Tag Archives: capital gains tax

The ATED legislation was introduced in 2013 and was a major shift in the UK property tax base. Who would have believed that it would be the start of a number of changes? Further changes are expected in 2017.

A recent history of property taxation – 2016

Graeme Blair - Partner - gblair@goodmanjones.com

Posted on 31st August 2016

Categories:

CGT
Compared to today, property investment taxation before 2013 was relatively straightforward with one of the more complex discussions being convincing non-residents that they really could realise profits on investment sites without UK Capital Gains Tax. Changes were made in 2013 which proved to be the start of a wholesale reform to various aspects of property taxation.

Introduction of Annual Tax on Enveloped Dwellings (ATED)

2013 heralded the introduction of the ATED (Annual Tax on Enveloped Dwellings) legislation which applied to high value UK residential property “enveloped” in certain structures. The tax implications were an annual ATED charge, a 15% rate of Stamp Duty Land Tax and Capital Gains Tax at 28% on increases in value from April 2013. When ATED was first introduced the definition of high value was property worth more than £2m. Since then the definition has fallen to property worth more than £500,000 with subtle differences between ATED, CGT and SDLT thresholds.

There are exemptions against the ATED regulations but these exemptions need to be claimed and therefore many ATED Returns are submitted to HMRC which do not result in tax liabilities. Based on our client base we submit far greater numbers of “relief” returns than “charging” returns.

Capital Allowances

One year after the introduction of ATED there was a change in the regulations governing capital allowances. In order for the purchaser of a commercial property to claim capital allowances on the site’s fixtures and fittings the vendor must have already claimed allowances on those assets. This has led to commercial discussions about purchasers paying professionals to determine the claims which the vendor makes for pre-completion periods or reductions in purchase price to reflect the tax relief that the purchaser will not be able to claim as the vendor has not maximised their claims.

Stamp Duty Land Tax

Later in 2014 the SDLT rates for residential properties moved from a slab system to a progressive rate. This was to help avoid artificial ceilings on prices caused by purchasers not being willing to pay £1 more for a property as that £1 would result in greater SDLT. The slab system still operates for properties charged under the commercial property rules.

ATED brought certain non-residents into the Capital Gains Tax net. From April 2015 that net was widened with the introduction of Capital Gains Tax on non-residents who dispose of UK residential property. The chargeable gain only applies to value generated from April 2015. For properties owned prior to April 2015 the chargeable gain can be determined by either a time apportionment of the gain or determining the actual increase in value from April 2015. If the latter is adopted then an April 2015 valuation would be necessary to determine the post 2015 gain. A connected change was the requirement for non-residents to report the gain within 30 days of conveyance. Unless the non-resident had an existing relationship with HMRC then the Capital Gains Tax may also have to be paid within the 30 day period.

Although UK Capital Gains Tax rates fell on 6 April 2016 the reduction did not apply to gains from residential property. A further change on 6 April 2016 impacted residential landlords. Traditionally these landlords claimed a 10% wear and tear allowance against furnished rental income to reflect the cost of repair and replacement of furnishings and white goods within a property. Although this was an optional treatment it was the method widely used by landlords. From 6 April wear and tear allowance has been abolished and landlords should claim tax relief on the actual cost of replacing these assets.

New rules for purchases of second homes or buy-to-lets

April 2016 was also the month in which new rules were introduced which resulted in higher SDLT rates on purchases of second homes or residential buy to lets. For effected properties SDLT is 3% higher than the rate of SDLT which would otherwise apply, but there are exemptions for lower value properties, caravans, mobile homes and boat houses. There is a specific relief for individuals who move home and buy their new home before selling their previous home. These individuals will need to pay the higher rate of SDLT on the purchase of a second home and then recover the excess SDLT on sale of the first home. There is a time limit to sell the former home and a time limit to claim a refund.

Offshore property developers

Offshore property developers of UK sites have been able to structure their affairs so that part of the development profit is charged to UK tax. This does not allow for a level playing field between the domestic developer, who is fully charged to UK tax, and the offshore developer. Legislation was introduced on 5 July 2016 to level this playing field.

