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Most residential flats are owned on Long Leasholds but this creates tax issues – Stamp Duty, Capital Gains, Income Tax/Corporation Tax.
Fortunately ESC/D39 can be applied to Lease Extentions
In practice, the surrender of an existing lease and the grant of a new lease should not be treated as a disposal for Capital Gains Tax purposes if the taxpayer so wishes and all of the following conditions are satisfied:
- the transaction, whether made between connected or unconnected parties, is made on terms equivalent to those that would have been made between unconnected parties bargaining at arms length;
- the transaction is not part of or connected with a larger scheme or series of transactions;
- a capital sum is not received by the tenant;
- the extent of the property under the new lease is the same as that under the old lease;
- the terms of the new lease (other than its duration and the amount of rent payable) do not differ from those of the old lease. Trivial differences should be ignored.
The terms of a particular lease may provide for its extension if the tenant so requests. If such a request is made, the extension of the lease does not have any immediate Capital Gains Tax consequences.
In 2002, Commonhold was introduced in the Commonhold and Leasehold Reform Act 2002 (CLRA 2002). Commonhold can be applied to both Commercial and Residential buildings.
The advantage of commonhold is that it gets rid of the concept of the declining asset – sellers and purchasers of commonhold properties will no longer have to worry about how many years are left on the lease.
Under the commonhold system, all flat owners will automatically be members of a company – the Commonhold Association – that owns the freehold and thus the block.
This means that it should be easier to run the building for the benefit of the flat owners.
However, blocks of flats will still need to be managed.
And as a form of community ownership, commonhold brings with it various tensions.
To alleviate any possible problems, members will have to sign up to a “Commonhold Community Statement”.
This statement will set out all the rules and regulations you normally find in a lease, for example rules about subletting, pets, noise and use of gardens.
Which is better?
Most residential properties (dwellings) are owned directly by individuals. But in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.
ATED is a tax payable by companies on high value residential property (a dwelling). It came into effect from 1 April 2013 and is payable each year.
Budget 2014 announced a reduction in the threshold from £2 million to £500,000 to be introduced over 2 years. From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million with an annual charge of £3,500.
Chargeable amounts for chargeable period 1 April 2014 to 31 March 2015
|Property value||Annual chargeable amount 2014 to 15|
|More than £2 million but not more than £5 million||£15,400|
|More than £5 million but not more than £10 million||£35,900|
|More than £10 million but not more than £20 million||£71,850|
|More than £20 million||£143,750|
There are reliefs that might lead to you not having to pay any ATED. You can only claim these by completing and sending an ATED return.
A dwelling might get relief from ATED if it is:
- let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
- open to the public for at least 28 days per annum, if part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property
- part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
- part of a property developers trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
- for the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10%, the employee’s duties must not include services for any present or future occupation of the property by someone connected with the company, the relief is also available where a partner in a partnership does not have an interest of more than 10% in the partnership
- a farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner
- a dwelling acquired by a financial institution in the course of lending
- owned by a provider of social housing
Alternatively in some cases it might be better to own the property as an individual or jointly with other individuals.
As joint tenants (sometimes called ‘beneficial joint tenants’):
- you have equal rights to the whole property
- the property automatically goes to the other owners if you die
- you can’t pass on your ownership of the property in your will
- you can only sell or remortgage the property with the other owners’ agreement
Tenants in common
As tenants in common:
- you can own different shares of the property
- you can pass on your share of the property in your will
- you can stop one owner from selling or remortgaging the property without the other owners’ agreement
The main source for this blog was HMRC
Land Remediation Relief is a relief from corporation tax only. It provides a deduction of 100%, plus an additional deduction of 50%, for qualifying expenditure incurred by companies in cleaning up land acquired from a third party in a contaminated state.
The tax releif is available on both commercial and residential developments.
Qualifying Land Remediation Expenditure can be claimed for tackling pollution, natural issues, such as radon, arsenic or Japanese Knotweed or remediating long term derelict land.
Asbestos is a common issue and qualifies for Land Remediation Relief….
Legislation in The Control of Asbestos Regulations 2006 and The Control of Asbestos Regulations (Northern Ireland) 2007 governs the way that asbestos is removed.
As a result additional costs may be incurred in containing the asbestos and dust during removal.
For example, a licensed contractor must be employed to remove high risk material, such as pipe insulation or asbestos insulating panels.
The additional costs incurred in order to comply with the regulations are part of the cost of removing the asbestos and so may qualify for Land Remediation Relief.
So you don’t have to be Indiana Jones to discover value in your land…
If you work in town or city parking costs can be high.
So if your employer gives you a parking space its a big help.
There is a tax exemption (tax and NI) for parking facilities that are within a reasonable distance of where you work and its not restricted to on-site parking.
The parking space can also be used in the evenings and weekends and isn’t restricted to the nearest car park.
You can also use Salary Sacrifice.
See EIM 21685 for further details
So yes its tax free, so why is there any confusion?
Well a few years ago (2009), we had stories like….
Commuters who drive to work face a new ‘parking tax’ of up to £350 a year.Ministers are backing a ‘workforce parking levy’ which will come into force in Nottingham in 2012 – and is likely to be adopted across the country.
The pilot scheme will see firms with more than ten parking places for staff charged £250 a year for each, rising to £350 in two years.
FA2008 introduced a new classification of integral features of a building or structure, expenditure on the provision or replacement of which qualifies for WDAs at the 10% special rate. The new classification applies to qualifying expenditure incurred on or after 1 April 2008 (CT) or 6 April 2008 (IT).
The rules on integral features apply where a person carrying on a qualifying activity incurs expenditure on the provision or replacement of an integral feature for the purposes of that qualifying activity. Each of the following is an integral feature of a building or structure –
- an electrical system (including a lighting system),
- a cold water system,
- a space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system,
- a lift, an escalator or a moving walkway,
- external solar shading
Only assets that are on the list are integral features for PMA purposes; if an asset is not one of those included in the list, the integral features rules are not in point.
