A pension scheme can buy quoted or unquoted shares in a company based either in the UK or overseas.
An occupational pension scheme can buy shares in one or more of the employers participating in the scheme as long as both the following conditions are met:
the total value of the scheme funds invested is less then 20% of the net value of the pension scheme funds
the amount invested by the scheme in the shares of any one employer participating in the scheme is less than 5% of net value of the pension scheme funds
Any investment larger than this will be an unauthorised payment and both the scheme employer and scheme administrator will have to pay a tax charge on the amount above the limit.
So in theory, yes, it is possible, but in reality its likely to fail because:
An independent ‘Arms Length’ valuation will be required, for an unquoted small business or start up this is extremely difficult as establishing a market value for the shares will be difficult and often a start up will have losses in the first few years
The HMRC’s rules which govern all registered pension schemes (in particular the sections covering both taxable property and tangible moveable property) dictate that the combined shareholding in the unquoted company held between the pension fund, the member personally and any other connected persons must never exceed 19%, otherwise there would be enormous tax consequences for all concerned
The company concerned must not (and never should be in the future) controlled by the trustees of the pension fund in conjunction with connected parties
If the business needs the money to buy commercial premises for its trade it would be easier for the pension scheme (SSAS) to lend the money, a SSAS can lend up to 50% of net scheme assets as explained in in this fact sheet from Curtis Banks
If you are over 55, you could also consider drawing down funds from your pension, the first 25% will be tax free.
Sometimes even the best ideas don’t get funding at first….
But if you have the right strategy you can still succeed, that’s why a business plan is really important
Approximately a third of all SME’s in the UK don’t have a Business Plan, that’s about 1.5m businesses, so if you don’t have one, here are some reasons why you should prepare one….
Research by Exact Software shows that SME’s with Business Plans make 20% more profit
Having a business plan doubles your chances of increasing profits, increasing revenue, attracting new clients
A well-researched business plan which includes the right figures and realistic forecasts will reassure potential investors you are a sensible investment opportunity
A Business Plan will help you set out and achieve your goals
It will help you set goals for your managers and staff
The Business Plan will help you plan your cash flow and forecast Capital Expenditure
A Business Plan will help you secure Business Finance and Loans
You can plan your succession strategy or prepare the business for sale
A Business Plan tests the feasibility of your business idea
It will help you plan for the recruitment of Staff
There are many reasons why using a company to invest in residential property is good idea and Summer Budget 2015 made companies an even more attractive option.
1. Restriction of Mortgage Interest Tax Relief
Currently this is just a ‘Policy Paper’ but the plan 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.
Most investors will have multiple properties and high levels of borrowing.
Furnished Holiday Lets are excluded from the restriction – Official Policy
2. Corporation Tax Rates
The current rate of Corporation Tax is 20% but its falling year on year and by 2020 it will be 18%.
Not only that, its the same rate no matter how many companies you have, previously when there were multiple Corporation Rate if you had associated companies the small companies rate was reduce in a marginal rate calculation.
Individual tax rates are
Basic rate
20%
Up to £31,785
Higher rate
40%
£31,786 to £150,000
Additional rate
45%
Over £150,001
3. Capital Gains Tax
Capital Gains Tax is at 20% in companies (falling to 18% by 2020) and companies are allowed to apply HMRC Indexation Allowance to offset the effect of inflation.
Individuals get an annual allowance of £11,100 and basic rate tax payers pay 18% with higher rate tax payers paying a massive 28% with no indexation.
There are special rules for UK Companies owned by Non UK Residents.
There is no rollover relief for companies or individuals investing in Residential Property because investment isn’t a trading activity.
4. Stamp Duty
Stamp Duty (SDLT) on selling Shares is 0.5%.
Example – So £1,995 × 0.5% = £9.97. This is rounded up to the nearest £5, which means you pay £10 Stamp Duty.
Stamp Duty on Property Sales is calculated as follows
• No stamp duty will be paid on the first £125,000 of a property
• 2% will be paid on the portion up to £250,000
• 5% is paid for the portion up to £925,000
• 10% is paid on the portion up to £1.5m
• 12% is paid on anything above that
SDLT is charged at 15% on residential properties costing more than £500,000 bought by certain corporate bodies (or ‘non-natural persons’). These include:
companies
partnerships including companies
collective investment schemes
The 15% rate doesn’t apply to property bought by trustees of a settlement or bought by a company to be used for:
a property rental business
property developers and trader
property made available to the public
financial institutions acquiring property in the course of lending
property occupied by employees
farmhouses
The standard residential rate of SDLT applies in these cases. These exclusions are subject to specific conditions.
If 6 or more properties form part of a single transaction the rules, rates and thresholds for non-residential properties apply.
5. Inheritance Tax (IHT) and Potentially Exempt Transfers planning
One of the big benefits of Shares is that its easy to split ownership.
Potentially Exempt Transfers (PET’s) allow you to give away shares provided you survive more that 7 years after the transfer, shares make PETs easy and simple.
When you give away shares it will potentially trigger a capital gain but you will be able to use your personal capital gains allowance of £11,100 to offset this gain.
