Property Tax Planning
At Ascendis, we are able to advise on the best method or business structure to purchase properties. We can explain the tax consequences of each method whilst also looking at mortgage & funding options for each. For commercial property we are also able to advise on alternative tax efficient pension based structures to purchase the properties or to conduct a review to ensure that all allowable capital allowances and resulting tax relief have been claimed. It may also be possible to incorporate planning to reduce SDLT on a property purchase.
Tax Efficient Structures …….
We will look at each client’s individual circumstances & taxation affairs and advise on one of the below business constitutions for ownership of properties:-
- Held personally
- Partnership or Limited Liability Partnership
- Limited Company
- Pension Fund (SASS or SIPP)
We are also able to provide an analysis of an individual taxpayers current position and how another form of ownership could be much more tax efficient. If relevant, we are then able to restructure their affairs whilst also working with our experts in property funding and Independent Financial Advisors (if required) to assist this goal.
It may now be beneficial to conduct an Incorporation of existing portfolios.
Incorporation of a property rental business could allow individuals or partners to benefit from the added fiscal controls which operating from a corporate Ltd company structure offers over holding the assets personally. These include the ability to monitor Capital Gains Tax (CGT) and Income Tax (IT) costs in a more effective way than simply holding the assets personally. In addition, this also allows greater opportunities to pass the business itself down to future generations with minimal tax implications. Many private landlords pay more income tax on the profits of the business than they actually need to and incorporation could enable them to protect their income, as well as allowing them to benefit from lower rates of corporate tax on the profits.
Whether to incorporate or not is now something which all higher rate income tax paying private landlords should consider following the announcement in June’s Summer Budget 2015, that the relief which a landlord or owner receives on buy-to-let mortgage interest payments will be cut. Currently a higher rate tax paying landlord receives relief on his buy to let mortgage interest payments at his highest rate of tax so either 40%, or 45%. This will now be reduced to basic rate relief of 20% by 2020 and, as a result, individual or partnership landlords will see a sizeable increase in their taxable profits which will result in a corresponding reduction in real profit retained in the business which may be further exacerbated by the restriction to wear and tear allowances also announced.
When an individual transfers a business into a company, this transfer would ordinarily be treated as a disposal for the purposes of CGT. However, providing certain criteria are met statutory relief should be available so that Incorporation Relief (as set out at s162 TCGA 1992) effectively defers the point at which gains on the disposal of the business become due, right up until the shares in the company are disposed of.
Particular care must be taken to determine whether the activities constitute a ‘business’ as there is no statutory definition of the term for CGT purposes. This point was recently highlighted in the case of Elisabeth Moyne Ramsay v HMRC  in which the taxpayer successfully argued that her property rental activities should be considered equal to the running of a business eligible for Incorporation Relief.
The following are indicators of a business and therefore, eligibility for the relief:
- Time spent on the properties: case law dictates that business should be thought of as an active occupation. What this means in practice is the closer to a ‘full time’ job the time spent running the portfolio is the stronger the argument. 20+ hours per week was deemed to be adequate in the Ramsay case.
- Type of activities: hands on involvement in the day to day management of the properties is beneficial for the purpose of securing the relief as opposed to simply outsourcing to a rental agency to have them deal with all matters on the landlord’s behalf.
- Number of properties: the size of the portfolio can be indicative of whether there is a business, however this is not definitive. In the Ramsay case five occupied properties was deemed sufficient which suggests that the activity and time involved in handling the occupancy may take precedence over the number of rental properties.
This list is not exhaustive, but it is understood that any argument would be strengthened for the purposes of Incorporation Relief if the landlord is able to demonstrate that all of the above apply.
Incorporation of a property rental business can provide the following benefits:
- Individuals/partnerships are able to benefit from a tax free uplift in the property base costs providing for tax efficient sales post incorporation.
- Profits are no longer treated as personal taxable income, thereby removing the effects of the forthcoming cuts to mortgage interest payment relief.
- Profits and capital gains will be taxable at the lower rates of corporate tax and can be retained with no further tax charges providing greater capital for future investment.
- Income can be paid in the form of salaries or dividends and split more favourably between spouses for example.
- Limited liability protection for the shareholders/directors.
Stamp Duty Land Tax (SDLT) planning
We have links with a specialist consultancy whose SDLT planning utilises proven exemptions in the Finance Act to provide a means by which we can structure the purchase of both commercial and residential property in a tax efficient manner.
Stamp duty land tax strategy benefits
There are many benefits to using the Stamp Duty Land Tax (SDLT) strategies, which are carefully tailored to your purchase with every interest and regulation fully addressed.
Property transactions invariably involve a number of vested interests, ranging from those of the buyer and seller to the policies of mortgage lenders and, of course, the law as applied by Her Majesty’s Revenue and Customs (HMRC).
How our Partners can help
Their aim is to design a solution that ensures your property tax is managed in the most beneficial way possible, in accordance with all legal requirements and government legislation.
Our experts work tirelessly to devise a plan that:
- Mitigates your Stamp Duty Land Tax liability, leaving a minimum saving of 59% once fees are paid
- Complies with the Council of Mortgage Lenders’ requirements
- Does not need any action on the part of your vendor
- Does not require you to notify HMRC
- Does not cause delays in the conveyancing process
- Requires no fees in advance
- Is fully insured by market leading insurers that are regulated by the Financial Services Authority (FSA) and who are also members of the Association of British Insurers (ABI)
A brief summary of circumstances is set out below:
- The Stamp Duty Tax Mitigation strategy is available to individuals and companies
- For the purchase of either residential or commercial property
- Cost of property at £350,000 or above
- The product is designed to eliminate the majority of Stamp Duty Tax at 3%/4%/5%/7% or 15%
- No vendor involvement and no disclosure required to lenders
- Panel solicitors used to protect IP and speed up the process
- No claim no Fee
- 100% Claim success rate
Property Embedded Fixtures & Features Specialist
Property Embedded Fixtures & Features are a specialist element of the well known subject of Capital Allowances. A capital allowance is a taxable benefit against expenditure on Plant & Machinery for the purpose of the trade.
As a matter of course, most accountants identify ‘MOVEABLE’ items which qualify for capital allowances. These moveable items include desks, chairs, computers, cars etc. However, accountants may be unaware of the qualifying Embedded Fixtures & Features within a commercial property that are essential for a business to carry out its trade.
This leaves an enormous wealth of unclaimed ‘IMMOVEABLE’ items on which capital allowances can be claimed, such as lifts, heating systems, security systems, sanitary ware, electrical systems, kitchens etc. These items were either inherent within the property at the time of acquisition or could have been subsequently installed.
Why are these items missed?
Until an accountant, owner or leaseholder instigates the process of identification i.e. a ROOM BY ROOM SURVEY with appropriate evaluations of the qualifying items, they will remain unclaimed. This means a substantial benefit is missed as items that are fixed, screwed, nailed to or within a property are taken for granted, unless identified by an experienced tax specialist after carrying out a survey.
Who can claim the benefit?
The tax benefit is available to the party that incurred the expenditure – purchasing a commercial property OR funding refurbishment or extensions.
How is the benefit claimed?
The tax claim is used to generate a tax repayment where appropriate and is then used as tax credits to reduce future tax liabilities, this helps protect your income against tax. Ascendis ensures that the tax benefit is utilised in the most efficient way for your circumstances.