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Can a Residential Property Investor use Incorporation Tax Relief?
There are many reasons why residential property investors are now rushing to incorporate, the biggest reason being the Restriction of Mortgage Interest Tax Relief.
Clause 24 of the Finance Bill sets out plans is to restrict individuals on claiming mortgage interest as a cost against their property investment income, for individuals it will work as follows
2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%
2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%
2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%
2020/21 100% will get only 20% relief
For a 20% tax payer that’s fine but for higher rate taxpayer its a disaster that will lead to them paying a lot more tax
These rules will not apply to Companies, Companies will continue to claim full relief.
When you sell or give a residential property to your Company you will incur Capital Gains Tax if you make a gain, its for this reason many investors and their advisers believe that they are ‘automatically’ entitled to claim Incorporation Tax Relief, but in many cases Incorporation Tax Relief will NOT be available!
In summary Incorporation Tax Relief allows Sole Traders to postpone/hold over a gain by transferring all their business assets into a limited company in return for Shares.
The key problem area is the Property Investment is generally not considered to be a Trade.
Some of the issues were resolved in EM Ramsay v HMRC [2013] UKUT 0226 (TCC)
Mrs Ramsey carried out the following activities
- Mr & Mrs Ramsey personally met potential tenants
- Mrs Ramsey check the quarterly electric bills
- Mrs Ramsey arranged insurance
- Mrs Ramsey arranged and attended to maintenance issues (drains)
- Mrs Ramsey and her son maintained the garages and cleared rubbish
- Mrs Ramsey dealt with post
- Mrs Ramsey dealt with fire regulation issues
- Mrs Ramsey arranged for a fence to be erected
- Mrs Ramsey created a flower bed
- Shrubs were pruned and leaves swept
- The parking area was cleared of weeds
- The flag stones were bleached
- Communal areas were vacuumed
- Security checks were carried out
- She took rubbish to tip
- She cleaned vacant flats
- she helped elderly tenants with utilities
This work equated to at least 20 hours per week and Mrs Ramsey had no other employment.
It is because she did the work herself that her property investment was considered a ‘Business’ and eligible for Incorporation Tax Relief. In summing up the Judge said…
If Mrs Ramsay had employed a Property Management Company or Letting Agent to do the work she would NOT have been able to claim ‘Incorporation Tax Relief’.
Most Buy to Let Landlords with one or two properties are Passive Investors who delegate all the responsibilities to professional letting agents, they will not be doing enough to comprise a business!
Will TAAR cause you problems on company distributions? (New Share Rules)
HMRC are currently consulting on new rules to start in April 2016.
The consultation is focusing on Capital Gains Tax (CGT) ways to extract money from companies to create Target Anti Avoidance Rules (TAAR) covering:
- A disposal of shares to a third party
- A distribution made in a winding up
- A repayment of Share Capital including Share Premium
- A valid purchase of own shares in an unquoted company
Here are the examples of ‘problems’ HMRC want to resolve, Example 1 is ‘moneyboxing’ and/or ‘phoenixism’ and sometimes involves ‘special purpose vehicles’
Example 2 involves creating a holding company…
The consultation ends on the 3rd February 2016, the results are likely to be controversial!
steve@bicknells.net
2016/17 rules on the tax free allowance for Sandwiches
What are business journeys (HMRC definition)
You can only get tax relief on the cost of business journeys. These are when, as part of your job:
- you have to travel from one workplace to another – this includes travelling between your main ‘permanent workplace’ and a temporary workplace
- you’ve got to travel to or from a certain workplace because your job requires you to
But business journeys don’t include:
- ordinary commuting – when you travel between your home (or anywhere that is not a workplace) and a place which counts as a permanent workplace
- private journeys – which have nothing to do with your job
steve@bicknells.net
Have you heard of the new Personal Savings Allowance (PSA)?
From April 2016 the new Personal Savings Allowance (PSA) will start.
The PSA will apply to all non-ISA cash savings and current accounts, and will allow some savers to receive a generous portion of their interest totally free of tax.
Its expected that 95% of savings will no longer be taxed.
Basic rate taxpayers will receive £1,000 in savings income tax free, higher rate taxpayers get a band of £500 and additional rate tax payers get nothing.
The current TDSI (tax deduction scheme for interest) will stop.
steve@bicknells.net
Small businesses to benefit from extended Funding for Lending scheme
The Bank of England and HM Treasury have announced a two-year extension to the Funding for Lending Scheme.
The Bank and HM Treasury launched the Funding for Lending Scheme (FLS) on 13 July 2012. The FLS is designed to incentivise banks and building societies to boost their lending to the UK real economy. It does this by providing funding to banks and building societies for an extended period, with both the price and quantity of funding provided linked to their lending performance.
The FLS allows participants to borrow UK Treasury Bills in exchange for eligible collateral, which consists of all collateral eligible in the Bank’s Discount Window Facility.
The Bank and HM Treasury announced an extension to the FLS on 24 April 2013, which was amended on 28 November 2013, on 2 December 2014 and on 30 November 2015. This allows participants to borrow from the FLS until January 2018, with incentives to boost lending skewed towards small and medium sized enterprises (SMEs).
