Land & Property Tax - Are You Minimising Leakages?

If you are reading this article, you may own one property and whilst that may not require a need for specialist tax advice, if you own more than one property, then it is very likely that you may have to consider tax at some point. This article gives an overview of some of the issues that we come across and have advised on.

Income tax and corporation tax

Where residential properties are let out, there are specific tax rules applying and perhaps the most marked recent change has been the loss of the “renewals” allowance for replacing free standing equipment such as white goods. The cost of replacing fixed equipment, however, still qualifies (e.g. boilers, fitted kitchen equipment). This change impacts on properties which are let out as unfurnished and so if you incur significant expenditure on these items you may wish to reconsider your position, perhaps even considering letting it out on a furnished basis.

We mentioned in a previous article that hidden allowances may be available for “fixtures” in certain buildings, but note this does not extend to residential “buy to let” properties or your own home. However, for other types of properties we have been able to secure attractive tax savings for some of our clients, and after deducting all fees the taxpayer has been “cash positive”. We work closely with a firm of surveyors to deliver this service, and you pay nothing for an initial “no obligation” based visit.

Also, in some circumstances, if you operate your business through a company it may be possible to claim “Land remediation relief” if the business has incurred qualifying costs rectifying contaminated or derelict land.

Capital Gains Tax

Where you are looking to sell a property used in your business, it is not automatically the case that you will only pay 10% capital gains tax. The rate of tax that you will pay on any gain depends on a number of factors, such as if and when the trade ceased, whether the trade was operated through a sole trader, partnership or company and the timing of the sale. It is vital to plan ahead to ensure that you do not pay more tax than you have to. Also, renting the property to the business can restrict the amount of gain chargeable at the favourable 10% tax rate.

It is worth noting that where capital allowances have been claimed on fixtures (as mentioned above) this does not reduce the deductible cost for capital gains purposes when the building is eventually sold.

Another topical area where we can help is if you own a second home and want to know how capital gains tax can overall be mitigated.

Inheritance Tax

Often, if the business premises are owned by a trading business rather than the owner(s), the combined value of the business (or shares if a company is being used) and the property would qualify for 100% exemption from Inheritance Tax upon the death of any of the owners. However, in cases where the trade is operated through a company (which might have certain tax benefits) and the owner(s) of the business wishes to hold the property personally, this can then result in Inheritance tax exposure on the property value and if certain conditions are not met it is possible that the whole property value could be taxable.

Depending on the circumstance, a pension scheme which the director can effectively control might be a viable alternative way of the company transferring the ownership of the property. This could result in some Inheritance Tax benefits being maintained, as well as other tax reliefs and benefits going forward, such as mitigating tax on future growth in the property and accumulation of rents in a tax free environment.

Stamp Duty Land Tax

This tax is due by the purchaser of a property and it is now difficult to avoid in most situations where property is being acquired at a value in excess of the tax free threshold. However, there are some transactions which can result in minimum or negligible tax, such as certain ones involving partnerships.

VAT issues

Transfers of businesses where the trading property is also being transferred, barter transactions (where no cash changes hands), and acquiring commercial properties all have specific VAT implications which need to be considered carefully in advance of the contract date. Also when acquiring a commercial building, input VAT may ultimately not be fully recoverable depending on what the building is used for.

If you are concerned about maximising your property reliefs contact Jon Miles.