Many entrepreneurs have purchased commercial property that has been fully or partly occupied at various times by their business, and rent may have been charged for the use of the property; either the property owner has been paid rent by his business, or by other third parties.

The way in which the new capital gains tax rules apply to the disposal of these properties changed on 6 April 2008.

Under the new rules, all taxable capital gains are now subject to a flat 18% tax chargem with one important exception. If a disposal qualifies as the sale of a business asset you may be able to claim entrepreneurs’ relief. In which case, the first £1m of qualifying lifetime disposals are subject to tax at the reduced rate of 10%. Generally speaking the disposal of a business property should qualify for entrepreneurs’ relief as long as it is sold in conjunction with the sale or cessation of the business, or within 3 years of that date.

Obviously, if you have purchased a property for the purposes of running your business you may feel that this relief will be available to you when you sell the property. Unfortunately the position of certain property owners, particularly those who have charged rent to their business, may not be so straightforward.

The issues that affect the availability of entrepreneurs’ relief when commercial property has been rented to a business, are complex and if you have commercial property please feel free to speak to us for more details. However, we have highlighted below the fundamental difference between a disposal by a sole trader and a disposal by a partner or company shareholder.

1. Sole traders are treated differently to partners and owners of limited companies.

If you are a sole trader there would be no commercial or tax purpose in charging your business rent for the use of your property - both property and business are in your name. There could be circumstances where part of the property has been let to a third party. However as long as part of the property is in use by the owner’s business when the property is sold, a claim to entrepreneurs’ relief should be effective; at least to some extent.
2. Partnerships and limited companies.

If a partner or shareholder has purchased a property and made this available to the business for a rental payment, the CGT position on disposal is more complex. If rent has been charged by the owner to the partnership or company, a claim for entrepreneurs’ relief on sale may be precluded.

A final point. Relevant legislation has not yet completed its passage through Parliament. The Treasury are aware that a sale of a business property prior to 6 April 2008, that would have qualified for taper relief, may not now qualify for entrepreneurs’ relief; purely due to the rental payments issue. There is therefore a possibility that there may be some relaxation of the rules in any amended legislation.

If you are contemplating a sale of this type of property please contact us before completing the sale in order that we can help you organise contracts in the most tax efficient way.

written by admin \\ tags: Property Tax, Tax planning

We have noted below a number of tax issues that you may like to review prior to the end of the current tax year, 5 April 2008.

1. Capital Allowances. Clients may be advised to seek our advice before committing to any further capital expenditure before 5 April 2008. As from 6 April 2008 it is likely that new rules will apply to the way in which you are able to claim capital allowances for the purchase of certain qualifying assets. The Government has said it will introduce a new Annual Investment allowance. Essentially from the end of this tax year businesses will be able to write off 100% of their expenditure on plant and other equipment (excluding most cars) up to an annual limit of £50,000. This Annual Investment Allowance will apportioned in the first year if your year end is not 31 March. For instance if you spend £24,000 on a qualifying asset in April 2008 and your year end is June 2008; one-quarter of the £24,000, £6,000 will qualify for the 100% write down; any balance will be carried forward. This will only affect businesses whose accounting year end straddles 5 April 2008. Because of these changes businesses may be disadvantaged if they commit to capital expenditure before 6 April 2008. If you have plans to acquire assets you may be advised to check out the pros and cons of delaying the expenditure until after 5 April 2008.
2. Benefits in Kind. Don’t forget that if your employees reimburse you for the use of a company asset, or to cover other personal payments that have been made on their behalf, no benefit in kind will arise, and therefore no tax will be due. In most cases reducing taxable benefits in this way will also reduce the National Insurance Class 1A contributions for the business.
3. Corporation Tax Rates. If your taxable profits are likely to take you over the small companies rate, (currently your company can earn up to £300,000 at the small companies rate of 20%, unless you have associated companies which can reduce this entitlement), you could consider bringing forward expenditure to keep your profits under the threshold. The expenditure could be a business expense or capital expenditure.
4. Pension contributions. Tax relief on pension contributions made by the company is only available in the period in which the contributions are actually paid, so if it is planned to increase contributions in respect of the current year, these need to be paid out during the period.
5. Directors’ bonuses year to 31 March 2008.  Where it is planned to pay directors bonuses out of current profits it is necessary to hold a directors’ meeting confirming the decision to do so. This should then be minuted, even if the exact amount of the bonus is to be determined later. In this way the liability for the bonus is created in the current period, and it will be acceptable to provide for the bonus in the accounts. The bonus should then be finalised and paid out within 9 months of the year end to secure a corporation tax deduction for the payment.

written by admin \\ tags: Tax planning

Here is a list of possible tax planning options that could be considered prior to 6 April 2008.

The list is not complete. Tax payers with complex affairs should consider a formal review before the end of the present tax year.

Savings:

1. Maximising ISA’s for younger savers.

2. Maximising ISA’s for other savers.

3. Appropriate redistribution of savings among family members with differing tax rates, to reduce overall tax spend.

4. Utilisation of Child Trust Funds.

Pensions:

1. Consider maximising contributions for the year.

2. Non-tax payers can also contribute up to £3,600 per annum with no earnings.

Inheritance Tax:

1. Utilising available allowances and reliefs to protect assets from excessive IHT risks.

2. Time to review Wills to ensure they are compatible wealth protection strategies.

Capital Gains Tax:

1. If appropriate make sure you utilise your Annual Exemption, £9,200, for 2007-2008.

2. Consider inter-spouse transfer of assets with “pregnant” gains if the other partner has capital losses which will not otherwise be utilised.

3. Review portfolios to consider holdings that may have negligible value for tax purposes. This offers opportunities to reduce other taxable gains in the current tax year.

Charitable Giving:

1. Consider Gift Aid donations. The same gifts made after 5 April 2008 will result in slightly less cash benefit to charities as the tax they will reclaim on your donations will decrease from 22% to 20%.

written by admin \\ tags: Tax planning