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/194214/fls_infog.pdf
Crowdfunders have also been able to access Funding for Lending via the Business Finance Partnership Program
steve@bicknells.net
Tax Free Childcare from 2017
Tax-Free Childcare will be available to around 2 million households to help with the cost of childcare, enabling more parents to go out to work, if they want to, to provide greater security for their families.
In summary:
- The new scheme will start in early 2017
- You will open an online GOV.UK. Tax-Free Childcare account
- For every 80p paid in there will be a top up of 20p. The government will top up the account with 20% of childcare costs up to a total of £10,000 – the equivalent of up to £2,000 support per child per year (or £4,000 for disabled children). You or anyone can pay in whenever and whatever amounts you choose.
- Its available for children under the age of 12 or 17 if disabled
- Parents must be working and earning between £100/week and £100,000/year, there will be a 3 month checking process.
- Any working family can use Tax-Free Childcare, provided they meet the eligibility requirements. Its not dependent on your employer offering a scheme. Its also available to self employed parents and those of paid sick leave, SMP, SPP and Adoption leave.
- You will also have the option to continue with an employer supported scheme
- If you need to you can withdraw the 80p part paid in
You find more details at Gov.UK
steve@bicknells.net
10 things a Business Accountant will tell you when you start your own business
According to Government figures, there has been a net increase of 146,000 businesses in the past year, taking into account all start-ups, closures, takeovers and mergers. It means more businesses have started than closed.
The Business Population Estimates also show the number of businesses that employ people has grown for the second year running, with 35,000 more at the start of 2015 than in 2014.
Small businesses continue to make up 99.3% of all businesses and generate over £1 trillion turnover for the UK’s economy.
Business Accountants (Association of UK Accountants) are Chartered Management Accountants (CIMA) and when you start your new business they are will tell you:
- Choose the right business structure for your business – most businesses start out as sole traders but once they start making profits convert to limited companies, this is because sole traders pay more tax than company structures
- Choose the best VAT Scheme
View original post 126 more words
Extra 3% Stamp Duty on Buy to Lets – but what if you have a property company?
A 3% surcharge on stamp duty when some buy-to-let properties and second homes are bought will be levied from April 2016.
This means it will add £5,520 of tax to be paid when buying the average £184,000 buy-to-let property. The new charge would have hit 160,000 buyers if it had applied last year.
George Osborne said the new surcharge would raise £1bn extra for the Treasury by 2021.
But, commercial property investors, with more than 15 properties, are expected to be exempt from the new charges.
Stamp Duty on Selling Shares is 0.5% so why aren’t more investors buying property into companies and then selling the shares in the company!
See my blogs, click to read
5 reasons why you need a Property Investment Company!
10 ways to pay less Property Tax (Investors)
steve@bicknells.net
Accountants – Would an auto enrolment pre-assessment tool be useful?
Auto Enrolment is now in full swing and starting to affect small and micro employers. Many of these employers do not understand auto enrolment and do not want any ongoing involvement with the process. A key concern for small and micro employers is how much auto enrolment will actually cost their business.
With auto enrolment, employers are faced with additional ongoing costs, including the employer contributions each pay period. What is the easiest and most accurate way for an employer, or a bureau on their behalf, to calculate these costs?
BrightPay have developed a pre-assessment tool, which enables users to automatically prepare a pre-assessment report. This report is useful to send to clients 6 months in advance of their staging date, giving the employer a preview of what auto enrolment will look like when they reach their staging date.
The pre-assessment tool uses employee details from the current pay period to provide an estimate of what auto enrolment might look like at the time of staging. The report will include details of each employee’s auto enrolment worker category, along with their pensionable pay, qualifying earnings, employee contributions and employer contributions. Watch BrightPay’s Pre-Assessment video.
PDF Example: Pre-assessment Report
The amounts are subject to change, depending on non-eligible or entitled workers choosing to join the scheme and fluctuations in employee pay.
The report can be exported to PDF and also includes some general information about employee assessment, including definitions of worker categories, qualifying earnings and minimum contribution rates.
This is an ideal document to send to clients in advance of their staging date, giving them an idea of how much auto enrolment will cost them at each pay period thus allowing them to plan accordingly. For example, the report may show that the employer has no eligible jobholders, and so is not required to set up a pension scheme.
BrightPay will also allow you to create a post-assessment report. After staging, the assessment report will give you a snapshot of what auto enrolment looked like on the staging date, highlighting the assessment date, the employee worker categories and postponed employees.
PDF Example: Post-assessment Report
Video: You can see how BrightPay’s pre-assessment tool works here.
BrightPay Payroll and Auto Enrolment Software
Do you make it easy for clients to pay you? or have to chase payment!
Slow payment is major issue for small business.
Research shows that British SMEs are having to wait an average of 41 days longer than their original agreed payment terms before invoices are paid. (source: BACS)
To get paid faster why not include a pay now button on your invoice
http://www.sagepay.co.uk/our-payment-solutions/get-paid-faster
https://www.paypal.com/paypalme/grab
steve@bicknells.net
Business Accountant 