief not due?

There is no disposal relief on any gain arising on a disposal within five years of the date the EIS shares were issued to you.  (You can find the actual date of issue on the EIS certificate which the company sent you.)

If you sell EIS shares within five years of the date the were issued (and the sale is not to your husband or wife):

Income Tax in respect of those you sell will be wholly or partly withdrawn (leaflet IR137 explains this)

if you make a gain on the disposal, it will be chargeable to Capital Gains Tax.

Disposal relief is not available against a deferred gain which is brought back into charge on a disposal of the EIS shares or some other event.

If you make a loss on a disposal of your EIS shares at any time you can set this loss against your income or your chargeable gains.  In computing the loss, you must reduce the cost of your shares by the amount of any Income Tax relief given and not withdrawn.

Example 1 - where you sell your shares at a loss.

You subscribe £100,000 for 50,000 EIS shares.   Income Tax relief of £20,000 is given.  Less than five years later you sell all 50,000 shares for £60,000.  Income Tax relief of £12,000 is withdrawn (see leaflet IR137).  £8,000 Income Tax relief is not withdrawn and remains attributable to the shares sold.

The allowable loss is calculated as follows:

Disposal proceeds  £60,000

minus cost  £100,000

reduced by the Income Tax relief which has not been withdrawn  (£8,000)

£92,000

Allowable loss for Capital Gains or Income Tax purposes (£32,000)

Pages CGN6 and CGN7 of the Notes on Capital Gains and Help Sheet IR286: Income Tax losses for shares you have subscribed for in unlisted trading companies explain how losses are allowed for Capital Gains and Income Tax purposes respectively.  When you complete Page CG2 of the Capital Gains Pages make it clear that your disposal is of EIS shares. If you want to set the loss against your income you must claim loss relief within two years of 31 January in the tax year in which the loss was made.

What are the main rules for calculating gains or losses on EIS shares?

The normal capital gains rules apply but with exceptions.  The main exceptions are that there are special share identification rules.

You identify disposal on a first in - first out basis.  Shares disposed of are identified first against the earliest acquisition.  But this does not help where you are disposing of some shares from a holding where you acquired all the shares on the same day and some of the shares have different reliefs attributable to them.  The share identification rules for this situation are set out in leaflet IR137 or you can ask your Tax Office or tax adviser for help.

Other points

What happens when I acquire more than £150,000 worth of EIS shares in any tax year and dispose of them at a gain after five years?

Only part of the gain on your disposal will not be chargeable to Capital Gains Tax.

Example 2

You subscribe £200,000 for EIS shares issued in June 1998.  You receive the maximum Income Tax relief £30,000.  You sell the shares at a profit in 2005 and no Income Tax relief has been withdrawn in the meantime.  Disposal relief exempts three quarters of the gain from Capital Gains Tax.  (The three quarters is the maximum investment for which Income Tax relief was available in the year your shares were issued, divided by the actual investment for which Income Tax relief was claimed, £150,000 divided by £200,000.)

What happens when Income Tax relief has been partly withdrawn and I dispose of the EIS shares at a gain after holding them for five years?

Only part of any gain on your disposal will not be chargeable to Capital Gains Tax.

Example 3

You subscribe £150,000 for EIS shares issued on 1 June 1998.  You receive the maximum income Tax relief. In 1999-2000 £10,000 of your Income Tax relief is withdrawn.  You sell the EIS shares making a gain on 1 July 2004.  Disposal relief exempts two thirds of the gain from Capital Gains Tax.  (The two thirds is the Income Tax relief given and not withdrawn divided by the full Income Tax relief originally given, £20,000 divided by £30,000.)

What happens where my Income Tax liability is nil?

If you have no liability to Income Tax before taking account of your subscription for EIS shares, you will receive no Income Tax relief on your EIS shares and any gain on the disposal of the EIS shares will be chargeable.  You may be able to use your Capital Gains Tax annual exempt amount to cover all or part of your gain.  Page CGN5 of the Notes on the Capital Gains explains the annual exempt amount.

Do I need to disclose any gain arising from a disposal of the EIS shares on my Tax Return?

You must give details of the disposal on Page CG2 of the Capital Gains Pages if either the total value of the EIS shares and any other assets you disposed of in the tax year or your total chargeable gains were more than the figures shown on page CGN5 of the Notes on Capital Gains.

What is deferral relief?

When you dispose of an asset and make a gain you usually pay Capital Gains Tax for the tax year in which you dispose of the asset.  Deferral relief lets you treat the gain as not arising until some future date if you acquire EIS shares.  If you make a claim to defer a gain, the gain may be charged to Capital Gains Tax in a later tax year, usually when you dispose of the EIS shares.  If you obtain Income Tax relief on an acquisition of shares, see IR137, then deferral relief can be claimed as well.  You do not have to obtain Income Tax relief to claim deferral relief.

To obtain full deferral relief you must invest an amount equal to the chargeable gain after deducting indexation allowance, see pages CGN10 and CGN14, but before allowing full taper relief, see CGN13.

Which gains can I defer?

You can defer any gain which arises on your disposal of an asset on or after 29 November 1994.  You can also claim deferral relief when a gain, previously deferred under the EIS, reinvestment relief (see Help Sheet IR291: Reinvestment relief - shares acquired before 6 April 1998) or the Venture Capital Trust scheme, is clawed back.  (Clawed back means the gain is brought back into charge to Capital Gains Tax.)

Which EIS shares qualify for deferral relief?

You can claim deferral relief if you subscribe for EIS shares and the shares are issued or after 6 April 1998.  If your EIS shares were issued before the date on which the gain you claim to defer arose, you must still hold them at that date.

What are the time limits for subscribing for EIS shares to obtain deferral relief?

The EIS shares you subscribe for must be issued to you in the period beginning 12 months before and ending 36 months after the date of the disposal for which you wish to claim relief.  The Inland Revenue has discretion to extend these time limits.  Your Tax Office can explain the circumstances in which they can do this.

Example 4.

You dispose of an asset on 6 June 1998 making a gain.  You can claim deferral relief against this gain if you subscribe for EIS shares and these shares are issued to you at any time between 6 June 1997 and 6 June 2001.

Who can claim deferral relief?

You can claim relief if you are an individual resident or ordinarily resident in the UK.  You cannot claim relief if you are treated by double taxation relief arrangements as resident elsewhere, so that (ignoring any disposal relief) you would not be liable to UK Capital Gains Tax on any gain from the EIS shares.  The trustees of certain settlements may also claim relief.  Ask your Tax Office for details.

How do I claim deferral relief?

Please complete the claim form attached to the EIS3 certificate you should receive from the company you have invested in and attach the form to the Capital Gains Pages of your Tax Return.  If the gain(s) against which you are claiming deferral relief arose in the

tax year to which this Tax Return relates, tick the box in column H on Page CG2 of the Capital Gains Pages next to the relevant disposal(s) and write ‘EIS deferral relief’ in column O.

How much deferral relief can I claim?

There is no upper limit on the amount you can invest in EIS shares in a year though the amount you can invest in a single company is limited, see IR137.

You may claim less than the maximum deferral relief, for example if you want to use your annual exempt amount to cover part of your gains.

Example 5

In one tax year you have a gain of £100,000 on a disposal and you subscribe £100,000 for 100,000 EIS shares issued to you (in the same tax year).  The annual exempt amount for the tax year is £6,500.  You can claim deferral relief on the full subscription of £100,000 or on any smaller amount, for example £93,500, leaving £6,500 to be covered by your annual exempt amount.

What is the time limit for claiming deferral relief?

You cannot make a claim before you have received the relevant EIS3 certificate.  The latest date for making a claim is five years after the first 31 January after the tax year in which the shares were issued.

Example 6

You disposed of an asset in May 1998 and acquired EIS shares in August 1999.  You must make a claim to relief by 31 January 2006.

When is the deferred gain brought back into charge?

The whole (or part) of the deferred gain is brought back into charge when there is a chargeable event.  There is a chargeable event if:

you dispose of your EIS shares (unless the disposal is to your husband or wife in which case the event occurs when that person disposes of the shares)

you (or your husband or wife to whom you have transferred your shares) cease to be resident in the UK, if this happens within five years from the time the shares were issued.  But this does not apply if whichever of you holds the shares takes up employment outside the UK and becomes resident again within three years without disposing of any of the shares in the meantime.

the shares cease to be eligible shares, see IR137, for example because the company is prevented from being a qualifying company.

The deferred gain will not be brought back into charge if you die.

How do I return the deferral gain brought back into charge?

You must give details on Page CG2 of the Capital Gains Pages.  Please enter ‘EIS deferral relief: gain brought back into charge’ in column A and the amount of the deferred gain brought back into charge in column I.

