Property Taxation Practical Issues

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Property Taxation Practical Issues

• Julian Smith

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When is tax relevant?

• Acquisition of property
• Refurbishment of property
• Disposal of property

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Which taxes are relevant?

• Income or corporation tax
• Capital gains tax
• Inheritance tax
• VAT
• Stamp duty land tax

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Types of property

• Freehold
• Leasehold
• Grant at a premium
• Assignment
• Long
• Short

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Types of ownership

• Personal or partnership
• Trading company
• Investment company
• Other e.g. Trust or pension scheme

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Intentions for the future

• Hold long or short term
• High income yield?
• Capital growth potential?

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Acquisition of property

• Leases relief for rent and a proportion of any
  premium on the grant of a long lease
• Interest on a loan to purchase business premises
• Professional expenses and SDLT
• Refurbishment
• Capital allowances

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Refurbishment

• Revenue expenditure
• examples
• Capital
• Capital allowances or not?

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Capital allowances

• Plant and machinery
• What qualifies
• Rates
• Special categories of expenditure
• Landlords fixtures
• Industrial Buildings Allowances

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Personal ownership income tax

• Rent from company (after interest and expenses)
  taxed at marginal rate

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Personal ownership - CGT

• Taper relief
• If business asset, 75 relief after 2 years
• Annual exemption
• Losses
• Spouse

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Personal ownership - IHT

• Business property relief at 50 (max)
• Payment of IHT by instalments
• Relief for decrease in value

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Company ownership

• Corporation tax relief at 0 to 30
• Corporation tax on gains
• 0 to 30
• Indexation allowance (RPI)
• Extraction of funds

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Company ownership - IHT

• Business property relief at 100?
• Wholly or mainly a trading company?
• Excepted assets restriction

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Strategy

• Timescale for realising your investment
• Part of a wider property business?
• Revenue or capital returns

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VAT

• No VAT on disposal of commercial property unless
  Option to tax exercised
• If option exercised, VAT due (SDLT based on VAT
  inclusive figure)
• Transfer of business as going concern
• Sale within three years of construction
• Capital goods scheme

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Stamp Duty Land Tax

• 1 December 2003
• Rates for commercial property
• Rates for leases
• Chargeable consideration
• Disadvantaged areas

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Trusts

• Income tax at 40 or basic rate (depending on
  type of trust)
• Capital gains tax at 40 for all trusts
• Subject to taper relief

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Pension schemes

• No tax on income
• Locked in
• Pension changes 1 April 2006

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Other issues

• Use of limited liability partnership?
• Reverse premiums
• Rent free periods
• Payment for dilapidations
• Provisions

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Summary

• Maximise qualifying expenditure on acquisition
• Structure ownership to minimise ongoing tax
  liabilities
• Manage disposal tax efficiently