Today’s blog from Harnett Accountants in London is part 2 of our August tax Q&A. Please contact us through our website with your question to have it appear in next months tax Q&A! Also you can follow us on Twitter, Facebook and Google+. Additionally, you can keep reading our daily blogs.
Q. I want to buy a new business but the only way I can do that is to increase the mortgage on my house. Will the interest I pay on the extra mortgage be tax allowable for the business?
A. In principle yes, but there are restrictions to prevent improper use of this tax relief. Further restrictions are also proposed from 6 April 2013 (see above). Interest paid on loans used to buy into a partnership or to buy shares in a closely controlled company, or lend to such a company are generally tax allowable. However, it would be best to have a separate loan for this business investment, as when you repay any part of the mortgage the business part will be deemed to be reduced first. You will also have to hold at least 5% of the ordinary shares of company and work for it for the greater part of your time.
Q. I’m worried about the Granny tax. Is this going to affect me? I’m aged 64 with an annual income of around £16,000.
A. The so-called Granny tax is actually a change in entitlement to allowances from 6 April 2013. You are currently entitled to a personal allowance (tax free amount) to set against your income, of £8,105. From 6 April 2013 you will be entitled to a personal allowance of £9,205.
As you will reach age 65 in 2013/14 you may have expected to receive the higher age allowance of £10,500 which is available to people currently aged 65 or over. However, because the rules are changing on 6 April 2013, only those born before 6 April 1948 will be entitled to the age allowance of £10,500, everyone else will get the normal personal allowance. This is not as unfair as it seems as the age allowance will be frozen, probably for ever more at £10,500, but the personal allowance will increase each year, and is likely to reach £10,000 in 2014/15.
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