The taper rate in column K (only for a business asset disposed of in 1998-99) should be worked out by reference to the original asset and the date of the original disposal which led to the first deferral.  There is no taper relief against the deferred gain for the period from the date of the original disposal to the date of the chargeable event.

You can use your annual exempt amount for the tax year in which the deferred gain is brought back into charge to cover the whole or part of the deferred gain brought back into charge.

How much of the deferred gain is brought back into charge?

The whole of any deferred gain is brought back into charge if:

you dispose of all your EIS shares (see Example 7), or

the chargeable event is not a disposal of your EIS shares (for example if, within five years from the time the shares were issued, you emigrated intending to stay outside the UK permanently).

Example 7

You defer a gain of £50,000 arising in 1998-99 by subscribing £50,000 for EIS shares issued on 10 March 1999.  If you sell all the EIS shares in March 2000, the whole of the deferred gain of £50,000 is brought back into charge in the tax year 1999-2000.

If you dispose of only some of your shares to which deferral relief is attributable, some of the deferred gain will be brought back into charge.

Example 8

You defer a gain of £20,000 arising in 1998-99 by subscribing £20,000 for 20,000 EIS shares issued on 10 March 1999.  If you sell 15,000 EIS shares in March 2000, part of the deferred gain is brought back into charge in the tax year 1999-2000.  As you have sold 15,000 out of the 20,000 shares the same proportion (3/4) of the deferred gain is brought back into charge: £15,000.

The position is more complicated where you only dispose of some of your shares which you acquired at different times and you claimed deferral relief on some but not all of these shares.  You have to identify the shares you have disposed of and the shares which have had deferral relief.

What are the identification rules?

You identify disposal on a first in - first out basis. Shares disposed of are identified first against the earliest acquisition.

When shares were acquired on the same day, and the only relief involved is deferral relief, you identify disposals first against shares acquired which do not have deferral relief attributable to them.

Example 9

You make one subscription of £80,000 for 80,000 shares which could qualify for EIS relief. You claim £60,000 deferral relief. You sell 50,000 shares in a subsequent year.

The £60,000 deferral relief is attributable equally to all 80,000 shares.

As you have sold 50,000 of the 80,000 shares, the same proportion (5/8) of the deferred gain is brought back into charge: £37,500.

Where shares are acquired on the same day and reliefs other than deferral relief are attributable to them, see leaflet IR37, or you can ask your Tax Office or tax adviser for help.

What happens if the EIS company makes a bonus issue of shares?

Any deferral relief continues and is apportioned between the original shares and the bonus shares related to them.

What happens if the EIS company makes a rights issue of shares?

If you subscribe for the rights shares this is treated as a separate subscription for the purposes of the Capital Gains Tax reliefs.  Any deferral relief continues but relates only to the shares on which it was originally given.


IR298

Venture Capital Trusts and Capital Gains Tax

This Help Sheet explains the Capital Gains Tax reliefs for Investors in Venture Capital Trusts (VCTs). But it is only a simple guide and does not cover all cases.  You may also want to read the Inland Revenue leaflet Venture Capital Trusts (VCTs) a brief guide and Help Sheet IR284: Shares and Capital Gains Tax, available from the Orderline.  If you are in any doubt you should ask your tax adviser.  Your Tax Office will also be pleased to help and you can ask to see a copy of the Inland Revenue Capital Gains Manual, which explains the rules in detail.

A VCT is a company which invests in small unquoted companies.  Leaflet Venture Capital Trusts (VCTs) a brief guide gives more information.  The VCT shares which qualify for the special VCT tax reliefs are ordinary shares in an approved VCT.

There are two Capital Gains Tax reliefs:

you may not have to pay Capital Gains Tax on any gain you make when you dispose of your VCT shares.  (This is called disposal relief in this Help Sheet.)

you may be able to treat gains arising on disposals around the time your VCT shares are issued as postponed to a later year.  (This is called deferral relief in this Help Sheet.)

This Help Sheet describes:

disposal relief

deferral relief

when the deferred gain is brought back into charge

how deferral relief fits in with disposal relief

what happens if the VCT

is taken over

makes a bonus or rights issue.

What is disposal relief?

If disposal relief is due you will not have to pay Capital Gains Tax on any gain you make on the disposal of VCT shares.  The following conditions have to be met;

you did not acquire more than £100,000 worth of VCT shares in any one tax year

you are an individual (not a trustee)

you are 18 or over at the date of disposal

the company was an approved VCT both when you acquired the shares and when you dispose of them

you acquired the shares for commercial reasons and not as part of a tax avoidance scheme.

Any loss you make on the disposal of VCT shares where these conditions are met is not allowable for capital gains purposes.

Does it matter how I acquired the VCT shares?

No.  For disposal relief, it does not matter whether you subscribe for newly issued shares or whether you acquire existing shares, for example, by purchase or inheritance.

What happens if I dispose of VCT shares when I acquired more than £100,000 worth in any one tax year?

You will not have to pay Capital Gains Tax on any gain on your disposal of the first £100,000 worth of the shares acquired in any tax year.  A gain on your disposal of shares acquired above this limit is chargeable to Capital Gains Tax.  Similarly a loss is only allowable if it arises on the disposal of shares acquired above the £100,000 limit.  The normal capital gains rules apply to disposal of shares acquired above this £100,000 limit.  Help Sheet IR284: Shares and Capital Gains Tax explains these rules.

The first £100,000 worth of shares acquired in any tax year are not subject to the share pooling rules.  There are identification rules to decide which shares count first towards the £100,000 limit.  Share acquired earlier in the tax year count first.  Shares acquired on the same day in different VCTs or in different classes of ordinary shares in the same VCT are identified on a proportionate basis.

What happens if I sell some but not all of my VCT shares when I acquire more than £100,000 worth in any one tax year?

You identify your disposal on a first in - first out basis.

In relation to shares acquired on the same day, shares acquired in excess of the £100,000 limit are treated as disposed of before other shares acquired on that day. This is illustrated in Example 1 on page 2 of this Help Sheet.

Do I need to disclose any gain arising from a disposal of VCT shares on my Tax Return?

You must give details of the disposal on Page CG2 of the Capital Gains Pages if either the total value of the VCT shares and any other assets you disposed of in the tax year of your total chargeable gains were more than the figures shown on page CGN2 of the Notes on Capital Gains.  If after disposal relief you do not have to pay Capital Gains Tax on any of the gain, describe the VCT shares in column A on Page CG2, enter the disposal proceeds in column G, enter nil in column I, tick the box in column H and write ‘VCT disposal relief’ in column O.

Example 1

You buy 150,000 VCT shares for £150,000 on the same day.  100,000 shares qualify for disposal relief so any gain on the disposal of these 100,000 shares is exempt.  Any gain on the remaining 50,000 shares is not exempt.

In the following tax year you sell 75,000 of the 150,000 shares.  You identify the sale of the 75,000 shares as follows:

the first 50,000 with the 50,000 non exempt shares

the remaining 25,000 with 25,000 of the shares the gain on whose disposal is exempt.

You calculate any gain or loss on the 50,000 non exempt shares.  Any gain is chargeable to Capital Gains Tax and any loss is allowable. You describe the VCT shares in column A on Page CG2 of the Capital Gains Pages, enter the proceeds from the disposal of the 75,000 shares in column G, any gain or loss arising on the 50,000 non exempt shares in column I, tick the box in column H and write ‘VCT disposal relief’ in column O.

You still hold 75,000 shares, the gain on whose disposal will be exempt.

What is deferral relief?

When you dispose of an asset and make a gain you usually pay the Capital Gains Tax for the tax year in which you dispose of the asset.  Deferral relief lets you treat the gain as not arising until some future date.  If you make a claim and defer a gain, the gain may be charged to Capital Gains Tax in a later tax year, usually when you dispose of the VCT shares.

Which gains can I defer?

You can claim deferral relief for any gain which arises on your disposal of an asset on or after 6 April 1995.  You can also claim deferral relief when a gain, previously deferred under the VCT scheme or the Enterprise Investment Scheme, is clawed back.  (Clawed back means the gain is brought back into charge to Capital Gains Tax.)

Which VCT shares qualify?

You can claim deferral relief if you subscribe for VCT shares and receive ‘front-end’ Income Tax relief on the shares.  This Income Tax is described in the notes for box 15.7 on page 21 of the Tax Return Guide and is called ‘front-end’ Income Tax relief in this Help Sheet to distinguish it from another relief, on VCT dividends (see leaflet Venture Capital Trusts (VCTs) a brief guide).  If your VCT shares were issued before the date on which the gain you claim to defer arose, you must still hold them at that date.

What are the time limits for subscribing for VCT shares to obtain deferral relief?

The VCT shares you subscribe for must be issued to you in the period beginning 12 months before the ending 12 months after the gain arises.  The Inland Revenue has discretion to extend these time limits.  Your Tax Office can explain the circumstances in which they can do this.

