Property “influencers” and tax… how do they get it so wrong? The latest video is from Paul Smith, who appears to be the business partner of Abi Hookway mentioned in my previous post.

He states, when talking about tax rises:

“You need to focus on what she [Rachel Reeves] didn’t do. So one of the things she didn’t do, for example, is the piece of legislation called Annual Investment Allowance… And it allows you – hold on to your phone if you’re watching this your phone because you’re going to drop it – each person in the UK can make £1 million completely tax free.”

Annual Investment Allowance simply allows you to deduct the cost of fixed assets you bought in the year you bought them*. You absolutely cannot “make £1m completely tax free”.

If you had a commercial property that made £1m in rental profit, but you spent £1m on qualifying assets to put in it, you’d pay no tax. But of course you haven’t made any money either. Hardly a genius tax saving method.

If in say in 5 years you sell those assets for £300k, you’d then have that £300k added to your taxable profits. Annual Investment Allowance merely accelerates tax relief.

You’ll also notice that the video is targeted at people who own buy-to-lets, but residential property isn’t even eligible for Annual Investment Allowance.

I came across a bizarre advert for R&D tax credit claims on Facebook, with a number of factual inaccuracies. I’ve generously blurred out the name of the firm whilst I investigate further.

They state (I’ve removed some of the waffle):

“If HMRC had already approved your business for a VAT repayment of £50,000, £100,000, even £300,000, would you even know? The truth is most business owners don’t and right now there’s a fully compliant HMRC scheme releasing substantial monthly repayments to companies just like yours. But the system is complex and over 70% of businesses never claim what they’re owed.

We have a simple proven process that unlocks these pre-approved funds.

We handle the entire claim, pre-submit everything and fast track the release. You pay nothing upfront, our fee is simply 50% of the successful rebate.

But this is time critical. These repayments are tied to strict HMRC cycles. Missing the current window could cost your business an entire month’s payment.”

The issues:

1. R&D is nothing to do with VAT. I have no idea why they opened with that. R&D claims are also not ‘monthly payments’.
2. The 70% ‘never claimed what they are owed’ assertion is pulled out of thin air. In fact, as HMRC’s recent crackdown has shown, FAR more businesses were claiming the relief when they weren’t eligible.
3. There’s also no such thing as ‘pre-approved funds’ regarding R&D.
4. R&D claim deadlines are tied to accounting periods. Missing a claim doesn’t mean missing ‘an entire month’s payment’ – that’s complete rubbish.
5. Finally, a 50% success fee is astronomical.

I should add the firm calls themselves “Chartered Accountants”, but the firm does not appear to be registered with a professional body and the 100% owner is also not a Chartered Accountant, which is direct violation of the ICEAW Regulations. They don’t even list R&D claims as a service on their website, so I’m not sure what’s going on here.

To the surprise of (almost) no one, the French supertax on the wealthy raised only a quarter of the amount expected.

Unsurprisingly, taxes make people change their behaviour. It’s literally why we have high taxes on things like alcohol and cigarettes. Here, rich French taxpayers changed to taking dividends instead of salaries.

When forecasting how much a tax will raise, you can’t just look at the current position of taxpayers, add a tax to it, then assume that’s how much the tax will raise.

For example, 200m Mars Bars are sold in the UK every year. If you added a tax of £1 to each Mars Bars, you of course wouldn’t raise £200m. People would simply buy other chocolate bars.

“Pay with cash and get 8% off your bill”. When I was out shopping over Christmas, I saw a restaurant with this interesting sign in the window.

Card processing fees are about 1% to 3.4% of the transaction value. Cash costs on average about 9% to process – this includes the bank deposit fees, insurance, time cost of counting it, money going missing, taking it to the bank etc.

So why would a business offer an 8% discount when paying in cash, when the trend is for restaurants to go cashless (see Itzu, Gails, Zizzi)?

The answer is likely tax related. Being paid in cash means it is FAR more difficult for HMRC to identify undeclared income.

I should caveat that have no idea if this restaurant is evading tax, nor am I accusing them of such, and have have therefore edited out their name. But it does seem suspicious.

