Category: HMRC

Foreign capital losses

What are the rules for setting off foreign capital losses.

Foreign capital losses

A loss accruing to a person in a tax year in which they were non-resident it is not an allowable loss. TCGA 1992 sec 1E subsection (1)

In a split year this rule applies to the overseas part. TCGA 1992 sec 1G subsection (2)

Exception to the above rule is disposal of UK Land (direct or indirect) or UK assets held for the purpose of a UK trade. TCGA 1992 sec 1A subsection (3)


Example

Say, Pavel is a long-term resident of India and moved to the UK in 2022. He is an active investor in Indian stock market. He made capital losses in year 2021 but when he became UK tax resident in tax year 2022, he made capital gains in India. His position is summarized below:

Tax yearResident status in UKResident status in IndiaCapital Gain/Loss
2021Non-residentResidentLoss
2022ResidentNon-residentGain


From UK tax perspective, as Pavel made capital loss in India in 2021 when he was a non-resident in the UK, he cannot set them off against capital gains made in India in tax year 2022.

Note: Rules may differ for remittance basis users and temporary non-residents.

Bonus
Usually, capital gains can be transferred among spouses e.g. before disposing off an equity shares husband can transfer part of them to wife to take advantage of two capital annual allowances. Unfortunately, Capital losses cannot be transferred i.e. capital gains of one spouse cannot be offset against the capital losses of the other.

For further reading, visit our Worldwide Disclosure blog.

TDS on NRO deposits in India

UK residents needs to restrict Indian banks to deduct TDS at 15%

Usually Indian bank deduct c31% as tax on the interest they pay on NRO deposits – savings bank or fixed deposits.

A UK resident can use double taxation avoidance agreement between India and UK to restrict Indian banks to deduct TDS at 15% (treaty rate).

Usually, Indian bank asks for Form 10F and a self-declaration (sample forms).

Please be aware, India UK DTAA restricts FTCR at 15% for interest income even if tax suffered is higher i.e. c31% in this case.

Incase UK resident has deposits in other countries, similar forms will be required. Please check with you bank. Treaty rates for different countries can be access via DTAA digest.

This exercise is only worth if taxpayer has material deposits.

Bonus material

For further reading, visit our Worldwide Disclosure blog.

Do I have to file UK tax return?

Do I have to file a return even if no tax is payable?

Simplest way to find out, is to use the tool on gov.uk website. Always keep a print of the result for record.

But sometimes, as all automated tool sometimes do, this tool may not give the answer as expected.

Recently I had an enquiry.

An Individual has no UK income but has rental income in India of c£4k per annum. Does he need to file his UK tax return, even if his total income is less than personal allowance.

Question 1 – Whether this individual will get personal allowance?

Our case – Individual is an Indian national but he lives in the UK.

Fortunately, he is a UK tax resident thus he was eligible for personal allowance.

Simply, an individual is UK tax resident if he was in the UK for more than 183 days in that tax year. If your case is different refer to RDR3 Booklet of HMRC.

HMRC guidance to check eligibility of personal allowance in different cases of tax residency and nationality is given in RDRM10300+

Question 2 – Whether he needs to file a tax return even if no tax is payable?

Starting point is that It’s the individual’s responsibility to inform HMRC if he has any income tax or capital gains tax to pay1 within 6 months of the end of the assessment year i.e. by 5th Oct2

But individual is not required to inform HMRC, if after taking in account all income for the tax year he is not liable to pay any tax.3

Please be aware there may be situation where you have to file tax return even if there is no tax payable, example:

  1. Where HMRC sends you a notice to file a return; or
  2. In case where you have capital gains which are less than the capital gains allowance but:
    a. the total amount you sold the assets for was more than 4 times your allowance; and
    b. you’re registered for Self-Assessment
  3. You need to claim a refund
  4. File a loss return
  5. Claim relief for charitable donations, pensions
  6. Pay Class 2 NICs and others.

Keeping the above in view, it may still be advisable to file a tax return as if you make a mistake, penalties are lower for inaccuracies than failure to notify.