Example 2

You dispose of an asset on 6 June 1998.  You can claim deferral relief for a gain on the disposal if you subscribe for VCT shares on which you receive ‘front-end’ Income Tax relief and these shares are issued to you at any time between 6 June 1997 and 6 June 1999.

Who can claim deferral relief?

You can claim relief if you are an individual resident or ordinarily resident in the UK.  You cannot claim relief if you are treated by double taxation relief arrangements as resident elsewhere, so that (ignoring disposal relief) you would not be liable to UK Capital Gains Tax on any gain from the VCT shares.

How do I claim deferral relief?

Please complete the form on page 5 of this Help Sheet and attach it to the Capital Gains Pages of your Tax Return.  If the gain(s) against which you are claiming deferral relief arose in the tax year to which this Tax Return relates, also tick the box in column H on Page CG2 of the Capital Gains Pages next to the relevant disposal(s) and write ‘VCT deferral relief’ in column O.

How much deferral relief can I claim?

You can claim the amount you subscribe up to £100,000 for shares issued in any one tax year.

You may claim less than the maximum deferral relief, for example if you want to use your annual exempt amount to cover part of your gains.  Page CGN3 of the Notes on Capital Gains explains the annual exempt amount.

If you do not receive ‘front-end’ Income Tax relief in full because your Income Tax liability is insufficient, then, provided you receive some ‘front-end’ Income Tax relief, you can still claim to defer gains up to the full amount you subscribe for VCT shares, subject to the £100,000 limit for shares issued in any tax year.

Example 3

In one tax year;

your Income Tax liability is £12,000 before ‘front-end’ Income Tax relief,

you have a gain of £100,000 on a disposal, and

you subscribe £100,000 for 100,000 VCT shares issued to you in the same tax year.

Your ‘front-end’ Income Tax relief is restricted to £12,000.  The annual exempt amount for the tax year is £6,500.  You can claim deferral relief on the full subscription of £100,000 or on any smaller amount, for example £93,500, leaving £6,500 to be covered by your annual exempt amount.

If your Income Tax liability is nil before taking account of your subscription for VCT shares, you will receive no ‘front-end’ Income Tax relief for your subscriptions. In this case you cannot claim any deferral relief.

You can defer gains of more than £100,000 arising in any one tax year by making subscriptions for shares issued in different tax years.

Example 4

You subscribe £100,000 for VCT shares which are issued on 4 April 1998.  You still hold these shares when you sell an asset realising a gain of £400,000 on 1 April 1999.  You make further subscriptions;

£100,000, VCT shares issued on 1 April 1999

£100,000, VCT shares issued on 31 March 2000

You send your Tax Return for 1998-99 during January 2000.  Provided you received ‘front-end’ Income Tax relief on all the VCT shares already issued, you can claim 1997-98 deferral relief of £100,000 and 1998-99 deferral relief of £100,000 against your gain on your Tax Return for 1998-99.  This leaves £200,000 chargeable in 1998-99.  Capital Gains Tax due will be payable on 31 January 2000.

Provided you receive ‘front-end’ Income Tax relief for all the shares issued on 31 March 2000, you can claim deferral relief on a further £100,000 of the gain for 1999-2000.  Part of the Capital Gains Tax paid will be refunded, leaving £100,000 gains chargeable in 1998-99.

What is the time limit for claiming deferral relief?

You can make a claim to deferral relief up to five years from 31 January in the year following the tax year in which:

the gain to be deferred arose, or

your VCT shares were issued,

whichever is the later.

When is the deferred gain brought back into charge?

Usually this will be in the tax year when you dispose of the VCT shares (unless the disposal is to your husband or wife at no gain/no loss for capital gains purposes, in which case it will be when that person disposes of them).

The deferred gain would be clawed back earlier than this if:

you (or your husband or wife to whom you have transferred your shares) cease to be resident in the UK, if this happens within five years from the time the shares were issued.  But this does not apply if whichever of you holds the shares takes up employment outside the UK and becomes resident again within three years without disposing of any of the shares in the meantime

the company loses Inland Revenue approval as a VCT

any of the ‘front-end’ Income Tax relief on your VCT shares is withdrawn in other circumstances

there is a share exchange or company reconstruction which is not treated as a disposal and the new assets held following the exchange or reconstruction are not ordinary shares in a VCT.

The deferred gain will not be clawed back if you die.

How do I return the deferred gain clawed back?

You must give details on Page CG2 of the Capital Gains Pages.   Please enter ‘VCT deferral relief : gain clawed back’ in column A and in column I the amount of the deferred gain clawed back.

You can use your annual exempt amount for the tax year in which the deferred gain is clawed back to cover the whole or part of the deferred gain clawed back.

How much of the deferred gain is clawed back?

The whole of any deferred gain is clawed back if:

you dispose of all your VCT shares, see Example 5 below, or

the event giving rise to the claw back is not a disposal of your VCT shares (for example if, within five years from the time the shares were issued, you emigrated intending to stay outside the UK permanently).

Example 5

This deals only with the deferred gain clawed back.

You defer a gain of £50,000 on a disposal in 1998-99 by subscribing for £50,000 worth of VCT shares issued in 1998-99.  If you sell all the VCT shares in 1999-2000, the deferred gain of £50,000 is clawed back in 1999-2000.

If you dispose of only some of your shares, some of the deferred gain will be clawed back.

Example 6

This deals only with the deferral gain clawed back.

You defer a gain of £20,000 arising in 1997-98 by subscribing for £20,000 worth of VCT shares issued in 1997-98.  If you sell 15,000 VCT shares in 1998-99, part of the deferred gain is clawed back in the tax year 1998-99.  All your VCT shares were used to defer the gain and as you have sold 15,000 out of the 20,000 shares the same proportion of the deferred gain is clawed back: £15,000.

The position is more complicated where you only dispose of some of your shares and you claimed deferral relief on some but not all of these shares.  You have to identify the shares you have disposed of and the shares which have had deferral relief.

What are the identification rules?

You identify disposal on a first in - first out basis.

When shares were acquired on the same day, you identify disposals first against shares which have not been used in the claim for deferral relief.

How does deferral relief fit in with disposal relief?

Subscriptions for shares which are used in claims for deferral relief may also count towards the £100,000 on which disposal relief is available.

Example 7

You sell an asset realising a gain of £60,000.  You subscribe £100,000 for 100,000 shares in a VCT which are issued to you in the same tax year.  You receive deferral relief against the gain of £60,000.  In a subsequently tax year you sell 55,000 of the VCT shares.

The 100,000 VCT shares are the only VCT shares you acquired in the tax year and therefore they all qualify for disposal relief so that any gain you make on the sale of the 55,000 VCT shares is not chargeable to Capital Gains Tax.

Only £60,000 of the subscription is used in the claim for deferral relief.

Therefore £40,000 expenditure on 40,000 shares has not attracted deferral relief.

The 55,000 shares sold are identified as follows:

first, against 40,000 shares for which no deferral relief was given

second, against 15,000 shares for which deferral relief was given.

Deferral relief was given in respect of 60,000 shares of which 15,000 were sold so the proportion of the £60,000 deferred gain clawed back is

15,000 = £15,000

60,000

£15,000 of the deferred gain is clawed back in the tax year you sell the 55,000 VCT shares.

What happens if another company takes over the VCT?

The VCT or the other company involved usually writes to you explaining the tax implications.

For capital gains purposes you are not treated as disposing of your VCT shares if another VCT takes over the VCT in which you hold shares and just issues new VCT ordinary shares to you. In these circumstances and provided any '‘front-end’ Income Tax relief is not withdrawn, VCT deferral relief continues.

With all other take-overs,

you are treated as disposing of any VCT shares which qualify for exemption on disposal

any deferred gain will be clawed back.

What happens if the VCT makes a bonus issue of shares?

For capital gains purposes, the original shares and the bonus shares related to them are treated as the same asset.  This means that if you deferred a gain, your deferral relief continues and is apportioned between the original and the bonus shares.

What happens if the VCT makes a rights issue of shares?

If you subscribe for the rights shares, this is usually treated as a separate subscription for capital gains purposes and will qualify for the Capital Gains Tax reliefs if the relevant conditions are met.

Any deferral relief you have received continues but relates only to the shares on which it was originally given.

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.

Claim for Venture Capital Gains Tax deferral relief

Name  Tax reference

VCT shares

Description of shares and name of company  Date shares issued to you  Cost  Deferral relief to be set against gain

  /   /  £  £

 /   /  £  £

 /   /  £  £

 /   /  £  £

 /   /  £  £

 /   /  £  £

Total amount of deferral relief  £

Assets you disposed of

Description    Date of disposal  Chargeable gain  Gain to be deferred

  /   /  £  £

  /   /  £  £

  /   /  £  £

  /   /  £  £

  /   /  £  £

  /   /  £  £

If more than one block of shares was issued to you or you made more than one gain, make clear how each block of shares used in your claim for deferral relief fits in with the gain(s) to be deferred.