Property ‘guru’ Samuel Leeds is giving Inheritance Tax advice on Instagram. Let’s see how accurate it is:

“If you own it [the house] jointly with your spouse it automatically passes to them”

Not true – this is only true if you are joint tenants. If you are tenants in common it’ll follow your will or the rules of intestacy.

“Your child has to pay 40% on anything they inherit worth over £325,000”

Broadly correct, but it’s the estate that pays the tax, not the child. Whilst the tax legislation calls it ‘Inheritance Tax’, in reality it’s an Estate Tax. Countries like France and Spain have a ‘true’ inheritance tax, where the recipient pays the tax due on their share of the assets.

“Your kid’s tax free allowance increases to £500k, if the house you pass to them was your primary residence”

Broadly correct – but that assumes that the estate is below £2m. If it’s over £2m, then the extra Residence Nil Rate Band of £175k tapers away, potentially to zero.

“If you “gift” your house to your child 7 years before you die, they pay ZERO inheritance tax”

Absolutely false. If you gift your house to your child and still live in it, you’re subject to the Gift With Reservation of Benefit Rules. This means that the house is brought back into your estate for Inheritance Tax purposes when you die. The only way around this is to pay market rate rent to children until you die, which most parents are unwilling to do*.

*This planning also comes with a health warning – in theory if you gift your house to your children and there is a family fallout your children could evict you from your home. I’ve only seen in once in my career, but it can happen

What property below would pay more council tax – a £1.25m flat in Westminster, or a £105k terraced house in Hartlepool? Because tax doesn’t always make sense, it’s the £105k house in Hartlepool*.

Council Tax was introduced hastily as a successor to Thatcher’s disastrous Poll Tax in 1993. The values were based on 1991 valuations… which still hasn’t changed 34 years on. The entire system needs an overhaul, but governments have continually shied away from tackling this complexity.

Rumours are that Reeves may add further council tax bands in the upcoming budget – but this is merely another sticking plaster over an already broken system.

*The £1.25m flat is Band F, which is Westminster is £1,469 per year. The £105k terrace is in Band B, which in Hartlepool is £1,620.

Are you rushing to take your 25% tax free cash from your pension prior to the budget?

Some potential positives for tax:

1. At present 25% of a pension can be taken tax free upon becoming 55 years of age. There are rumours Reeves might change this to say 15%, or even put a monetary cap on it, e.g £100k. At present a maximum of £268,275 can be taken tax free. Anything not taken out tax free and later withdrawn is taxed at the individual’s marginal tax rate (up to 45%).
2. If the cash is left in a pension, and the individual dies after 6th April 2027, the cash in the pension would form part of the estate and therefore subject to Inheritance Tax at up to 40%. Therefore:
a. If cash is taken from a pension and put into a Business Relief qualifying investment, it qualifies for 100% IHT exemption after two years (subject to a £1m cap).
b. If cash is not needed it can be gifted. This means that if the donor survives for 7 years, the gift is exempt from IHT.
3. There is an element of ‘control’ which is often overlooked. Once the cash is in your bank account, you have full control of it, and it cannot be subject to further changes in pension taxation rules.

On the other side:

1. Cash outside a pension will not grow free from capital gains, dividend and income tax as it does in a pension. Taking 25% of the pension out now might therefore severely reduce the total amount in the pension a few years down the line. For example, cash inside a pension might grow 5% a year, with no tax to pay. However, if the individual is a 40% taxpayer, the 5% might be reduced to 3% (being 5% x (100-40%)). This severely limits the compound growth.
2. If the individual passes away before 6th April 2027, they would have brought into their estate cash which would have otherwise be exempt from IHT.
3. If an individual takes the money out, and nothing changes in the budget, they cannot reverse their decision. HMRC have specifically addressed this.

Please note this is not financial advice. Before acting, seek specialist financial advice.

In 2019, “The Female Company” in Germany produced a book which was full of tampons. The reason? To protest against the fact that tampons attracted VAT at 19%, whereas books attracted VAT at 7%.

