PROPERTY STRUCTURING

Be it residential or commercial property, it can be a complex area with a number of variables and issues that need considering and there is almost never a quick “one size fits all” answer. This brief factsheet just provides an overview of some of the common scenarios and considerations, as well as some basic principles.

Intentions, short and long-term objectives: This is probably the first and most important question. Particularly, with the gap between corporate and personal tax rates having closed over the past few years, it is often necessary to perform detailed calculations over a defined period to “model” scenarios to see the overall net tax effect. The longer-term tax impact of a decision now, such as Inheritance Tax, may need to be highlighted. Often different tax effects may conflict.

Investment or trading? Intentions (which can change), have a large bearing on whether you are likely to be viewed as trading in properties (profits treated as income) or investing for the long term (gains on sale treated as capital).

What is the likely “end game”? Again, intention is key here. Sell property on? Pass to next generation on death?

Commercial considerations: Ignoring the tax impact, are there good commercial reasons for holding property in a company for example? e.g., risky development project. Also, are there mortgages to consider with high redemption fees which outweigh possible tax savings?

What is the current position and ownership structure? The answer to this will affect the tax cost of moving to another structure, and valuations will be important.

Flexibility: consider potential flexibility in a company structure to share income profits from rents and gains in different proportions each year, and gifting for Inheritance Tax (IHT) planning. Can be easier than gifting part interests in properties.

What type of property? Residential or commercial? Mixed use? This has an impact on various taxes, such as Capital Gains Tax (CGT) if selling, Stamp Duty Land Tax (SDLT) when buying, and VAT rates that may apply on either the property itself or construction work etc.

Consider all the taxes – VAT, SDLT, IHT, CGT, Corporation tax, Annual Tax on Enveloped Dwellings (ATED), 30 days from completion deadline for CGT on sales of residential property etc?

Anti-avoidance rules: In the last few years there has been a widening of UK anti-avoidance legislation for certain transactions in UK land/property, and gains can be treated as income where you might think Capital Gains Tax applies. Also, there are rules to tax “enveloped land trading/dealing”, for example where shares in a “property interest” company are sold rather than the property itself, with corporation tax applied on a “look-through” basis.

(The above is based on legislation currently in force and is not to be construed as formal tax advice).

At RS we specialise in helping owner managers achieve the right structure for their business, no matter what route they decide to take. For more articles on business tax see here Or book a free consultation with our tax director Jon Miles. Or call Jon on 01225 325580 or email JM@richardsonswift.co.uk