Rental income

Individuals who receive income from renting out rooms in their home could receive up to £4,250 per year without tax. From April 2016 this has been increased to receipt up to £7,500 per year. The Government accept that some people can generate small amounts of income from rentals of, for example, their homes whilst on holiday. From April 2017 there will be a new £1,000 allowance for property income with individuals not needing to declare, or pay tax, on sums less than the allowance.

Mortgage Interest

From April 2017 mortgage interest on loans to acquire buy to let properties will only be tax deductible as if the landlord is a basic rate taxpayer. This tax relief restriction is being phased in over 4 years with the full restriction applying from April 2020. The mechanism to generate the relief is a credit against tax liabilities and not a deduction from rental profits. This can result in taxpayers falling into higher rates of tax and therefore being unexpectedly subject to the restriction. As the changes only apply to those paying income tax this has led to questions about the benefit of holding these properties in a company. Such a change in structure needs to be carefully thought through as it leads to other considerations.

From 6 April 2017 it is anticipated that there will be changes to the non-domicile legislation which will bring more individuals into the UK Inheritance Tax net and could result in properties which they own through offshore structures being subject to UK Inheritance Tax for the first time ever.

The ATED legislation was introduced in 2013 and was a major shift in the UK property tax base. Who would have believed that it would be the start of a number of changes? Further changes are expected in 2017.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Capital Gains Tax was reduced from 28% to 20% for some, but significantly the pressure has been maintained on residential property with buy-to-let landlords being excluded from the reduction. Further bad news for property investors was the exclusion of any cap from the 3% additional Stamp Duty Land Tax for large investors.

Budget 2016 – The Analysis

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 17th March 2016

Categories:

Read our 2016 Budget Guide

George Osborne’s third Budget in only twelve months still managed to pack in some surprises. Despite pre-announcing that there would be no further changes to the pension regime this time around, the pension ISA wasn’t completely abandoned with the introduction of the lifetime pension / homebuyer ISA. Could this be a stepping stone for his next pension move?

Capital Gains Tax was reduced from 28% to 20% for some, but significantly the pressure has been maintained on residential property with buy-to-let landlords being excluded from the reduction. Further bad news for property investors was the exclusion of any cap from the 3% additional Stamp Duty Land Tax for large investors.

The cost of borrowing out of a family company also increased.

On the plus side and contrary to expectation, Entrepreneurs’ Relief far from being curtailed has been extended to investors. For further details of these and all of the Budget announcements please see our Budget summary.

Read our 2016 Budget Guide for more information or use our digital tax card for reference.

If you have any queries regarding any matters raised in the Budget Statement then please don’t hesitate to speak to your usual contact or email us.

For regular commentary on tax and other issues follow us on Twitter and LinkedIn.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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tax planning is an area where many want to see the Government take greater control. Perception from recent high-profile cases of larger multinationals, such as Google and Starbucks, is that these organisations need to pay ‘their fair share’.

2016 Budget Options: Pensions, CGT and Income Tax allowance

Nigel Wilkinson - nwilkinson@goodmanjones.com

Posted on 15th March 2016

Categories:

George Osborne stands up tomorrow to deliver his latest Budget with twin targets of raising taxes and cost savings. So what can we expect this time?

Pensions

It appears his main focus is on pensions.

Despite major changes already last year, many experts foresaw potential for structural change this time around. George Osborne has favoured either a move towards a Pensions-ISA removing all pension tax relief on entry, or a fixed-rate pension tax relief making tax savings from higher earners who currently enjoy tax relief on contributions at rates up to 45%. Both would bring the economic benefits of tax savings for the Treasury and both seen as electorate-friendly in the lower earnings levels, affecting those higher earners hardest as they would.

However, amid recent and growing concerns over the EU Referendum the desire for such widespread reforms has weakened Regardless, I believe the Chancellor will consult further so any reprieve will prove only temporary.

And we should still expect some changes in pensions.

Firstly, and most likely option, is a further reduction of the Lifetime Allowance, currently standing at £1.25 million and already to be reduced to £1 million from April 2016. A further drop to £750,000 is strongly favoured – it would provide tax savings and appeal to the public as it hits higher earners hardest.