Due to this (and other) campaigns, the law in Germany was changed in 2020 such that tampons now attract a 7% VAT rate.

You might now be thinking – why don’t I sell an banana (0% VAT) for £50,000, and with it you get a ‘free’ BMW (which would otherwise be 20% VAT)?

Unsurprisingly, HMRC are onto this with the Mixed Supply Rules. This considers whether a a bundle of goods/services are a ‘single supply’ and it would be artificial to split, or if there is a dominant supply and the others are simply incidental/ancillary.*

For example, if I supply a “Dine in for £10” deal with three food items (ordinarily 0% VAT) and a bottle of ‘free’ wine (20% VAT), HMRC would say the wine is not actually ‘free’, but part of the main supply so the wine element is subject to VAT.

However, if I go on a educational course (exempt from VAT) but as part of that get meals and accommodation (20% VAT), the meals and accommodation are ancillary to the main supply of education, so the entire cost is exempt.**

*I’m not a German VAT expert so I don’t know if Germany has similar rules. If they do, the German tax authorities would have argued that the actual supply was tampons and therefore the ‘book’ should attract VAT at 19%, rather than 7%.

**Both of these are actual tax cases that went to tribunal. The first was Marks and Spencer, who lost in court.
The second was Pilgrims Language Courses, who won. The second judgement has become very relevant now that private schools must charge VAT on school fees.

There are numerous tax benefits to being married. But what if you get married to more than one person (which has been explicitly illegal in the UK since 1861)?

Weirdly, the tax system actually recognises polygamous marriages, where the individuals entered into the marriage in a country where polygamy is legal and those getting married were domiciled there. HMRC confirm this treatment in their manuals*.

That means that you could potentially transfer assets with no Capital Gains Tax to multiple spouses. Or when you die, fragment your assets to your many spouses with no Inheritance Tax at all – all of whom would be entitled to both their own Nil Rate Bands plus your transferred Nil Rate Band.**

In my career I’ve seen quite a few people marry for (partly) tax reasons. So why not multiple marriages for tax reasons?

* See CG22070 and IHTM11032

** This is almost certainly not what the legislation intends (indeed, I doubt the draftsman ever envisaged this situation). However, s8A IHTA 1984 does appear to allow you to transfer an unused Nil Rate Band to multiple spouses. This means that if you die and have three spouses, all three could inherit your Nil Rate Band of £325,000.

Why are rents soaring? Should we blame the tax system?

Tom is a 45% taxpayer who moved house and rents out his old property.
His rental income after general expenses is £12,000 a year. He pays £8,500 a year in interest on the mortgage on his old property.

In theory, that’s £12,000 income minus £8,500 of interest expense, which is £3,500 of ‘profit’. Fair enough.

But the tax system sees it entirely differently. On his £12,000 income, he pays tax at 45%, which is £5,400. Note this is not 45% on the ‘profit’ element of £3,500.

The taxman gives him a 20% tax credit for his mortgage interest [so £8,500 x 20% = £1,700] off his tax bill, giving a total liability of £3,700 [being £5,400 above minus £1,700]*.

This point is key – Tom is paying tax on the income at 45%, but only receiving 20% relief for his mortgage interest expense**.

In almost all other cases, you get a full tax deduction for your expenses. For example, if you sold toys for £100, but paid £75 to purchase them, you’re taxed on the ‘profit’ of £25.

That leaves Tom with £12,000 rental income, minus £8,500 of mortgage interest, minus £3,700 of tax to pay, meaning at the end of each tax year he is NEGATIVE £200 in terms of his cash position. He’s paying the taxman for the privilege of renting out a property.

So Tom has two options. He could increase rents to cover the shortfall. Or he could sell the house and exit the market, reducing the supply of rental properties – thereby increasing rental prices.

*The actual legislation is more complex than this. The 20% tax credit for interest above is the maximum Tom could get, but it could even be reduced below this.


**No such restriction applies to interest incurred by property companies. The mortgage interest is fully deductible. So if you’re wondering why almost all property investors are using companies and why buy-to-let companies are now the largest single type of business in the UK, this is it.