However, Plant and Machinery includes….
other building fixtures, such as shop fittings, kitchen and bathroom fittings
Many businesses have never claimed capital allowances for these items.
Paragraph 13 of Schedule 10 FA2012 introduced transitional provisions for making claims.
The provisions mean that where the current owner incurs expenditure on acquiring fixtures from a past owner before 1 (or 6) April 2014 and the past owner has not claimed allowances or pooled their expenditure in respect of a qualifying fixture, the current owner may claim PMA on the part of the price the paid which is attributable to that fixture….. CA26470
It is possible for the buyer to use apportionment of the sale price (usually done by an RICS Surveyor) to determine the value of the fixtures. But this risks clawback of balancing charges for the seller.
A alternative option is to claim a Section 198 election which can be entered into within 2 years of the date of the property sale. It must be signed by the buyer and the seller and must identify the items covered. The elected value can be between £1 and the price paid, but makesure you undertand the implications of the price choosen.
As a Section 198 requires agreement you may wish to take legal advice.
The Section 198 needs to made in writing to HMRC.
The following can’t claim a Section 198:
- Property Traders
- Pension Funds
But if you can claim you need to claim now as there are only a few weeks left until April 2014.
This was first announced in December 2013 and £100m of funding has been allocated.
Broadband Connection Vouchers will be available in 22 SuperConnected Cities across the UK. Click here to see where they are. If your city isn’t offering vouchers yet, use our Register your Interest form to let us know that you are.
- Connection Vouchers help your business connect to a better broadband service.
- You can apply if you are a small business and you are located in an eligible area. See more in our Can I apply? section and try the postcode checker.
- The Connection Voucher will pay towards the fixed cost of getting you connected -between £250 and £3,000 – you pay the ongoing line rental charge.
- Not sure if you need to upgrade your broadband? See why other businesses have made the decision to upgrade.
- You can choose from a list of registered suppliers. Take a look a the link on the right to the suppliers in your city.
- You can find out how to apply from your local city pages – use the links on the right of the page.
- Want to be a supplier? Read more and find out how to register.
R&D Tax Credits: Patent Box And Property Embedded Fixtures And Fittings Allowances For Commercial Properties Are Leading Government Policy Aims For UK Firms.
It is little recognised and few know very much about these very valuable and available policies for British companies. I can say this on the basis of the latest statistics published recently showing the takeup of R&D Tax Credits. Although there is improvement, the scheme is still under used and sets the UK among the lower spenders on research and development. I will remind readers that this state of affairs is not down to Government policy in the matter: no, it is the failure of directors and companies to find out and make claims for the three areas of support I set out above.
The challenge remains: what to do about the reluctance of British companies to take advantage of that which is put there for their support? There is a body of support and expertise available to SMEs and LCs. This consists of companies willing and able to work with companies’ own accountants and to represent and interact fully with each of the seven Special R&D Units run by HMRC.
Infrastructure is in place, the schemes for takeup are in place and functioning: it is up to directors to contact us, or contact someone and find a way forward for their firms. They owe this to themselves and to their shareholders and clients.
Working from home is a popular option for business owners and employees. Assuming you need to create office space you could either convert an existing room, loft, or garage or build a new structure in the garden.
- Estimate the amount of Business & Personal Use – you can only reclaim VAT on the Business Use proportion – you might have 100% business use if you were building an office in the garden. HMRC’s published and internal guidance states,
“Where a domestic room or rooms is put to business use, you may agree to an apportionment using an objective test to the extent to which the room is put to business use” http://www.hmrc.gov.uk/manuals/vitmanual/vit10000.htm, and VAT Notice 700, Section 33,
- The invoice should be in Business Name
- You can reclaim 100% VAT on Office Equipment used entirely for business purposes (if you reclaim VAT you need to charge VAT if you sell the equipment)
- If you then sell your home to a buyer who wants to use the premises as part of their dwelling you don’t charge any VAT as it will be exempt
Capital Allowances are not given on land and building but you could claim for integral features, assets and equipment. Sole Traders and Partners can exclude a proportion for private use.
Benefit In Kind
Directors and Employees who have personal use of the assets will incur tax as it will be a benefit in kind. So it might be better to keep business assets for business use only to avoid this tax. Here is my blog comparing Directors Loans to Use of Assets http://stevejbicknell.com/2012/04/14/directors-loan-vs-private-use-of-company-assets/
You can claim a proportion (based on the number of rooms and hours of business use) of your household expenses
- Mortgage interest or rent
- Council tax
- Water rates
- Repairs and maintenance
- Building and contents insurance
- Gas, oil or other heating costs
- Telephone (based on usage)
You can draw up a home rental agreement to reclaim these costs, or claim expenses, or if the use is minimal you might find it easier to claim £4 per week as suggested by HMRC.
Here are some examples http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm
Capital Gains Tax
Your principle private residence is exempt from capital gains but your home office won’t be if its exclusively used for business, but it will only be a small proportion of the property value and as such any gain will probably be covered by your annual allowance £10,600 (2012/13) if you are a sole trader or partner, if not your company could have a small amount of capital gains tax to pay if a gain is made.
If you are a sole trader or partner and there is a private use element to your home office then the office will be exempt.
Other Issues to consider
Planning Use -You might wish to apply for a Certificate of Lawfulness (Proposed)
for a change of use, for example if you wanted to use a single room in a dwelling house as an office. http://www.stalbans.gov.uk/Images/householders_guide_to_lawful_development_certificates_tcm15-2087.pdf
Insurance – you will need to inform your home insurance company that you now have a home office