Secondly, the Annual Allowance on making tax-relievable pension contributions would be a reasonable target. Currently capped at £40,000 pa and from April 2016 to be reduced by £1 in every £2 of taxable income over £150,000 down to £10,000 it would be no surprise to see a reduction to, say £25,000 maximum. Again, this cuts tax relief on higher earners whilst still encouraging lower earners to save more – part of this Government’s mantra.

He could also push through a restriction of the rates of pension tax relief, alone or combined with a reduced maximum. Such a measure would again benefit lower earners over their wealthier counterparts. A maximum tax relief at point of entry of 25% would prove popular, whilst more expensive for higher earners.

Hence, planning for your retirement will be even more important than it already is!

Capital Gains Tax (CGT)

Away from pensions the Chancellor might look at Capital Gains Tax.

Current CGT rates of 18% or 28% can be seen as generous; most attractive compared to their income tax equivalents. Increasing these rates, therefore, towards income tax levels, or to a fixed CGT rate of, say, 33% would satisfy both tests. Now even non-UK residents would be caught by this measure in regards to their residential properties under the non-resident CGT regime.

And the added bonus is an impact on tax planning, regarded by many as tax avoidance and immoral, though not unlawful. Succession planning and business exit strategies, for example, become more difficult and less attractive due to reducing tax differentials. Tax planning becomes more challenging but even more crucial than before.

Indeed, tax planning is an area where many want to see the Government take greater control. Perception from recent high-profile cases of larger multinationals, such as Google and Starbucks, is that these organisations need to pay ‘their fair share’. Certainly, expect greater emphasis and resources to be allocated here.

Income Tax allowance

On income tax, we might expect an increased Personal Allowance and perhaps upward changes to the higher rate tax band, reducing or removing more lower earners from tax liability. On the other hand, he can balance such generosity by reducing the current level of the Termination Payments Exemption, very generous at £30,000, or at least bring such payments within the charge to National Insurance Contributions.

Yes, the Budget is nearly here, and very interesting it will be…..

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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the non-resident property owner who is not within Self-Assessment could face some serious problems later on down the line when they come to sell.

CGT for Non-Residents – to Value or not to Value

Paul Webster - paul.webster@goodmanjones.com

Posted on 1st April 2015

Categories:

For as long as I have been working in the tax profession, arguably the two best pieces of basic CGT planning have been death and becoming non-resident. I remember in my formative years as a Tax Adviser being somewhat shocked and, admittedly, envious of a client who had emigrated to Australia. In the following tax year they managed to sell a number of properties free of capital gains tax. The simple reason – they became non-resident in the previous tax year and would remain outside the UK for at least five tax years.

From 6 April 2015 the purge on non-residents continues with offshore based individuals owning UK residential property now having to fall in line with those who have not been able to negate their gains by emigrating to some exotic destination. Simply put, non-residents will pay capital gains tax on sales of UK residential property.

Unlike the recently introduced Annual Tax on Enveloped Dwellings, there are no valuation bands determining the charge to be paid and aside from main residence relief, there is no relief available from the charge. The rate of tax for non-resident individuals will be the same as for their UK counterparts, being 18% if the gain falls within the basic rate of tax and 28% if any part lands in the higher rate.

Fortunately, the new rules are not retroactive so the news that a non-resident can re-base the value of their property as at 5 April 2015 has been welcomed. This may sound fairly straightforward but perhaps the biggest dilemma facing overseas UK residential property owners will be the question – ‘should I re-base’ and then having decided to do so, ‘should I obtain a valuation’.

There will be three options available to a non-resident for a future sale of their UK residential property:-

The default position is that the individual’s property is revalued as at 5 April 2015 and only the increase in value from 5 April to the date of sale is charged to capital gains tax on sale. This is the basic default position and it will involve revaluing the property. A disposal could be many years into the future when the value at 5 April 2015 has been long forgotten.
An election is made so that the whole gain from purchase is calculated, as you would normally do with a UK resident, but once that gain is established, it is then apportioned on a days basis between pre and post 5 April 2015 periods, with only the post April 2015 pro-rated gain being charged to capital gains tax. No valuation would be required here.
The taxpayer elects to tax the gain for the whole period of ownership with no re-basing and no splitting the gain pre and post 5 April 2015. Clearly, this would only be worthwhile if there is a loss accruing. Again, no revaluation would be required here.