IR299

Non-Resident Trusts and Capital Gains Tax

This sheet gives you information to help you decide whether you have taxable capital gains as settlor of a non-resident trust.   If you have, you must include such gains in Box 8.4 in the Capital Gains Pages of your Tax Return.

What is a non-resident trust?

A non-resident trust is one:

that has all or a majority of trustees who are themselves not resident in the UK, and

whose administration is carried on outside the UK.

These notes may also apply if some of the trustees are resident in the UK but they are treated, for the purposes of a Double Taxation Agreement, as resident in another country, for example, because the administration of the trust is carried on by one of the other trustees who is resident in that other country.  If you are in any doubt about whether this applies to your case, ask your Tax Office or tax adviser for help.  The Financial Intermediaries and Claims Office (FICO) will also be pleased to help. You can contact them at:

FICO (Trusts and Settlements)

St Jonn’s House

Merton Road

Bootle

Merseyside

L69 9BB

Who is liable to capital gains tax when gains arise to non-resident trustees?

If you are the settlor, because you have directly or indirectly provided money or other value for the trust, you may be liable to Capital Gains Tax when gains arise to the trustees.  You may also be liable to Capital Gains Tax when gains arise to relevant overseas private companies in which the trustees have invested.

In this Help Sheet, a relevant overseas company is one in which the trustees have an interest of 5% or more and which is one under the control of either the directors or no more than five participators.  If you are in doubt, please ask your Tax Office or tax adviser.

If you are a beneficiary (whether or not you are also the settlor) you may be liable to Capital Gains Tax if you directly or indirectly receive capital or some other benefit from the trust - as the Orderline for Help Sheet IR301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts.

When is a settlor liable to capital gains tax as gains arise?

You, as settlor are liable to Capital Gains Tax when gains arise to the non-resident trustees of your trust, and/or to any overseas private company in which they have invested, if:

any of the persons listed below (the ‘defined persons’) can or do benefit from the trust, and either

you made the trust after 18 March 1991, or

extra capital, income or other value was directly or indirectly added to the trust after 18 March 1991 (A sale at full open market value is not an addition for this purpose.  Indirect additions includes the gifting of money or other assets to companies in which the trustees have invested), or

the non-resident trustees were first appointed to act after 18 March 1991, or

the terms of the trust were varied after 18 March 1991 to allow any of the defined persons listed below to benefit for the first time, or

any of the defined person listed below actually benefited after 18 March 1991 for the first time, without the trust provisions actually allowing them to benefit.

Who are the ‘defined persons’?

In applying the tests in the notes above, you need to consider whether any of the following persons can benefit, or have benefited, from the trust:

you

your spouse

any of your children, and any stepchildren

spouses of such children, and of any stepchildren

companies that any of the above persons, alone or jointly, control

companies associated with such controlled companies (consult your tax adviser if you think there may be controlled or associated companies that can benefit from your trust, but you are not sure).

See, however the next paragraph if none of the above can benefit.

Trusts for grandchildren or grandchildren’s spouses

You, as settlor, will also be liable to Capital Gains Tax when gains arise to the non-resident trustees of your trust, and/or to any private overseas company in which they have invested, if

you made the trust after 16 March 1998, or

extra capital, income or other value was directly or indirectly added to the trust after 16 March 1998, or

the non-resident trustees were first appointed to act after 16 March 1998, or

the terms of the trust were varied after 16 March 1998 to allow the persons described below to benefit for the first time, or

any of the persons described below actually benefited after 16 March 1998 for the first time, without the trust provisions actually allowing them to benefit

and

any of your grandchildren, or grandchildren of your spouse, or any of their spouses, or any companies controlled by one or more of them, or any companies associated with such controlled companies, can or do benefit from the trust.

Where are the gains to be entered?

If you are liable to tax when gains arise to the non-resident trustees of your trust, and/or to overseas private companies in which they invest, calculate what amount would have been chargeable to Capital Gains Tax had those gains arisen to a person resident in the UK. Enter details on lines 11 and 12, as appropriate, and include those amounts in the total of your attributed gains in box 8.4 on Page CG23 of the Capital Gains Pages of your Tax Return.

If you were liable to tax as a beneficiary (whether or not you are also the settlor) because you directly or indirectly received capital or some other benefit from the trust, such gains should be entered in box 8.4.  Ask the Orderline for Help Sheet IR301 if this applies.

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.


IR300

Non-residents and investment income

This Help Sheet explains how income from UK savings and investments (such as interest from bank or buildings societies, unit trusts, National Savings, or dividends from UK companies) is taxable if you are not resident in the UK.

It includes a Working Sheet, which you only need to use if you decide to calculate your tax.

How is investment income charged to tax?

With the exception of income from property in the UK and investment income connected to a trade in the UK through a branch or agency, the tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source.

Getting advice

This Help Sheet explains the restrictions, but it is only an introduction.  If you are in any doubt about where the restrictions applies or how it operates, ask your Tax Office or tax adviser.

The Financial Intermediaries and Claims Office will also be pleased to help at the address shown below:

Financial Intermediaries and

Claims Office (FICO) International

St John’s House

Merton Road

Bootle

Merseyside

L69 9BB    Telephone 0151 472 6000

How does the restrictions work?

If you are not resident in the UK, the tax you pay on all your income cannot be more than

the amount of tax that would be chargeable on income, other than the ‘excluded income’ shown below, but before the deduction of any personal allowances due

plus

the amount of tax deducted at source from the ‘excluded income’

‘Excluded income’ includes

interest from banks and building societies

dividends from UK companies

income from unit trusts

income from National Savings

profits from public revenue dividends

profits or gains from transactions in deposits

certain social security benefits, such as National Insurance retirement pensions or widow’s pensions.

Calculating your tax

If you want the Inland Revenue to calculate your tax for you, you can ignore the rest of this Help Sheet.

If you have decided to calculate your tax yourself, you will need to compare the amount of tax that would otherwise be due with the amount due as shown by the Help Sheet.

This is to make sure that you do not pay too much tax.  In some circumstances, you will be better off paying tax as if you were resident in the UK.

Use the Working Sheet on page 3 to make the comparison.  There are instructions on how to fill it in, and an example on pages 4 and 5.

The box number references (‘W’) in this Help Sheet are to the Working Sheet in the standard Tax Calculation Guide.  References to the Tax Calculation Guide for people with capital gains (‘G’) or the Guide for people with certain lump sum and other payments (‘L) or the Guide for people with both (‘F’) are shown in brackets.

Working out the limit of your liability

First, fill in the Working Sheet in your Tax Calculation Guide up to and include

box W47 (or box G64, or box L69, or box F69).

Then, work out the limit of your liability by filling in the Working Sheet on page 3 of this Help Sheet, following the instructions on page 2.

boxes 1 to 2  Enter the details of the ‘excluded’ income, showing the totals of the net income, tax deducted at source, tax credits or notional income tax, and the gross income.

box 4  Enter your total gross income for the year. Copy the figure from box W21 (or box G21, or box L21, or box F21) in your Working Sheet in the Tax Calculation Guide.

box 5  Enter the total income for the year minus the income referred to under the heading ‘How does the restriction work’ (on page 1).  You can deduct the figure in box 3 from the figure in box 4.

Boxes 6 to 9  You pay Income Tax at 20% on the first £4,300 of your income.  Calculate Income Tax on all your income at 20%.  If your income is more than £4,300, calculate Income Tax at an additional 3%.  This adds up to 23 % tax on your income in the basic rate band.

boxes 10 to 12  Then calculate an additional 17% tax on the income in the higher rate band (over £27,100).  This is done in boxes 10 and 11 and the total tax due is shown at box 12.

boxes 13 to 16  Some allowances and reliefs are given to you by taking them off the tax you have to pay:

interest on loans to purchase a home.  The notes on box 15.2 in your Tax Return Guide explains which figure to put in box 13.

maintenance or alimony paid.  The notes on boxes 15.4 and 15.5 in your Tax Return Guide explain which figure to put in box 14.

Multiply the figure in box 13 by 10% and enter the result in box 14.  Multiply the figure in box 15 by 15% and enter the result in box 16.

box 17  Enter the amount of tax credit relief due, if any.

box 18  Enter in box 18 the figure of notional tax paid from box W44.

box 19  Add together the figures in boxes 14, 16, 17 and 18 and enter the result in box 19.

box 20  Add the figure in box 2 to box 12.

box 21  The maximum amount of Income Tax due from you is the total of the amount due after allowances and reliefs (except for personal allowances) and the amount of tax, if any, deducted at source.  Calculate this by subtracting box 19 from box 20; the result is the maximum amount of Income Tax due.  Enter this figure in box 21.

