Best Capital Gains Tax Advice

The Chancellor of the Exchequer, Jeremy Hunt delivered his UK Spring Budget 2024 today.

As you are aware, the Furnished Holiday Letting (FHL) regime provides tax relief for property owners letting out furnished properties as short term holiday accommodations.  From 6^th April 2025, however, the Chancellor is removing this tax incentive in an attempt to increase the availability of long term rental properties.

What is a Furnished Holiday Letting (FHL)?

According to HMRC’s guidance material, a furnished holiday let is deemed to be a furnished commercial property which is situated in the United Kingdom.

It must be available to let for a minimum of 210 days in the year.

It must be commercially let as holiday accommodation for a minimum of 105 days in the year.

Guests must not occupy the property for 31 days or more, unless, something unforeseen happens such as the holidaymaker has a fall or accident or the flight is delayed.

Currently, FHLs benefit from the following tax advantages:

• There is a full deduction of interest on borrowings from FHL income.

• Currently, profits from furnished holiday lettings are treated as relevant earnings. Therefore, profits generated from FHLs can be treated as earnings for the purposes of making tax advantaged pension contributions.

• Capital Allowances on items such as furniture, fixtures and equipment can be claimed on your Furnished Holiday Let. You can also claim tax relief on certain refurbishment costs.

• On the disposal of the FHL, Business Asset Disposal Relief (10% CGT rate), Business Asset Rollover Relief and Gift Hold-over Relief may apply.

• Provided there is sufficient business activity to demonstrate a trading activity, FHL properties can qualify for Business Property Relief thereby reducing the value of the business for Inheritance Tax purposes by up to 100%.

So, what happens from 6^th April 2025?

• Mortgage Interest Relief will be given as a 20% tax credit. This will result in a reduction in tax relief from 40% for higher rate taxpayers and 45% for additional rate taxpayers.

• The normal residential property CGT tax rate of 24% will apply.

• Relief may be available for the replacement of domestic items in line with the regulations for long term lets.

• FHL profits will no longer be treated as relevant earnings for the purposes of making pension contributions.

• Properties will no longer qualify for Business Property Relief, thereby increasing Inheritance Tax liabilities.

What actions can you take?

You may wish to consider your options before the rules are abolished in April 2025.

Options include:

• Continue renting your property as before but without the current tax advantages.

• Sell the property with the aim of benefitting from the 10% CGT rate.

• Gift the property with the aim of benefitting from Business Asset Disposal Relief and Gift Hold-over Relief.

• Change your rental strategy by renting your property on a long term basis.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

On 2^nd September 2013, Vodafone Group Plc. announced that it was disposing of its 45% interest in Verizon Wireless to Verizon Communications Inc.

At the same time, it also announced its intention to carry out a “Return of Value” to its shareholders, of which there are almost 400,000 in Ireland.  Many of these shareholders had acquired Vodafone shares in exchange for their Eircom shares in 2001.  The “Return of Value” would be partly in cash and partly in Verizon consideration shares.

On 14^th May 2014 the Irish Revenue Authorities issued a comprehensive Tax Briefing outlining the tax treatment of the Vodafone Return of Value to its shareholders which provides comprehensive guidance on the calculation of the base cost for Capital Gains Tax purposes.

 In what form will Vodafone return this value to the shareholders?

 Either by the issue of:

1. B Shares (The Capital Option) or
2. C Shares (The Income Option)

 What does that mean to the shareholder?

1. If the shareholder opts for B Shares or the Capital Option then the return of value will be liable under the Capital Gains Tax rules.  The C.G.T. rate is currently 33%.
2. If the shareholder opts for the C Shares or the Income Option then the return of value will be subject to the Irish Income Tax rules.  In other words the shareholder will be treated as having received a dividend and will be taxed as with previous Vodafone dividends.

What does the Shareholder actually get?

1. 6 new Vodafone Ordinary shares for every 11 Vodafone ordinary shares held.
2. 0.0263001 Verizon Shares for every Vodafone share
3. A cash amount of €0.3585437 for every Vodafone share

 What about the shareholders who exchanged their Eircom shares for Vodafone Shares in 2001?

 These shareholders will NOT have a Capital Gains Tax liability.

Instead they will have a capital loss to offset against other chargeable gains arising in the current tax year or if unused they can be carried forward against future capital gains.

No Capital Gains Tax charge will arise for these shareholders in the following situations:

1. Where the shareholder opted for the capital option and the sale of Verizon shares.
2. Where the shareholder opted for the capital option and held onto the Verizon shares.

What is the base cost of the Vodafone Ordinary Shares?

The base cost for those Vodafone shares acquired in exchange for Eircom shares in 2001 is €4.46 per share.

Where in legislation are the apportioning rules?

 Section 584(6) Taxes Consolidated Acts 1997 outlines the rule for calculating the apportionment of the original holding between the three elements of the new holding i.e. the cash element, the new Vodafone ordinary shares and the Verizon shares.

What about future disposals of these shares?

• €4.58 will be the base cost per share of the new Vodafone ordinary shares by former Eircom shareholders when they dispose of these shares in the future.  (This figure could be subject to future adjustments)
• €53.85 will be the base cost per share of the Verizon shares by former Eircom shareholders when they dispose of these shares in the future.  (This figure could be subject to future adjustments)

What is the Income Tax treatment for those opting for C Shares?

Individuals who opted for the C Shares have received a dividend from Vodafone which consisted of two elements:

1. A cash amount and
2. Shares in Verizon

The shareholder should include both amounts in his/her Income Tax Return i.e. the cash actually received and the market value of the Verizon Consideration Share Entitlement received.  He/she must then pay the Income Tax arising on this dividend.

How is the tax on these dividends paid?

• Employees or individuals who pay tax through the PAYE system and where their non-PAYE income does not exceed €3,174 can have any tax arising on these dividends collected and offset against their tax credits.
• Self employed individuals must file a Form 11 in which income from all sources must be included and correct taxes paid on or before the self assessment deadline.
• Employees or individuals who pay tax through the PAYE system and where their non-PAYE exceeds €3,174 must complete a Form 11 and include the amount of Vodafone income received.  They must comply with the pay and file requirements of the self assessment system.
  

Are there any exemptions?

Individuals aged 65 years and over are entitled to claim an exemption from Income Tax if their total income i.e. income combined from all sources including Vodafone and Verizon dividends is

• Less than €18,000 in the case of a single person, widowed individual or surviving civil partner or
• Less than €36,000 in the case of a married couple or civil partnership.

Will there be Dividend Withholding Tax on the Verizon Shares?

Dividends paid to shareholders of Verizon shares will, in general, be subject to US withholding tax, currently 30% of the gross dividend amount.

Irish resident shareholders can make a claim to the US Tax Authorities to be entitled to dividend withholding tax at the reduced rate of 15%.

This claim can be made by completing a Form W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and forwarding it to Computershare as stated on the form.

The Irish resident shareholder will be entitled to a credit for tax withheld against Income tax or Corporation tax on the dividends received.

 The credit will be the lower of:

1. The Irish effective tax rate on the dividends or
2. The rate provided by the U.S./Ireland Double Taxation Treaty

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.