The easiest options in terms of administrative burden and cost are options 2 and 3 above but what if the non-resident taxpayer does not opt out of the default position in option 1?

Perhaps one of the most common enquiries raised by HMRC on the sale of land and buildings is where the value of a property entered within a Tax Return is disputed. This can happen even where there has been a professional valuation undertaken. These enquiries usually involve the District Valuation expert entering into negotiations with the professional Valuer employed by the taxpayer. Under these circumstances the client and Tax Adviser are able to sit back and wait for the negotiations to be concluded.

But what happens where a formal valuation has not been undertaken?

The Revenue make it clear in their responses to ‘frequently asked questions’ published on 18 March 2015 that it is the ‘taxpayer’s responsibility to accurately value the property’. Although the Revenue state that they do not necessarily expect the taxpayer to make the valuation on or around the 5 April 2015 re-basing date, they advocate making notes as to the general condition of the property for future reference. We would go further and suggest that photographs are kept of the site and a record kept of the published sales prices of similar properties in the area.

One option alluded to by HMRC in the guidance is their post transaction valuation review process, which enables taxpayers to agree a value with the Revenue after a disposal has taken place but before a Return disclosing the transaction is submitted. This could be an attractive proposition for those non-residents already within the Self-Assessment regime. If a property is sold on, say, 1 May 2015, the Return declaring that disposal is not due to be filed until 31 January 2017 so a post-valuation request could realistically be made. It should be noted that the ICAEW (the regulatory body governing accountancy practices) have recently reported significant delays in processing these requests so it may be sensible to factor in sufficient time for the process to conclude.

However, if a non-resident is not within Self-Assessment, the current proposal is that they should submit a Non-Resident CGT Return within 30 days of the completion date. If my mathematics is correct, a post transaction valuation request would not work here because HMRC clearly state within the notes accompany the valuation request form (CG34) that it must reach them at least two months before the filing date. This is slightly worrying!

Consequently, the non-resident property owner who is not within Self-Assessment could face some serious problems later on down the line when they come to sell. Without a professional valuation and no detailed knowledge of the UK property market, a non-resident could be in the unenviable position of having an enquiry that extends for several years with significant professional costs and an unexpected tax bill.

It is not unusual for an enquiry on valuation matters to rumble on for several years and the outcome is not always favourable. Our recommendation is that a contemporaneous valuation is obtained from a professional valuer. The cost of a professional valuation now may well be a small price to pay for greater certainty in the future.

If you are affected by the new rules and would like advice, please contact one of the tax team who will only be too happy to assist. We can also introduce you to a professional valuation expert if required.

CGT rates have changed since this article was written and more up to date information can be found in our 2024 Spring Budget response.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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The 90 day rule will apply to existing PPR elections as well as new ones. A property where the election has been made but which doesn’t meet the 90day rule in any year will not qualify as the PPR for that tax year.

Capital Gains Tax on Non-Residents – update

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 1st December 2014

Categories:

HM Revenue & Customs have issued their revised proposals following responses to the consultation on implementing a Capital Gains Tax charge on non-residents owning residential property in the UK. The key points arising are as follows:-

The new charge

The government has confirmed that a Capital Gains Tax charge on non-residents owning UK residential property will be introduced with effect from April 2015. It will however be restricted to gains arising from April 2015 only.
Two methods will be allowed for calculating the proportion of gain arising from April 2015 for properties already owned prior to that date. The methods are:
1. rebasing to market value April 2015 or
2. time apportionment over the whole period of ownership.

Principal Private Residence (PPR) election

One area of the original consultation which was seen to be controversial was the proposal to remove the option to elect for which of more than one property was the individuals PPR. This was seen as controversial partly because the proposal was to remove the right to elect from everyone and not just non-residents. The new proposals retain the election in place but introduce a new restriction. It will no longer be possible for an individual to elect for a property to be their main residence unless
1. Either the person making the disposal was resident in the same country as the property for that tax year, or
2. The person spent at least 90 nights in that property (or across all the persons properties where they have multiple properties in a country in which they are not tax resident) in that year – this is referred to as “the 90 day rule”.

