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January Question and Answer Corner

Newsletter issue - January 2010.

Q. About three years ago I converted a barn into two attractive cottages, which I have since let as furnished holiday lets. Much of the expenditure qualified for capital allowances, and there is large balance in the capital allowance pool carried forward into the current tax year. Will I get tax relief for the balance in the capital allowances pool when the rules for treatment of furnished holiday lettings are changed in April 2010?

A. If you continue to let the cottages after 5 April 2010 you can claim the annual 20% capital allowance generated by your capital allowances pool, but you cannot add expenditure to that pool for equipment or furnishings used within the buildings. The Taxman has confirmed that you can also claim a wear and tear allowance for each tax year from 2010/11 onwards in which you let fully furnished property. The wear and tear allowance is 10% of the net rents received after deduction of council tax, water rates and other charges you pay.

Q. I paid off my company's overdraft with my own money, to allow the company to be closed down using the informal extra statutory C16 procedure. Can I get any tax relief for the money that was used to repay the overdraft?

A. It is possible to get tax relief for a loan made to a trading business, which is not repaid. However, the conditions are strict. The money lent must be used by the borrower wholly for the purposes of a trade it carries on. In this case the company had already ceased trading and funds were used to pay off a bank overdraft before the company was struck-off. In this situation you cannot argue that the money was used for the company's trade as that had already ceased, so you cannot get tax relief for the lost funds. Even if all the conditions for the loan were met, the loss of the funds would be treated as a capital loss in your hands, and not relievable against income tax.

Q. There are 53 Mondays in this current tax year. Does that mean I will be taxed on 53 times the weekly amount of my state pension for 2009/10?

A. Monday is the payment date for most state pensions, and there are 53 Mondays in 2009/10 as 6 April 2009 was a Monday. However, the state pension is taxed on the amount accruing in the tax year, not the amount actually received in the year. The Tax Office always work on the basis that 52 weeks of state pension accrues for each tax year. When it comes to completing your tax return for 2009/10 you should include just 52 times the weekly amount of your pension, excluding any non-taxable benefits such as Attendance Allowance.

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