Filling in the result of the Working Sheet in your Tax Calculation Guide

Follow the instruction in your Tax Calculation Guide for completing the rest of the Working Sheet.  But if the figure in box 19 of this Working Sheet is less than the figure in box W47 (or box G64 or box L69 or box F69) use the box 19 figure instead of the box W47 figure to arrive at the total for box W50 (or box G67 or box L72 or box F72).

Maximum Income Tax Working Sheet

See instructions, and example on pages 4 and 5

Excluded income  Net income  Tax deducted  Gross income

£  £  £

£  £  £

£  £  £

£  £  £

1 £ total column above  2 £ total column above  3 £ total column above

Total gross income for the year  4 £

Total gross income except for excluded income  5 £  box 4 minus box 3  6 £ box 5 x 20%

If the figure in box 5 is £4,300 or less, copy the figure in box 6 to box 12.  Do not fill in boxes 7 to 11.

If the figure in box 5 is more than £4,300, deduct £4,300 and enter the excess in box 7.

7 £ box 5 minus £4,300  8 £ box 7 x 3%

Total tax due at the lower and basic rates  9 £ box 6 + box 8

If the figure in box 5 is £27,100 or less, copy the figure in box 9 to box 12. Do not fill in boxes 10 to 11.

If the figure in box 5 is more than £27,100, deduct £27,100 and enter the excess in box 10.

10 £ box 5 minus £27,100   11 £ box 10 x 17%

Total tax due at the lower, basic and higher rates  12 £ box 9 + box 11

Allowances and reliefs

Interest on loans to purchase a home  13 £ box 15.2   14 £ box 13 x 10%

Maintenance or alimony paid  15 £ boxes 15.4 or 15.5 (see Notes in the Tax Return Guide)  16 £ box 15 x 15%

Tax credit relief  17 £ boxes 6.9 and 9.35

Notional tax  18 £ from box W44

19 £ total boxes 14, 16, 17 and 18

20 £ box 2 + box 12

Maximum amount of Income Tax due  21 £ box 20 minus box 19

Example

Christine is a non-resident with total income for the year of £50,000 of which £30,000 is ‘excluded’ income being bank interest (£5,000) and company dividends (£25,000 gross).

She is entitled to personal allowances as a Commonwealth citizen.

Having chosen to calculate her tax, she works through the Working Sheet in the Tax Calculation Guide, which shows Income Tax after allowances and reliefs of £13,243.15; then she fills in the Working Sheet on page 3 of this Help Sheet.  This shows that the maximum charge to Income Tax is £9,477.

This smaller figure is entered in box W50 (or box G67, or box L72, or F72) in the Working Sheet in the Tax Calculation Guide.  Finish the Working Sheet in the Tax Calculation Guide to work out the overall reduced tax liability.

Maximum Income Tax Working Sheet

See instructions, and example on pages 4 and 5

Excluded income  Net income  Tax deducted  Gross income

Bank interest  £5,000  £nil   £5,000

UK company dividends  £20,000  £5,000  £25,000

£  £  £

£  £  £

1 £25,000 total column above  2 £5,000 total column above  3 £30,000 total column above

Total gross income for the year  4 £50,000

Total gross income except for excluded income  5 £20,000  box 4 minus box 3  6 £4,000 box 5 x 20%

If the figure in box 5 is £4,300 or less, copy the figure in box 6 to box 12.  Do not fill in boxes 7 to 11.

If the figure in box 5 is more than £4,300, deduct £4,300 and enter the excess in box 7.

7 £15,900 box 5 minus £4,300  8 £477 box 7 x 3%

Total tax due at the lower and basic rates  9 £4,477 box 6 + box 8

If the figure in box 5 is £27,100 or less, copy the figure in box 9 to box 12. Do not fill in boxes 10 to 11.

If the figure in box 5 is more than £27,100, deduct £27,100 and enter the excess in box 10.

10 £ box 5 minus £27,100   11 £ box 10 x 17%

Total tax due at the lower, basic and higher rates  12 £4,477 box 9 + box 11

Allowances and reliefs

Interest on loans to purchase a home  13 £ box 15.2   14 £ box 13 x 10%

Maintenance or alimony paid  15 £ boxes 15.4 or 15.5 (see Notes in the Tax Return Guide)  16 £ box 15 x 15%

Tax credit relief  17 £ boxes 6.9 and 9.35

Notional tax  18 £ from box W44

19 £ total boxes 14, 16, 17 and 18

20 £4,477 box 2 + box 12

Maximum amount of Income Tax due  21 £9,477 box 20 minus box 19

Example: extract from page 7 of the Tax Calculation Guide

If any of the sums on this page results in a negative amount, enter a zero in the appropriate box.

from box W21

W22 £ 50,000

W23 £   W24 £50,000 box W22 + box W23

W25 £4,045  W26 £45,955 box W24 minus box W25  W27 £9,191 box W26 x 20%

If the figure in box W26 is £4,300 or less, do not fill in boxes W28 to W**

W28 £30,000

W29 £15,955 box W26 minus box W28

W30 £4,300  W31 £11,855 box W29 minus box W30  W32 £355.65 box W31 x 3%

W33 £45,955 box W26 minus box W23 minus box 12.9

If the figure in box W33 is £27,100 or less, do not fill in boxes W** to W3*

W34 £27,100  W35 £19,855 box W33 minus box W34  W36 £3,375.35 box W35 x 17%

W37 £19,855 lower of box W28 or box W35  W38 £595.65 box W37 x 3%

Income Tax due  W39 £13,517.65  boxes W27 + W12 + W36 + W38

Venture Capital Trust and Enterprise Investment Scheme subscriptions W40 £ box 15.7 + box 15.8   W41 £ box W40 x 20%

W42  £ box 15.2 x 10%

W43 £274.50 box W43.6 x 15%

W44  £

Tax credit relief on foreign income and treaty relief on UK income  W45 £ from boxes *******

W46 £274.50  boxes W41 to £45

Income Tax due, after allowances and reliefs

W47 £13,243.15 box W39 minus box W46

If the figure in box W46 is more than the figure in box W39 , enter a zero

Recoverable tax on charitable covenants, annuities, Gift Aid and Millennium Gift Aid payments (box W17 x 23%)  W48 £

Class 4 National Insurance Contributions (from box 3.91 or box 4.25)  W39 £

Income Tax and Class 4 National Insurance Contributions  W50 £9,477  boxes W47 + W48 + W49

Copy the figure in box W50 to box W50 on page 8

If the figure in box 21 in the Working Sheet on page 3 of this Help Sheet is less than the figure in box W47, do not enter the figure in box W47 in box W50, but add the figure in box 21 to any figures in boxes W48 and W49 and enter the result in box W50.

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.


IR301

Calculation of the Increase in Tax Charge on Capital Gains from Non-Resident, Dual Resident and Immigrating Trusts

This sheet gives you information to help you fill in box 8.9 in the Capital Gains Pages of your Tax Return.

This page gives you instructions on how to complete the Working Sheet on page 3 to arrive at a figure for box 8.9.

Who should use this Help Sheet

Any person resident and domiciled in the UK who has directly or indirectly benefited from a non-resident or dual resident settlement.

In this Help Sheet:

the term ‘immigrating’ settlement or trust is used as meaning one which is resident in the UK but either had been resident abroad previously, or has had money or other assets transferred to it by a trust that still is abroad or had been abroad previously

‘non-resident’ settlement includes one which is treated as resident outside the UK for Capital Gains Tax purposes because a UK professional trustee acts and the trust was set up and funded by a non-resident and non-domiciled settlor.  If you are not sure if this applies to you, ask the trustees or your tax adviser.

For further information on what is a ‘non-resident’ trust or a ‘dual resident’ trust and whether you are liable to tax on the capital gains of such a trust if you are its settlor, see Help Sheet IR299: Non-resident trusts and Capital Gains Tax.

How capital gains tax is charged

Capital Gains Tax may be due if you have received a capital payment or benefit from a non-resident, dual resident or immigrating trust.  The maximum amount chargeable is the total of capital gains made by the non-resident or dual resident trustees calculated as if they had been resident in the UK. Gains of overseas companies in which the trustees have invested may also be taken into account.  You may have to pay extra tax because the gains made by the trustees were made in an earlier year.

A benefit includes interest-free loans and loans at less than a commercial rate of interest, rent free occupation of trust property or use of trust property at less than market rental.

Getting advice

This Help Sheet explains how Capital Gains Tax is chargeable on capital payments or benefits from a non-resident, dual resident or immigrating trust, but it is only an introduction.

If you are in any doubt about whether you are liable to Capital Gains Tax on capital payments or benefits from a non-resident, dual resident or immigrating trust, or about how the tax is calculated, ask your Tax Office or tax adviser.