The 90 day rule will apply to existing PPR elections as well as new ones. A property where the election has been made but which doesn’t meet the 90day rule in any year will not qualify as the PPR for that tax year.

Companies

The government has confirmed that non-resident companies will be brought within the scope of this charge. The rate of tax applying will be the standard Corporation Tax rate of 20%. There is an exclusion for widely controlled companies and the introduction of a new narrowly controlled company test.
The existing Capital Gains Tax (CGT) charge related to the annual tax on enveloped dwellings (ATED) will remain in place and will take precedence over the new charge. To the extent that properties fall within the ATED related CGT charge regime, tax will be charged at 28%. Properties not falling within that regime will instead be taxed at the Corporation Tax rate of 20%.

Reporting and paying

Reporting and Paying – any person currently within the self-assessment regime will be able to report any such disposal through their existing self-assessment returns. Anyone else outside of the self-assessment regime will need to report separately within 30 days of the property being conveyed.

For full details please see HMRC website.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Property owned in Corporate Structures – the net widens following 2014 Budget announcements

Cetin Suleyman - Partner - csuleyman@goodmanjones.com

Posted on 20th March 2014

Categories:

Property & Construction

I previously wrote on this blog a post suggesting that HMRC were keen to widen the net to bring more properties into the tax rules concerning residential property owned within a Limited company, or other “non-natural person” wrapper.

I did some research at that time and concluded that with property price inflation, even if the rules were not changed, the day wouldn’t be too far away before many “modestly” priced London properties were worth over £2m and therefore liable to the full range of tax measures.

I needn’t have bothered! Whilst not completely out of the blue, one of the announcements made in yesterday’s budget was the reduction of the £2m threshold to £500k for:

– the 15% Stamp Duty Land Tax on acquisitions,
– the Annual Tax on Enveloped Dwellings (ATED) charge, and
– the liability to Capital Gains Tax at 28% on gains.

The Stamp Duty Land Tax change is effective immediately, with the other two aspects following from 1 April 2016 onwards for properties worth between £500k and £2m. An interim provision will bring properties worth between £1m and £2m into the ATED regime from 1 April 2015. Current proposals are for the ATED to be set at £7,000 per annum for properties worth £1m to £2m, and £3,500 per annum for those worth between £500k and £1m.

HMRC state that these new measures are designed to tackle tax avoidance and not damage commercial enterprises. The Chancellor also states an intention to bring back into use large numbers of property currently sitting empty, and I can’t argue that that isn’t a good idea. For these reasons I would expect reliefs will be available in the same way as the current reliefs for property businesses. We’ll know more when the Finance Bill is released.

However, even though there may not be an actual tax impact on genuine property businesses, one cannot escape the fact that for many situations a Limited company is an attractive structure in which to acquire property. The regime as it currently operates is geared so that such property owners are presumed guilty of using their company for tax avoidance and liable for the taxes until they declare their innocence by submitting the annual ATED return, and claim one of the available reliefs. So that’s yet a further piece of annual compliance for the diary (together with a requirement to make various disclosures regarding values etc) and it comes with the usual threat of penalties for non-compliance.

Now, given that one-bedroomed flats are commanding over £500k in parts of London, and according to thisismoney.co.uk, 50% of London homes are worth more than £1m, this is not simply a “widening of the net” but more akin to sending a super-trawler up the Thames – and as Eric Cantona of Manchester United fame once said – “the seagulls follow the trawler because they think sardines will be thrown into the sea”!

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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“Home is where the heart is” – but HM Revenue and Customs may not agree with you [Principle Private Residence Relief]

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 3rd March 2014

Categories:

HMRC’s attitude to capital gains tax and residential property is changing and this change could potentially affect many home owners.

Currently an individual’s main residence is exempt from capital gains tax due to the generous main residence exemption commonly referred to as Principle Private Residence relief (PPR).

In most domestic property sales the relief will cover the entire capital gain on sale. If you own only one property which you have lived in throughout the period you have owned it then you will almost certainly qualify in full for PPR.