Source:

  1.  TMA 1970 sec 7 (1)
  2. TMA 1970 sec 7 (1C)
  3. TMA 19790 sec 7 (3) and (7)

Acknowledgement

Bonus material

Income tax was introduced in Britain temporarily during the Napoleonic wars in 1799 but became a permanent feature in 1842, in anti-tax United States in 1913 and in the bastion of income tax – Sweden in 1932.

Source: User guide to Economics by Ha-Joon Chang

History of accounting

Humans have been practicing accounting since time immemorial . Archaeologists have found clay tablets in Middle East1 with writings and numbers as a form of accounting for wars, harvest and taxes.

The modern `double entry bookkeeping` system is thought to be Italian in origin. India had and still has sophisticated accounting system which is different from the double entry system.

Like all trades, accountants have being forming associations to advance their interests; earliest known example is Collegion di Rasonati in Venice formed in 1581. Members were auditors of ship building business in Venice Arsenale.

Word debit and credit are of medieval Tuscan2 origin, a form of Latin language. According to that `he owes` is debit and `he trusts` is credit.

Debits are traditionally entered on the left-hand side of a ledger and credits on the right-hand side. Some reason the origins to be Christian in nature – in the Bible3; at the last judgement, when we are called to account, the sheep (the good) go up on Christ’s right and the goat (the bad) to the left.

So, whose balance shall we put on the left: that of the wretched customer who has not yet paid us, or that of the kind supplier who has trusted us to pay later? Hence debtors’ balances are entered on the left4.

Earliest surviving book which mentions double entry bookkeeping  is of Luca Pacioli. Please note Luca did not invent double bookkeeping, it had been practiced for more than 200 years before him.

Notes:

  1. Some scientists believe first human civilisations started in Middle East in the Fertile Crescent.
  2. Language spoken in Tuscany region of Italy.
  3. As seen from the painting of last judgement by Michelangelo in Sistine Chapel in Rome. Poor me – I have walked past Sistine Chapel but not been inside.
  4. This paragraph is so beautiful that I lifted it straight from the book – Accounting a short introduction by Christopher Nobes.

Bonus:

  1. Luca Pacioli was also mathematician and left a interesting  probability theory puzzle called `Problem of Points` besides some chess puzzles !

Trivial Benefits

This article is explains briefly how employers can offer trivial benefits to their employees. These are offered as gestures of good will for celebrating special occasions (e.g. birthdays, religious holidays and other special events).

Trivial benefits are tax exempt (i.e. no income tax or NIC is due either on employer or employee) provided the following conditions are met each time the trivial benefit is given:

  1. Amount should be a maximum of £50 per employee
  2. Should not be in the form of cash or a cash voucher
  3. Should not be part of a contractual agreement with the employee
  4. Should not be offered as a reward for work performance.

There is no limit of how many trivial benefits can be offered to every employee in a year, however there is a cap of £300 per year for directors and their family members.

Also trivial benefits does not need to be given to ALL employees.

Examples of Trivial Benefits:

  1. Meal out offered for special events (e.g. birthday party for an employee)
  2. Turkeys offered on Christmas for each employee, provided the average price is maximum £50 per employee or equivalent vegan vouchers for vegan employees
  3. Bottles of wine offered for New Year, or vouchers for non-alcoholic drinks for those who do not drink alcohol.

Examples of non- trivial benefits:

  1. Boss offering lunch to some employee who are over working in their lunch break, for the reason of finishing their tasks quicker. These are reward lunches, not trivial benefits.
  2. Boss offering vouchers every month to those employee who meet or exceed their targets. Theses are awards, not trivial benefits.
  3. Other work-related examples:
  4. lunches in workshops/seminars
  5. month end drinks
  6. monthly meeting lunches/buffets
  7. retirement party for the employee who retires (as this is a reward for his working years); Note: other employees can get a trivial benefit attending this party of their retiring colleague.

Please note in above instances other exemptions may apply.

Same benefit multiple times:

Multiple of the same trivial benefit is considered as one, with a cap of £50 per employee (e.g. boss offering sandwiches every week say of £3 each . So total equals £3 x 52 = £156 thus exceeds £50 limit)

Record keeping

Employers should keep clear records of Trivial Benefits – Dates, details and Amounts