QUESTION TIME

Your questions answered by an expert panel from Coopers & Lybrand

Can you tell me what the tax implications are of selling shares that I have been allocated in my company's approved profit sharing scheme?

If the shares have been held by the scheme trustees for more than five years, no income tax charge will arise. If the shares have been held for less than four years, there will be an income tax charge based on 100 per cent of the initial market value of the shares when they were allocated to you, reducing to 75 per cent if the shares have been held for between four and five years.

Also, there may be a charge to capital gains tax if the sales proceeds exceed the indexed initial market value and the gain exceeds your annual exemption, currently pounds 6,000.

I am executor of my uncle's will. He died leaving a farm. I had assumed that 100 per cent relief from inheritance tax would be due on the farmhouse but Capital Taxes Office is arguing that this is not the case because the farmhouse is not of a character appropriate to the rest of the property. The Inland Revenue is asking for additional tax of pounds 100,000. Can anything be done?

This test has been around since 1981 when agricultural property relief was introduced but the Revenue appears to have been applying it with more vigour since 1992 when rates of relief were increased from 50 per cent to 100 per cent. There are counter-arguments. In view of the amounts involved you should take specialist advice.

I am self-employed, using a study in my house to run my business from. Can I claim household expenses, for instance electricity, as a tax deduction?

Yes, you can apportion household expenses perhaps by reference to floor area or the number of rooms in the house. The only pitfall is if you use a room exclusively for business purposes. Then, if you make a gain when you come to sell your house, not all the gain may be exempt from capital gains tax. You will have to apportion part of the gain to the business and that amount may be chargeable to capital gains tax. You can avoid this problem by using your study for your personal affairs as well as business use.

I owned a house for a number of years which I rented out. I have recently sold the house and made a substantial loss. Can I use the loss to reduce my tax bill?

The loss is a capital loss and therefore can be used only against capital gains arising on other capital assets, for example stocks and shares. The loss can be used against other gains which you make in the same tax year or can be carried forward indefinitely until you make a gain in which case your annual capital gains tax exemption will be used before the loss brought forward.