If you own more than one property or expect your period of ownership to be short or there have been periods of non-occupation then the situation is more complicated. PPR may only be partially available or in some cases not at all and you will need to plan carefully to maximise your chances of making a successful claim.

In the past HMRC has taken a light touch in deciding what constitutes a main residence for the purpose of PPR, often accepting that a property has been the main residence even when the actual periods of occupation or ownership have been short or where an intention to develop was apparent.

A number of recent tax cases have challenged the status quo with HMRC successfully seeking to deny PPR. The cases have generally focused on the intention to occupy as a main residence and the quality of occupation. Deciding factors have included property being actively marketed for sale throughout the period of occupation and living on site during development not being a sufficient quality of occupation.

I am often asked how long it is necessary to live in a property for it to qualify for main residence exemption, but it is clear from HMRC guidance and the case law that, as with many things in life, quality of occupation rather than quantity is the most important factor. Taking steps to ensure that post is directed to your property, that you appear on the electoral register, registering with a local doctor and actually moving your furniture in are more likely to lead to a successful claim than physically camping out at the property for any length of time.

Where PPR is due in full on a sale then it applies automatically and does not need to be claimed. This leads to most sales of domestic property not being declared at all on a self-assessment tax return. However, problems will arise for anyone failing to declare a sale in the mistaken belief that PPR will cover the whole of their gain when it is only partially due or not due at all.

HMRC can and do obtain details of all property sales in the UK from the Land Registry and are on the look out for undeclared gains. Should HMRC successfully challenge a claim to PPR then tax, interest and penalties will all become payable. It is therefore important that if you are in any doubt over the validity or quantum of your claim then full disclosure of the facts should be made.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Growing pains – A fly in the ointment when deciding on UK property ownership structure?

Cetin Suleyman - Partner - csuleyman@goodmanjones.com

Posted on 26th February 2014

Categories:

Property & Construction

Property investors generally look for growth in the value of their assets, so how could that growth bring them into a charge to tax that they did not expect?

Well, first some context – according to the UK Land Registry, the average house price in the Royal Borough of Kensington & Chelsea increased from £490,000 in 2003 to £1,078,000 in 2013. That’s an increase of more than double in a 10 year period. If that rate of growth continued, it would mean that a property currently worth around £900,000 in that Borough would be worth £2m in 2023.

No doubt, this is one of the reasons why there is a well-trodden path towards UK property investment, and it would look like this trend is set to continue. Savills, for example, have recently issued their forecast for house prices Savills 5-year house price forecast. They forecast growth of up to 25% in the next 5 years across the UK as a whole, so parts of the country could be far in excess of that.

Now to ownership structures. The options for the structure in which property is owned are numerous and there are a variety of tax and non-tax issues to consider. The relative importance of each will be different to each individual investor.

It is essential to consider the ownership structure from the outset as Stamp Duty Land Tax rates of up to 15% make it costly to change afterwards. The need to take advice is clear, but what if that advice suggests ownership in a corporate vehicle?

Much has already been written about the tax rules which apply to properties worth more than £2m, and owned in a corporate vehicle (enveloped dwellings). In a nutshell, the rules include a headline Stamp Duty Land Tax rate of 15%, Capital Gains Tax charges for properties sold using such vehicles and an Annual Tax charge dependent upon value.

Properties costing less than £2m are currently outside of this regime, and many investors are buying such properties – so what does the “anti-avoidance” legislation hold in store for them?

Well, HMRC have launched a consultation to explore the possibility of extending the capital gains tax aspects of the “over £2m” rules, so that they apply to lower value properties held in corporate vehicles.

The outcome of this consultation cannot be predicted, but my view is that HMRC are looking to squeeze as many properties into this taxation regime as possible. Time will tell if they do, but even if HMRC don’t pass new legislation, we can be reasonably confident that, growth in property values will at some point push many more properties into the “over £2m” rules.

Given that investors in property invariably seek capital gains, this may in time prove to be a fly in the ointment for many. However, until then it just adds one more factor to consider when deciding upon property ownership structures; whether you are a UK taxpayer or not.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Buy-to-let Landlords and Second Homeowners

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 18th November 2013

Categories:

Property & Construction

HM Revenue and Customs are now entering stage two of their campaign to target second homeowners. True to their word, they are starting to chase landlords who have a second property and have failed to declare rental income and capital gains on sales.