The Financial Intermediaries and Claims Office (FICO) will also be pleased to help.  You can contact them at this address:

FICO (Non-resident Trusts)

St John’s House

Merton Road

Bootle

Merseyside

L69 9BB  Telephone 0151 472 6000

How the tax charge works

If you have directly or indirectly received, or are treated as having received, capital or a benefit from a non-resident, dual resident or immigrating trust, its value must be matched against capital gains made by the trustees and by any foreign private company in which they have invested.  The trustees or their tax advisers should be able to tell you whether there are capital gains against which your receipts or benefits should be matched. The matching is on a ‘first in - first out’ basis.

Example

You have received a capital payment of £10,000 from a non-resident trust during the year ended 05.04.99, but the trustees may have made gains of £20,000 in the year ended 05.04.97 that have not yet been matched with payments made to, or benefits provided for, beneficiaries.

Capital Gains Tax is due on the £10,000 you received, but you will have to pay an increased amount to tax to reflect the fact that the gain actually arose two years earlier.

How to calculate the increase in tax

The table below shows by what percentage the normal Capital Gains Tax bill is increased.

Calculate the total Capital Gains Tax due in the normal way by completing box 8.1 and boxes 8.2 to 8.8 as appropriate, in your Capital Gains Pages, including the gains deemed to arise to you from the non-resident, dual resident or immigrating trust.

If the settlor (or all of them if there was more than one) was not resident and non domiciled in the UK, both when the settlement was made and when the gains arose to the non-resident trustees, only take into account capital and benefits received, and gains made, after 16 March 1998.  Ask the trustees or your tax adviser if you are not sure whether this applies to you.

You should assume that the normal tax bill is calculated as if the gains deemed to arise to you from this source are the lowest slice of your total gains.

Then match the gain against the gains of the trust and any foreign private company involved, and work out by how much your normal tax bill would be increased, using the Working Sheet on page 3.

If the matching is against gains arising in more than one of the periods listed below, the normal tax bill should be apportioned pro-rata and the appropriate percentages applies to the apportioned amounts.

Table of increase in tax

1998-99 value of capital or benefit matched against gains which arose

Before 6 April 1993

In the year ended 5 April 1994

In the year ended 5 April 1995

In the year ended 5 April 1996

In the year ended 5 April 1997

In the two years ended 5 April 1999

Normal tax bill increased by

60%

50%

40%

30%

20%

No increase due

Working Sheet

Total payments and benefits received from non-resident or dual resident trusts  £

Matched with trust gains from

years before 6 April 1993  Normal tax due £    x 60% = £

year ended 5 April 1994  Normal tax due £   x 50% = £

year ended 5 April 1995  Normal tax due £   x 40% = £

year ended 5 April 1996  Normal tax due £   x 30% = £

year ended 5 April 1997  Normal tax due £   x 20% = £

Two years ended 5 April 1999   Normal tax due £  no increase due

Total increase in tax  £     Copy this figure to box 8.9 on your Capital Gains Pages.

These notes are for guidance only, and reflect the position at the time of writing.  They do not affect any rights of appeal.


IR302

Dual Residents

This Help Sheet gives information to enable you to decide whether you are a resident of the UK or another country for the purposes of applying the provisions of Double Taxation Agreement between the UK and that other country.

It includes a form on which you can claim relief from UK tax available under such provisions, if you are a resident of the other country for the purposes of the Double Taxation Agreement.  Remember to include any relief you are claiming in box 9.35 of the Non-residence etc. Pages of your Tax Return.

Who needs this help sheet?

You only need to read and, where appropriate, fill in this Help Sheet if you have ticked both box 9.1 and box 9.8 of the Non-residence etc. Pages indicating that you are a ‘dual-resident’, that is to say:

resident in the UK for all or part of the year ended 5 April 1999, and during the whole or part of the same period

resident for tax purposes in a country with which the UK has a Double Taxation Agreement (DTA),

and the terms of the DTA enable you to claim either full or partial relief from UK tax on income arising in the UK.

A list of the countries with which the UK has a DTA is shown on page NRN6 of the Notes for the Non-residence etc. Pages.  Relief is not available if:

you are a dual-resident in the UK and in a country with which the UK does not have a DTA, or

you are dual-resident in the UK and in one of the Agreement countries listed on page 3 of this Help Sheet.

In those circumstances, you will only be entitled to claim relief from UK tax by way of credit for foreign tax paid on overseas income or gains (see the Foreign Pages and Notes) and should not complete the claim form attached to this Help Sheet.

Purpose of the help Sheet

The Help Sheet explains how most DTAs resolve the question of dual-residence and how liability to UK tax can be affected by the outcome.

Since, however, not all DTAs are the same, it is essential, when considering whether any relief from UK tax may be due to look at the text of the particular agreement concerned.  It is not possible to give full details of the relevant provisions in this Help Sheet as they vary from agreement to agreement.

Your Tax Office or tax adviser will help you resolve questions about particular provisions in a DTA.

Residence for the purpose of a double taxation agreement - consequences for tax liability

Different countries use different criteria to decide whether someone is a resident for tax purposes.  It is therefore quite possible for an individual to be regarded as resident for tax purposes under the laws of more than one country (’dual-resident’).

The residence Article in most modern DTAs provides ‘tie-breaker’ rules for determining in which of the two States an individual who is dual-resident under the respective domestic laws should be treated as resident for the purposes of the Agreement. The most commonly found tie-breaker tests are set out on page 2.  The provisions do not always appear in the same order in all DTAs, nor do they appear at all in some Agreements.  It is therefore vital that the terms of the particular agreement with which you are concerned are consulted.

If the tie-breaker rules award residence for the purposes of the DTA to the other country, UK tax liability is usually affected.  People who are resident for DTA purposes in the other country are entitled to make claims to relief from UK tax on the basis that they are a resident of the other State.  As a result, income or gains of a type which is dealt with in the Agreement and which arises in the other State is exempt from UK tax.

Income arising in third countries will also be exempt if the particular DTA contains an article dealing with ‘Other income’.  UK source income will remain taxable in the UK but only to the extent permitted by the DTA with the country of which an individual is a resident.  Depending upon the terms of the particular DTA, UK income might remain fully taxable in the UK, or be taxable in the UK at a lower rate than that provided for in UK domestic law, or exempt from UK tax altogether.  Special rules, however, apply where any income (including foreign income) is connected with a business or profession which an individual carries on in the UK. Again it is important to look closely at the provisions of the DTA in question, since no two DTAs are identical.

If you need information about the effect of the provisions of a DTA on a specific source of UK income, in particular dividends, interest, royalties, pensions and annuities, it can be obtained from the Financial Intermediaries and Claims Office at:

FICO (International) Nottingham

Fitz Roy House

P O Box 46

Nottingham

NG2 1BD

Telephone 0115 974 2000.

If the tie-breaker rules award residence for the purpose of the DTA to the UK, you will remain liable to UK tax on the whole of your worldwide income and gains. You may, however, be entitled to relief from tax in the other country as a resident of the UK for the purposes of the DTA.  The precise terms of the particular Agreement must be consulted since no two Agreements are exactly the same.  FICO (International) Nottingham (see page 1) has stocks of overseas forms on which claims for relief from foreign tax can be made if appropriate.

Although a DTA overrides some of the normal consequences of being a UK resident, it does not override the fact of UK residence itself for purely domestic law purposes.  Therefore, even if, by virtue of the tie-breaker provisions in a DTA, you are resident in another country for the purposes of the DTA between the UK and that State, you will still have to complete UK Tax Returns and fulfil any similar obligations imposed by the UK Taxes Acts. You may also be UK resident for the purposes of claiming relief from foreign tax under DTAs between the UK and other countries.  And you will remain entitled to any personal allowances due on account of your status as a UK resident under domestic law.

The OECD Model Tax Conventions Residence tie-breaker rules

The residence tie-breaker rules in most recent UK DTAs closely follow those in the Model Tax Conventions of the Organisation for Economic Co-operation and Development (OECD). They comprise a series of tests to be applied successively until residence for the purposes of the Agreement is allocated to one State or the other.  In other words, once a test is conclusive it is unnecessary to apply subsequent tests.  The tests usually appear in the order of:

permanent home

centre of vital interests

habitual abode

nationality

Permanent home

You will be a resident only of the State in which you have a ‘permanent home’ available to you for the period of dual-residence.  A permanent home is any form of accommodation which is continuously available to you for your personal use.  It does not necessarily have to be owned by you.  But a property which you let out will not be a permanent home because the fact that it is let to someone else means that it is not continuously available for your own use.

The test will be inconclusive if you have a ‘permanent home’ in both countries.  In those circumstances you should move on to the next test (‘centre of vital interests’).  If you have a ‘permanent home’ in neither country, move on to the next but one test (‘habitual abode’).