The supply of advertising to a charity is zero-rated. The zero-rating covers advertisements on any subject, including staff recruitment. A charity can also purchase pre-printed collecting boxes, envelopes and appeal letters at the zero rate. Low cost lapel stickers, emblems and badges that a charity gives in acknowledgement of a donation can also be zero-rated. More information can be found in Notice 701/58 Charity advertising and goods connected with collecting donations.
Any medium which communicates with the public. This includes all the conventional advertising media such as television, cinema, billboards, the sides of vehicles, newspapers and printed publications. The important factor is whether the advertisement is placed on someone else’s time or space. If it is not there will be no scope for zero-rating.
If space is sold to a charity for advertising on other items, such as beer mats, calendars, or the reverse of till rolls, this will also be covered by the zero rate. The sale of the items themselves will not be VAT free, unless they qualify for other reliefs for example as books or children’s clothing.
Recently I was asked if a website would be able to zero rated, but its specifically excluded under UK Law VCHAR11000
10B None of items 8 to 8C includes a supply used to create, or contribute to, a website that is the charity’s own.For this purpose a website is a charity’s own even though hosted by another person. 10C Neither of items 8 to 8C includes a supply to a charity that is used directly by the charity to design or produce an advertisement.
Yet again, we have another case on Pool Cars which could have been prevented had the right procedures been put in place.
The Case was decided in May 2015 and involved Mark and Trudie Holmes and their company KMS Logistics (UK) Ltd. The company owned 7 prestige cars which were used assist in maintaining and attracting clients.
There was no prohibition (not even a verbal one) on the private use of the vehicles, mileage logs showed that the cars were mainly used by Mr & Mrs Holmes. Until 2003/4 they had been declared as a benefit in kind but then the stopped being declared! There even seemed to be confusion over who owned the cars.
When you start a business its because you have a skill or product that clients want and most small businesses put off the accounting because they find it boring, time consuming and unproductive. This often causes huge problems with tax, cash and business management.
What if it wasn’t boring, what if it was easy and quick to do?
Apps for invoicing
Available every where all the time on all your devices
Automatic bank feeds to reduce data entry
Dashboards of key data
Easy access for you and your accountant
That’s why cloud accounting systems are the future. Take a look at this infographic produced by Sage.
Obi Wan Kanobi might not be you’re only hope, cloud accounting could save your business.
The Financial Reporting Council issued amendments (27th July 2015) to the UK accounting standards, ushering in a new financial reporting framework for small and micro-entities. The changes are mainly as a result of the new EU Accounting Directive.
The key changes are:
FRSSE has been withdrawn
FRS102 – A new section has been added to FRS102 with disclosure requirements for Small Companies
FRS105 will be the new reporting standard for Micro-Entities
The changes come into effect from 1st January 2016.
For example, Mr Jones (a 45% taxpayer) has a house with net rental income of £100,000 and mortgage interest of £90,000. Currently he would pay £4,500 income tax on profits of £10,000.
From April 2020, he’ll pay £27,000* income tax. This is calculated by applying his marginal rate of tax to his rental income (£100,000 x 45%) which gives a tax liability of £45,000 and offsetting this with tax relief claimed on the mortgage interest at the lower amount of 20% (90,000 x 20%) which would give tax relief of £18,000. This would leave Mr Jones with a tax bill of £27,000 (£45,000 less £18,000). The end result would be an overall annual loss after tax of £17,000, with insufficient cash flow to make repayments on his loan.
A company is not affected by these measures and therefore would receive full mortgage interest relief. Additionally, corporation tax is charged at 20% and is due to fall to 18% in 2020. Using the above example, a company would pay £2,000 currently and £1,800 from 2020; leaving sufficient funds to make repayments.
I have been blogging regularly for a few years now and last week http://www.stevejbicknell.com reached a staggering 200,000 hits and its growing in popularity every day, here are the Statistics for 2015, these are monthly numbers of views and the number that came to blog via a search engine.
I think its impressive that most of the hits are driven by being found in search engines, thank you Google!
I also have a large base of followers who get my blogs by e mail or follow the blog on wordpress.
So why do people read my blog?
Useful Content – I learned a long time ago that if you want followers and readers you have to write about things that will interest as wider audience as possible. My blog is about Accounting and Tax, which you might think is boring but it does affect everyone, we all pay tax! and there is plenty to blog about.
Accurate Content – Its important to get the content right but even if you do make a mistake you can bet your life someone will tell you. Fortunately most readers are very helpful and will also contribute suggestions.
Regular Posts – you have to post regularly, I post 2 or 3 times a week, I prepare them in advance and schedule them
Variety – I try cover a wide variety of topics and my audience appreciate it, I even get special requests
Pictures – Blogs without pictures, charts and graphics are boring
Share – Post your blogs every where on Social Media and encourage others to do the same
Pick a good title – The title will be found by search engines so try to think about what someone might search for
Video – You Tube has plenty and most people would love you to link to their video as it will increase their hits as well as yours
Infographics – I love infographics and I try to create my own when I have time
Keep it simple – Lets face it Tax is complicated, so I try not to make the blogs too complicated otherwise I will lose followers