The disclosure opportunity that I referred to in my April blog closed on 8 August and already we are seeing a marked increase in HMRC investigations targeting those who ignored this opportunity to bring their tax affairs up to date.

A question I often get asked as a tax practitioner is “How will the Tax Inspector find out about undeclared income?” The answer is that there are many different sources of information available to the Tax Inspector to help identify potentially undisclosed rental income. These include Land Registry records, information requests to letting agents and tenant deposit registers, to name but a few. Information sharing with overseas authorities is becoming increasingly common and we have also seen that HMRC Inspectors are increasingly making use of technology to help them, from the relatively low tech searching of the internet for property adverts to the higher tech use of demographic profiling to track likely areas and candidates for investigation.

My experience has been that a lot of individuals who are now finding themselves on the wrong end of an HMRC enquiry have got into trouble due to a head-in-the-sand approach to their tax obligations rather than a deliberate attempt to avoid paying their dues. However, HMRCs view is very much that, having given taxpayers an opportunity to disclose, they will now take a tough line with anyone who hasn’t come forward voluntarily.

If you find yourself receiving an enquiry letter from your local Tax Inspector or if you know you have income to declare, but don’t know what to do, then I encourage you to speak to your accountant as soon as possible. It is always better, as you will pay lower penalties, to disclose before HMRC comes calling. We have a great deal of experience in dealing with tax enquiries and investigations. If you need our help then please contact a member of our tax department.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Fully approved, fully effective tax avoidance – time’s running out …

Peter Rogol - peter.rogol@goodmanjones.com

Posted on 20th February 2013

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Everyone knows what’s meant by a low risk investment. It’s one where there’s minimal risk of losing any part of your stake. You want safe? – government bonds, National Savings, bank and building society deposits up to £82K. You won’t lose your initial stake, but in the current climate you will most certainly lose value. With the likes of Halifax paying 0.11% on deposits over £25K, and inflation running at around 3%, “safe” has taken on a new meaning – you can sit back and relax as your savings “safely” whittle away to nought.

Probably the last thing anyone would categorise as “safe” is investment in early-stage start-up business. You’re almost guaranteed to lose the lot.

Or are you?

For the “right” investor the extraordinary tax breaks available this tax year ensure that whatever you lose on your investment under the Seed Enterprise Investment Scheme [SEIS] will be more than compensated by the tax savings it offers.

It’s important to understand what’s meant by “right”. First, it’s a taxpayer who’s made a capital gain this year on which tax will be payable. Second, that taxpayer has to have a sufficient income tax liability this year to cover the upfront tax relief SEIS offers. Third, in the event the investment does what you expect – fail – in the year of failure the taxpayer should be exposed to a sufficient level of income tax at the maximum rate to have it mitigated by the availability of loss relief.

An example: Joe has made a capital gain on the sale of a second home of, say, £70K. Because he’s a higher rate tax payer, the CGT bill comes to £16.8K. He will have earned £90Kin the year, on which he’ll be suffering £26K of income tax. Because SEIS investments qualify for a 50% income tax relief, he invests £52K in a SEIS business – precisely to ensure he wipes out his income tax liability . His tax bill on £52K of his gain vanishes, as does his income tax bill. So his £52K investment will actually cost £11.4K.

Joe’s anticipating a significant uplift in his income profile over the next couple of years, such that he’ll be exposed to something over £50K of tax at the highest rate of 45%. When the investment he’s made does what we all expect, and becomes worthless, he gets income tax relief on his loss. For income tax purposes his loss is the initial £52K less the income tax relief he received at the time of £26K – a loss of £26K. He gets tax relief at 45% on that loss, equals £11.7K.

So a high risk investment that cost £11.4K goes sour – leaving him £300 better off.

And of course, there’s always the possibility, however remote, that his investment doesn’t do what we expect, and becomes the next Facebook.

Rather changes the concept of what constitutes a low risk investment.

But this only works for investments made this side of 5th April – so time is running out ……….

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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