Centre of vital interests

You will be a resident of the State with which your ‘personal and economic relations’ are closer. This is known as your centre of vital interests. ‘Personal and economic relations’ is a wide expression intended to cover the full range of social, domestic, financial, political and cultural links.  The whole range of these factors must be taken into account, but considerations based upon your personal acts are given special weight.

For example, if you have a home in the UK and set up another in the other State while retaining the first, the fact that you have retained your home in the UK, where you have lived, worked and where your family and possessions are, can, together with other factors, go to demonstrate that your centre of vital interest remains in the UK.

If it is not possible to determine with which of the two States your personal and economic relations are closer, perhaps because the range of factors is broadly balanced between the two, then the test will be inconclusive and you should move on to the next one.

Habitual abode

You will be a resident of the State in which you have an ‘habitual abode’.  This broadly means the State in which, over a reasonable period, you stay more frequently.  The comparison must be made over a sufficient length of time for it to be possible to determine whether residence in either of the two countries has become ‘habitual’.

If you cannot be said to have an habitual abode in either of the two countries, you should move on to the nest test.

Nationality

You will be a resident of the State of which you have a national.  Ultimately, since in theory all these test may prove inconclusive (even the last, since it is possible to have dual nationality, or to be a national of neither State), DTAs normally provide for the tax authorities of the two countries to settle the matter by negotiation.  In practice, very few claims reach this stage.

Other forms of residence articles in double taxation agreements

Some of the UK’s older DTAs, mainly with former colonies in the Caribbean, but also including the agreements with Guernsey, Jersey and the Isle of Man, define a resident of one country as a person who is resident there for the purposes of that country’s tax and not resident for tax purposes in the other country.  If, therefore, you are dual-resident in the UK and one of the countries listed below, you will only be able to obtain relief by way of credit for one country’s tax against the other’s, and do not need to complete the claim form attached to this Help Sheet.

Antigua  Guernsey  Montserrat

Belize  Isle of Man Myanmar

Brunei  Jersey  St Kitts

Faroes  Kiribati  Sierra Leone

Greece  Lesotho  Solomon Islands

Grenada  Malawi  Tuvalu

Certificate of overseas residence

If you:

are resident in the UK under domestic law, and

are also resident in another country under that country’s rules, and

wish to claim that you are a resident of the other country for the purposes of the DTA between the UK and that other country,

then you need to obtain a certificate from the overseas tax authority confirming that it regards you as resident there under its domestic law for the period in question, which must be stated on the certificate.

The certificate should be attached to your completed claim on pages 5 and 8 of this Help Sheet and sent with your Tax Return.

Special case - The United States of America

Special rules apply where the other country is the United States of America, if you are claiming to be a resident of the United States for the purposes of the UK/US DTA.  Statements concerning residence should not normally be sought from the United States Internal Revenue Service.  This is because the United States operates a special system whereby it taxes its ‘citizens’ on their world-wide income, wherever they may be resident.  US citizens are not, however, necessarily ‘residents’ of the United States for the purposes of DTA.

So, if you wish to make a claim as a dual UK/US resident who is a resident of the US for the purposes of the DTA, the procedure to be adopted depends upon whether or not you are a US citizen.

US citizens

Earned income

If your claim is in respect of earned income, you will be regarded as US resident if:

the income in question arose during a period of 11 months or less spent in the UK, and

that period represents an interval between two periods when you have been living in the United States, and

you have spent no more than one month in the UK since the period of 11 months or the two years which preceded that period.

Substantial presence test

If any of the above three conditions are not met, or your claim is not in respect of earned income, then your US residence status must be considered by reference to the following rules.

You will be US residence if:

you were present in the US on at least 31 days in the calendar year under test, and

the sum total of days on which you were present in the US in the year under test and in the two preceding years adds up to at least 183 days. For the purposes of this calculation a day spent in the US in the year preceding the year under test counts as 1/3, and a day in the year before that counts as 1/6.  Part days of presence in the US should be treated as if they were whole days for this purpose.

This is known as the ‘substantial presence test’.

Example

If you spent 48 days in the US in 1998, 250 days in 1997 and 365 days in 1996, the calculation would be as follows:

Year of test - 1998 (more than 31 days spent in US)

1998 48 days x 1/1 = 48

1997 250 days x 1/3 = 84

1996 365 days x 1/6 = 61

193

Both legs of the substantial presence test are passed and you will be regarded as resident in the US under that country’s domestic law.

Non-US citizens

If you are not a US citizen, you will be a US resident if you held a resident alien’s permit (‘green card’) for the period of claim.  A copy of the green card and a copy of your US Tax Return for the period covered by the claim should be attached to the completed claim form in this Help Sheet and sent with the claim.

If you did not possess a resident alien’s permit, then you will need to obtain a statement from the US tax authorities that they regard you as US resident for US tax purposes for the period of claim.

Residence tie-breaker provisions

If you are UK resident and also, by virtue of the above tests, resident in the US, you will need to determine your residence status for the purposes of the UK/US DTA by applying the tie-breaker provisions described on page 2 of this Help Sheet.

Note, however, that the UK/US DTA differs from many Agreements in that if you have a ‘permanent home’ in neither the UK nor the US, the ‘centre of vital interests’ test must be considered before the test of ‘habitual abode’.

Completing the claim and declaration

First regard this Help Sheet and consult the relevant Double Taxation Agreement.  If you then conclude that you are a resident of the Agreement partner country for the purposes of the Agreement and are therefore entitled to exemption from UK tax in respect of an item or items of income or capital gains, you should complete the claim form attached to this Help Sheet.  Remember to copy any figure of relief to box 9.35 of the Non-residence etc. Pages of your Tax Return.

Part 1 of the claim form enables you to demonstrate that you were resident both in the UK and in the Agreement country, under those countries’ respective domestic laws, for the period of claim.

Complete either (a)(i) or (a)(ii), and (b).

Sub-paragraph (c) requires evidence of residence in the other country to be attached to the claim. Complete (c)(i) if the other country in which you were resident and not the USA, or (c)(ii) if it was the USA.  Remember to attach the documentation indicated when sending in your claim.

Part 2 helps you to determine which of the two countries you are regarded as resident of for the purposes of the Double Taxation Agreement. Work through the sections (a) to (d) as indicated.

Refer to the Residence Article of the relevant DTA in order to see which of the tests appear and in which order.  Interpretation of Residence articles is often not straightforward.  If you are in any doubt, consult your tax adviser or ask your Tax Office for help.

If you consider that you fall to be treated as a resident of the Agreement partner country for the purposes of the DTA, and are therefore entitled to either full or partial relief from UK tax in respect of items of income or gains, complete the Declaration in Part 3 accordingly.

Complete either (a) or (b) of Part 3, depending on whether you completed Part 1 (c)(i) or 1(c)(ii) above.

Claims for full relief

Fill in (c) of Part 3 to claim full relief from UK tax where the DTA provides this for a person who is a resident of the other country for the purposes of the DTA.  Where full relief is claimed and shown in the Help Sheet, exclude such income or gains and any tax deducted at source from other parts of your UK Tax Return.  Where tax has been deducted at source, enter the amount of the tax deducted in box 9.35 of the Non-residence etc. Pages unless:

the tax has already been repaid, or

you have already made a separate claim to the Inland Revenue for repayment of that tax.

But see the next paragraph if you also claim partial relief.

Claims for partial relief

Fill in (d) of Part 3 to claim partial relief from UK tax where the DTA provides that the rate of UK tax attributable to income received by a person who is a resident of the other country for the purposes of the DTA is lower than the normal domestic UK rate.

For example, the interest article of a DTA might reduce the rate of UK tax applicable to interest received by such a person to 15%, whereas the UK domestic rate on savings income is 20%.  To claim relief for the difference between the Agreement rate and the UK domestic rate you should:

exclude the full gross amount of the income from other parts of your UK Tax Return

complete (d) of Part 3 of the Claim attached to this Help Sheet, and

add the partial relief claimed to any relief claimed in (c) of Part 3 for UK tax deducted at source.  Enter the total of the two amounts in box 9.35 of the Non-residence etc. Pages.

If you were born before 6 April 1934 enter in the ‘Additional information’ box on page 8 of your Tax Return the total gross amount of income you have entered in column A of Part 3(d) of this Help Sheet.  For example, if the total gross income is £100, enter:

'I have claimed partial relief for the DTA purposes on gross income of £100 which is not included in this Tax Return.'

This will enable your Tax Office to make adjustments required for age-related personal allowances taking into account your DTA income. If you are calculating your tax, add the partially relieved income to the amounts entered in boxes W21 and W19 (or boxes G21 and G19, L21 and L19 or F21 and F19) of the Tax Calculation Working Sheet when calculating your income for age-related personal allowances.  (See note for box W25.2 (or G25.2, L25.2 or F25.2) on page 3 of the Tax Calculation Guide).

