TAx solutions for the PROPERTY DEVELOPER
As a property owner and/or developer there are specific areas of tax that you should be familiar with. Below we have listed the key areas where we can support you.
Incorporation Relief for Property businesses
Thinking about transferring your business to a company?
Transferring business assets including goodwill from your personal ownership to a company would ordinarily result in the realisation of a taxable gain. There are rules however which mean, provided a transfer is structured correctly and certain conditions are met, taxable gains are avoided. This is called Incorporation Relief.
This relief is particularly pertinent for property investors who may be looking to reorganise their portfolio.....
Signature Tax can help you decide on whether this is the right course of action, how to plan and implement correctly.
An individual or a married couple currently holding a portfolio of rental properties wish to streamline their portfolio into a company for commercial purposes.
Without any reliefs, the transfer of these properties to a company would trigger a capital gains tax liability for the individuals. However, the decision to incorporate presents many options for the individuals that will avoid this charge, or at least reduce it.
For example incorporation relief would delay any tax to pay until the company is sold at a later date. A careful assessment of the rental activity and management will be required to ensure that the rental activity constitutes a business for the purpose of obtaining this relief.
But even if incorporation relief isn’t available or is not the most efficient strategy, other solutions could be explored. The exposure to stamp duty would also have to be considered in concluding the best option.
Capital Gains Tax
An understanding of Capital Gains Tax is crucial to ensuring you minimise the amount of tax you may have to pay on any increase on the amount your assets may be worth, when you sell or 'dispose' of them.
Capital Gains Tax applies to property, investments, selling a business and much more. Furthermore the rate of tax varies depending on the type of capital gain.
We provide our clients with guidance that synchronises with their investment strategy to give them a clear and full picture of what they will taxed, following any gains on their assets and investments.
Anthony has been in business as a sole trader for many years manufacturing widget display boxes.
In May 2014, he accepts an offer and sells the entire business undertaking realising a £2 million capital gain. In order to establish whether entrepreneurs’ relief is due, there are many facts to consider such as the length of time the business has traded, whether the disposal is sufficiently material and the amount of the gain.
If the gain does qualify for entrepreneurs’ relief, in this case, the whole amount will be taxed at 10% as opposed to 28%.
Most people think that inheritance tax (IHT) is unavoidable but there are many reliefs and strategies that can be used to mitigate its effects. IHT can be a big burden for many people, not just those with large estates. You will need to think about IHT if undertaking a transaction or aiming to pass on an asset to a loved one.
We offer a range of expertise and services that will enable you to pass on your assets in the most tax efficient manner.
Enid is aged 70 and is in good health. Following the administration of her husband’s estate, Enid inherits all of his assets as follows:
Home - £800,000
Investments - £724,000
Cash savings - £113,000
Total - £1,637,000
Whilst Enid’s overriding concern is to maintain her own financial independence, she continues to be concerned about the impact Inheritance Tax (IHT) will have on her two sons when they eventually inherit her estate.
Based on the figures outlined above, and current legislation, the potential IHT liability on Enid’s subsequent death will be £394,800, as follows:
Assets as above - £1,637,000
Less: 2 x NRB - £650,000
Taxable estate - £987,000
Tax @ 40% - £394,800
Currently, the Nil Rate Band (the amount that will be exempt from tax) is £325,000, but as Enid’s husband used none of this upon his death, two Nil Rate Bands will be available.
Without careful planning, you could end up with a large tax bill such as the one in the above scenario.
From April 2017, an additional nil rate band may be available on properties passed on to children, where they have been lived in by the parent.
The key is to plan for IHT as soon as possible. We can help mitigate any subsequent liabilities using a combination of reliefs and solutions.
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If you are interested in finding out more, and would like to make a consultation with one of our specialists, please complete the below form, or call us on 0161 850 0648.