New Tax Clinic

Taxationweb is delighted to welcome Malcolm Finney as resident editor of the Tax Clinic section. In the first of his monthly articles, Malcolm sets out his stall for future articles, and follows up with three items of interest for taxpayers and practitioners alike.

Welcome to the new Tax Clinic!

At the beginning of each month I will be briefly discussing some of the topics raised in the Tax Forum. It is clear that many find the Forum of great value as is obvious from the frequent postings but perhaps sometimes a little longer explanation or discussion may be of help but which it would be inappropriate for contributors to actually include in their answers on the Forum.

The topics I will be selecting for comment will be those where there have been differences of opinion amongst the contributors; where the topic warrants a little additional comment due to its importance and/or its timeliness; where I feel that some points of importance appear (at least to me!) to have been missed; or where some extra clarification may appear to be needed.

If anyone has any further suggestions please email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Malcolm Finney
Founder of Pythagoras Training.

This month’s clinic looks at THREE issues:

1. Wills, The Transferable Nil Rate Band and Simultaneous Deaths
2. Foreign Holiday Homes for Sale
3. Buy-To-Lets and Interest Deduction

Wills The Transferable Nil Rate Band and Simultaneous Deaths ("Commorientes")

Editor's Introduction

The transferable nil rate band (TNRB) was introduced in the Finance Act 2008 and affects inheritance tax on surviving spouse deaths which occur on or after 9th November 2007. The TNRB is of benefit to spouses and civil partnerships. Thus, co-habitees, divorcees (who have not remarried) and single (i.e., unmarried) individuals cannot take advantage of the TNRB.

The effect of the TNRB is to increase the nil rate band of the surviving spouse on death up to the equivalent of a maximum of twice the applicable nil rate band. The precise amount of the nil rate band available to the surviving spouse on death depends upon the percentage of the nil rate band of the first spouse to die which was unused. The TNRB thus guarantees that for all married couples, irrespective of what their respective wills provide, two nil rate bands will apply to their aggregate estates.

In view of the introduction of the TNRB it is necessary to review previously drafted wills to check the applicability of so-called “survivorship clauses”. Suitable drafting may mean that in effect in certain circumstances more than two nil rate bands may be available following both spouses’ deaths.

In short, it is important that each spouse’s will provides that in the event of simultaneous deaths (i.e., deaths resulting from the same adverse event (e.g., ‘plane crash) where it is not possible to determine which spouse died first) any survivorship clause is made inapplicable. This will then give rise to a significant inheritance tax benefit comprising more than the equivalent of two nil rate bands.

Lee Young, one of Taxationweb Forum’s highly respected contributors provides, in the words of “maths” (another regular contributor to the Forum), an “excellent summary of a complicated issue [namely, Commorientes and The Transferable Nil Rate Band]” in response to a query raised by “kbarretto” on 27th  November 2008. Lee illustrates how, effectively, more than two nil rate bands may be applicable:

Commorientes and The Transferable Nil Rate Band

Foreign Holiday Homes for Sale

Editor's Introduction

In these uncertain times many UK residents are deciding to sell their foreign holiday homes, many located in Cyprus, France, Italy and Spain.

As such properties invariably do not qualify as the individual’s sole or main residence for capital gains tax purposes, any gain made will be subject to capital gains tax.

The important point to note is that the UK capital gains tax charge is computed in sterling and not in the relevant local currency. Thus, even though on a given sale a capital loss arises as measured in the local currency, this does not mean that a capital loss arises as measured in sterling terms; it may well be a gain, considering the current position due to sterling’s devaluation against other currencies including the euro.

Thus, before effecting any sale it is strongly advisable to check the position from the UK sterling perspective to prevent any shocks arising.

Where a sale precipitates a capital gain when measured in local currency then it is likely local capital gains tax (or sometimes income tax) will be payable. The good news is that local tax paid will generally be off-settable against any UK capital gains tax charge; thus, in effect the tax charge is higher of the two tax regimes.

This issue was addressed by “TN” and “maths” in a query “Sale of an Apartment in Portugal” raised on 3rd February 2009. Fortunately, for David Salter no UK capital gains tax appears to be payable.

Sale of an Apartment in Portugal

Buy-To-Lets and Interest Deduction

Editor's Introduction 

This tends to be a bit of a hardy perennial of the tax world and frequently appears on the Tax Forum in various guises.  [And not just in the forum - in fact, there is a recent article on this topic by James Bailey Cash Backs, Below Market Value and Other Buy To Let Fnancing Arrangements - Ed.]

Buy-to-lets, of course, generate rental income which is subject to income tax (whether the investor is UK resident or not). In calculating the level of taxable income certain deductions are permitted, one of which is interest on borrowings.

With a proliferation of property programmes on TV it is perhaps surprising that the topic of interest deductibility (or indeed any tax issue) is never discussed even though it will affect the net yield on the property. Perhaps on balance this may be wise, on the part of the TV producers, if the often inaccurate explanation given by journalists is anything to go by (see below).

Despite a significant reduction in the rate of capital gains tax in the Finance Act 2008 to 18% (the new 10% entrepreneurial rate being of no application to buy-to-lets generally, although “furnished holiday lets” may qualify), rental income continues to be subject to income tax at the individual investor’s marginal rate (in many cases 40%) and thus whether interest on borrowings is tax deductible is critical.Looking at the postings on this subject the confusion often arises in connection with interest when remortgaging in order to release equity/capital in the property.

Perhaps I can do no better than refer to the excellent answers given by a number of contributors  back in early 2005 (the advice given then still standing today). “Ashley” raised a query ("Tax Relief on Remortgaging Let Property to Buy Another Property”) on 17th March 2005  following an article in the Financial Times which had given her cause for concern. Four contributors stepped into the breach.

Tax Relief on Remortgaging Let Property to Buy Another Property

Article Added Saturday, 14 February 2009

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