Finally, remember to sign and date the Claim form.

Claim as a non-resident for relief from UK tax under the terms of a double taxation agreement

1. Establishing non-residence

1(a)(i)  I was resident in the United Kingdom for the whole of the year 1998-99 and have ticked box 9.1 in the Non-residence etc. Pages     NO    YES

or

1(a)(ii)  I was resident in the United Kingdom for part only of the year 1998-99 and have claimed split-year treatment by ticking box 9.6 in the Non-residence etc. Pages   NO  YES

If YES fill in the boxes below

Period of UK residence during 1998-99   /    /  to  /   /

and

1(b)  I was also resident for tax purposes, during the period referred to in 1(a)(i) or 1(a)(ii) above, in another country with which the UK has a Double Taxation Agreement

If YES, fill in the boxes below

Name of other country

Period of residence in the other country during 1998-99   /   /   to   /   /

1(c)(i)  (Resident in countries other than the United States of America)

I attach a certificate of residence in the overseas country covering the period of this claim

Tick box if attached

1(c)(ii) (United States residents only)

Either

I am a US citizen    NO   YES

and

I am claiming relief on earned income and all the three conditions mentioned on page 3 under the paragraphs headed ‘US citizens’ and ‘Earned income’ are satisfied,

or

I was ‘substantially present’ (see pages 3 to 4) in the United States in the calendar year(s) which include the whole or part of the period in 1(a) above   NO   YES

If YES, attach a separate sheet showing the calculation of days spent in the US for the calendar years covered (see pages 3 and 4)

or, although not a US citizen

I held a ‘resident alien’s permit (‘green card’) covering the period in 1(a) above  NO  YES

If YES, attach a copy of the permit and of your completed US Tax Return(s) covering the period of claim.  If NO, attach a certificate of residence from the US Tax Authorities.

Claim as a non-resident for relief from UK tax under the terms of a double taxation agreement (continued)

2. Determining residence for the purpose of the Double Taxation Agreement

If you were dual-resident in the UK and in a country other than those listed on page 3 of this Help Sheet, you should complete this section to determine your residence status for the purposes of the Double Taxation Agreement.  Remember that not all Double Taxation Agreements contain all the following tests and some which do apply them in a different order.  You must therefore refer to the actual text of the particular Agreement in question before completing the Declaration and claiming relief or exemption from UK tax under the terms of that Agreement.

2(a) I had a ‘permanent home’ (see page 2) in the United Kingdom for the period of claim  NO  YES

If YES, give details of ‘permanent home’ below

Details of ‘permanent home’ including address, whether owned or rented etc.

or

I had a ‘permanent home’ in          for the period of claim     NO  YES

If YES, give details of ‘permanent home’ below

Details of ‘permanent home’ including address, whether owned or rented etc.

If you have ticked neither of the ‘Yes’ boxes above, or both of them, the permanent home test will not determine your residence status for the purposes of the Agreement.  If you have ticked both ‘Yes’ boxes proceed to 2(b).  If you have ticked neither ‘Yes’ boxes, ignore 2(b) and proceed to 2(c), unless you are claiming relief under the UK/US DTA, in which case complete 2(b) first and then, if appropriate 2(c).

2(b) My personal and economic relations were closer

to the UK    NO   YES

to      NO  YES

Details of links with both countries, such as family and social relations, occupations, place(s) of business, political, social or cultural activities etc.

(Continue on a separate sheet if necessary)

Claim as a non-resident for relief from UK tax under the terms of a double taxation agreement (continued)

2(c)  I had an ‘habitual abode’ in the UK    NO   YES

If YES, give details in the box below

Details of periods of time spent in the UK over the past four years

or,

I had an ‘habitual abode’ in        Enter name of country

Details of periods of tie spent in the other country over the past four years

2(d)  I am a UK national    NO    YES

I am a nation of      Enter name of country

3. Declaration

Fill in 3(a) or 3(b) below, then go on to 3(c) and 3(d)

3(a) I declare that I was resident for tax purposes in the United Kingdom

and also in

for the period     /     /     to      /     /

and attach a statement from the tax authorities of             confirming that they regard me as resident therefore for tax purposes for that period (see 1(c)(i) above).

3(b) I declare that I was resident for tax purposes in the United Kingdom and also in the United States for

the period      /    /      to   /     /

and attach evidence on which residence in the United States is based (see 1(c)(ii) above).

Claim as a non-resident for relief from UK tax under the terms of a double taxation agreement (continued)

3(c)  Having considered the provisions of the Double Taxation Agreement between

the United Kingdom and

particularly with regard to residence I claim to be a resident of       for the purposes of that Agreement.  Accordingly I am:

deducting any earnings and tax stated below in arriving at the amounts entered in boxes 1.8 and 1.11 of the Employment Pages

excluding any other income or gains stated below from my UK Tax Return

on the grounds that they are exempt from UK tax under the terms of the Double Taxation Agreement above.

Type of income/Gains

*Period or date income/gains arose

Amount of income/gains

** UK tax deducted at source (if any)

Article of DTA under which exemption claimed

  /   /  to   /   /   £   £

  /   /  to   /   /   £   £

  /   /  to   /   /   £   £

  /   /  to   /   /   £   £

  /   /  to   /   /   £   £

  /   /  to   /   /   £   £

Total UK tax deducted at source £

Include this figure in box 9.35 on the Non-residence etc. Pages

*  If a period is not relevant, enter the date only on the left hand side.

**  Exclude any UK tax already repaid to you or included on a separate claim already made to the Revenue

3(d)  I also claim partial relief from UK tax in respect of the following items of income under the provisions of the Double Taxation Agreement between the UK and     indicated below.

Accordingly I am excluding this income from my UK Tax Return.

Nature of income

Date income arose

Gross amount of Income  A

Maximum rate of UK tax under DTA  B

Amount of UK tax chargeable  A x B = C

UK tax paid at source (tax or tax credits)  D

Partial relief claimed  D - C

Article number of DTA under which partial relief claimed

  /   /   £    %   £   £   £

  /   /   £    %   £   £   £

  /   /   £    %   £   £   £

  /   /   £    %   £   £   £

  /   /   £    %   £   £   £

  /   /   £    %   £   £   £

  /   /   £    %   £   £   £

  /   /   £    %   £   £   £

Total partial relief claimed £

Include this figure in box 9.35 on the Non-residence etc. Pages

Note that tax on stock dividends and foreign income dividends is not relievable under Double Taxation agreements because it is Notional Tax which is not repayable

4  Were you born before 6 April 1934  NO    YES

If YES, please read the note ‘if you were born before 6 April 1934’ on page 4.

Signature      Date


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IR325
HELP SHEET IR325

• Other income

This Help Sheet includes a working sheet overleaf to help

you arrive at the figures to include in boxes 13.1 to 13.6

of your Tax Return.

WHAT IS 'OTHER INCOME'

Page 16 of your Tax Return Guide lists examples of taxable income

which should be included in boxes 13.1 to 13.6 of your Tax Return

and provides guidance on expenses which can be allowed in

arriving at the amount of taxable income.

Contact your Tax Office or tax adviser if you are in doubt about

what to include or need further advice on allowable expenses.

USING LOSSES

You will have made a loss if your allowable expenses are more than

your receipts. Some, but not all losses can be set against some

types of income from other transactions in the 'other income'

category in this or later years.

If you have different types of other income, or if you have losses

from an earlier year you want to use, it is important that you use

the Working Sheet to keep the different categories of income

separate.

You can set losses against the following types of income

(Category A):

all casual earnings, including 'one-off' freelance income,

underwriting or sub-underwriting commissions

profits from isolated literary or artistic activities

rental from leasing equipment you own

income received after your interest in a business has ceased,

or received following a change in the basis on which the profits

of that business are calculated. This applies only if the income

would not otherwise have been taken into account for tax

purposes during the life of the business - for example bad

debts that you have now recovered

any recoveries of expenses or debts for which you claimed relief

as a post-cessation expense

sale of patent rights if you received a capital sum.

You cannot set losses against the following types of income

(Category B):

receipts under convenants entered into for genuine commercial

reasons which are in connection with the payer's trade,

profession or vocation

annual payments received in the year including annual

payments received from UK unauthorised unit trusts and annual

payments paid by former employers which do not constitute

the payment of a pension

benefits of insurance policies relating to sickness or disability

that are recorded as other income

a taxable lump sum included in box 13.3 from an unapproved

retirement benefits scheme.

Include each type of income under the appropriate heading in the

working sheet on page 2. Then follow the instructions to work out

the figures to include in boxes 13.1 to 13.6. The Working Sheet

will also allow you to keep a record of any losses you want to carry

forward to next year.