Tax
Incorporations
Tax is an important factor to consider in any land or property development project. The key objectives from a tax perspective can be summarised as being:
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identify any tax implications arising as a result of a project
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ensuring the appropriate amount of tax is payable as a result of a transaction and making use of available tax relief where possible
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confirming the deadline for payment of any tax liability and any option to pay via instalments
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ensuring that the legal documentation in relation to the transaction is reviewed from a tax perspective (to ensure that the legal documentation gives rise to the anticipated tax outcomes)
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ensuring the transaction is appropriately disclosed to help protect against a HMRC enquiry.
In order to achieve these objectives it is important that the tax structuring of a project is considered at an early stage. We therefore recommend that you seek professional advice in relation to your tax position. Should you not presently have an advisor with experience in this sector we have existing relationships with a number of advisers who have been involved in similar transactions and would be happy to put you in touch with them.
ADDITIONALLY THERE CAN BE A NUMBER OF LIFE EVENTS FOR WHICH WE REGULARLY SUPPORT CLIENTS. EXAMPLES THAT MAY RELEVANT TO YOUR CLIENTS INCLUDE:
DIVORCE
We are coming across more clients giving careful consideration to their financial position ahead of a marriage/civil partnership and entering into pre-nuptial agreements. From a tax perspective on marriage/civil partnership a couple become ‘connected’ to one another. As a result transfers between spouses are deemed to occur at no gain/no loss and often do not give rise to an Inheritance Tax event (dependant on the domicile of the individuals).
However, the capital gains tax exemption will not apply to taxpayers following the end of the tax year of separation (even if the divorce has not been finalised at this stage). The position is often not straightforward, therefore we would strongly recommend that couples seek tax advice as soon as possible to try and mitigate any tax costs where possible on a separation/divorce.
PRINCIPAL
PRIVATE
RESIDENCE
RELIEF
Where a taxpayer is selling or gifting their home (or a property which has been their home at some stage of ownership) they may be eligible for Principal Private Residence Relief (‘PPR’). This relief can result in a significant tax saving for many selling at a significant gain, as where available, PPR means that any gain is exempt for Capital Gains Tax purposes, saving tax of up to 28%.
There are a number of conditions that must be satisfied in order to secure relief and it is important that these are considered. In particular careful consideration should be given to cases where the property sold includes substantial grounds or gardens, including possible valuation issues arising where an element of these grounds is not eligible for PPR.
There can be a number of tax benefits for individuals owning properties which qualify as Furnished Holiday Lets (‘FHL’). Tax reliefs which may be available include: Entrepreneurs’ Relief, reducing the capital gains tax on a sale of the property to 10% (up to an individual’s lifetime limit of £10m); and Rollover Relief, deferring the capital gains tax charge where a tax payer purchases qualifying replacement assets. Taxpayers may also be entitled to capital allowances on certain assets, not available for general residential properties.
Additionally, profits arising from FHLs count as earning for the purposes of calculating the amount individuals are able to contribute to their pension. In order to maximise advantages that may be available for FHLs tax payers must be able to demonstrate that their properties meet HMRC’s conditions, including the occupancy criteria. We would be happy to support tax payers in establishing whether properties meet these conditions and possible opportunities to improve their position.
FURNISHED
HOLIDAY
LETS
We are working with clients affected by compulsory purchase orders, including HS2 and the Growth Arc as such transactions often give rise to a number of tax considerations. The good news is that there are a number of tax reliefs which can significantly reduce or eliminate a landowner’s tax liability. For example PPR Relief (detailed above) can result in a landowner’s compensation being wholly exempt for tax purposes.
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Where landowners are using their property for trading purposes, Rollover Relief which in qualifying compulsory purchase cases can apply to a much broader variety of property, can defer a landowner’s tax liability until such time as the replacement asset is sold. Additionally, Entrepreneurs’ Relief may be available such as to reduce the Capital Gains Tax rate to 10% on the gains within the landowner’s lifetime limit (up to £10m/person). We would therefore recommend that landowners seek robust tax advice as soon as possible to secure any tax relief available.
In addition, the tax treatment of payments received can be dependent on what the payment represents. Some forms of payment can be subject to income tax, presently at rates of up to 45%. We would therefore recommend landowners obtain advice on the tax treatment of the various elements of payments received so they can factor this into their negotiations.
COMPULSORY
PURCHASE
LAND DEVELOPMENT
& COLLABORATION
Our team are dealing with a of landowners who are joining together with their neighbours to form a block of land with the intention to generate greater interest from potential developers. As part of this process landowners are required to put in place a mechanism which governs how the proceeds secured will be equalised between the group. At present, the commonly used methods of achieving this is collaboration agreements between the landowners and land pooling trusts.
However, these options can have a number of undesirable consequences. As a result our team are working with landowners/promoters/developers to help structure collaboration agreements from a tax perspective, something we understand to be unique in the marketplace. The outcome being to achieve a position where there is not a double tax charge on the disposal of the land and the landowners are not required to transfer their land into trust, which could disturb any current structuring undertaken. Clearly, each case will be dependent on its particular fact pattern, however, we have been able to agree this treatment previously with HMRC.