Month: February 2016

Now we have Deferred Tax on Investment Properties!

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FRS102 has led to many changes in the way we account for things and investment property is a prime example.

The fair value of investment properties changes over time, generally, it goes up in value.

The reporting of gains and losses under old and new UK GAAP differs fundamentally.

Under FRS 102, annual changes in the fair value of Investment Properties are taken to profit or loss, whereas under SSAP 19, equivalent gains and losses were taken in most cases to the Statement of Recognised Gains and Losses. This may have a significant impact on reported performance. The resultant earnings volatility may need to be explained to lenders and other users of the accounts.

http://www.icaew.com/en/members/practice-resources/icaew-practice-support/practicewire/news/investment-properties-all-change-under-frs-102

FRS 102 removes some of FRS 19’s exemptions from recognising deferred tax. As a result, in contrast to current UK GAAP (that is, FRS 19), companies will often need to recognise significant deferred tax liabilities on revaluation gains.

The tax won’t be payable until the gain is realised.

Many property investors are likely to switch to Micro-entity accounting because its much simpler and doesn’t require property revaluations and deferred tax.

Why property investors like Micro Entity Accounts

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What types of property can a SIPP or SSAS Pension invest in?

Buildings in the isometric

Pensions are highly tax efficient and you can purchase Commercial Property, the main examples of types of property your pension could buy are

  • Industrial units
  • Offices and shops
  • Farmland and forestry
  • Public houses
  • Nursing homes
  • Hotels
  • Marine berth

The things you can’t buy are residential property, holiday property, caravans, beach huts, basically, if you can live in it then it will probably be difficult to put it your pension.

Buying a commercial property can be a great investment opportunity, I have been investing in property since 2002 as part of a small pension syndicate of friends and family we are currently invested in an Office Block and 6 Retail Units, we also bought some properties into separate companies and did originally have HMO’s too.

The yield on commercial property is often around 8% to 10% and you can borrow into your pension to help fund the purchase.

Your business can rent a commercial property from you and many owner managed businesses have transferred company owned premises to a SIPP or SSAS.

There have been some very interesting deals done for example

From a music studio in Costa Rica to a yacht berth in the south of France, Sipp (self-invested personal pension) providers report an ever-growing list of exotic assets being bought with pension money to fund investors’ dream business ventures.

Yacht de luxe.

For aviation-mad Tony Fowler, a property developer from West Sussex, the acquisition of a 50pc stake in the Isle of Wight airport through his Sipp means he can fulfil his passion for flight while at the same time investing for his retirement.

Plane and Airport Flat Design Illustration Icons Objects

“A friend and I have paid half each of the total purchase cost of £635,000,” he said. “I was delighted when I found I could use money in my pension to buy the airport. It had been taken over by the receivers and was going to be closed down, but now it is being renovated and improved. We like to think it will bring something to the local economy as well.”

http://www.telegraph.co.uk/finance/personalfinance/pensions/10451405/How-I-bought-an-airport-with-my-pension.html

steve@bicknells.net

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Time to prepare for tax year end April 2016

Fotolia_91134201_XS Advice

Now you have filed your April 2015 Return (50% will have been filed in January 2016) you only have 2 months left to take action to save tax on your April 2016 tax return.

What should you be doing right now to save tax?

Contribute to your Pension

Transitional rules, for 2015/16 only, mean that there’s an annual allowance of £80,000, although only £40,000 of this can be used between 9 July 2015 and 5 April 2016. You may also have unused annual allowances from the three previous tax years.

These Transitional rules are to align PIP’s (Pension Input Periods) with the Tax Year.

Pensions have huge tax saving advantages

How a family pension scheme will save you tax

Optimise your 2015/16 Salary

You can’t carry forward any unused personal allowances so generally the optimum salary will be £10,600

What is the optimum tax efficient salary 2015-16?

Take Dividends now

When you take dividends has never been more critical due to changes in the Summer Budget 2015, so if you have distributable reserves you might want to take more dividends this tax year.

Dividend tax rates before April 2016

Tax band Effective dividend tax rate
Basic rate (20%) (and non-taxpayers) 0%
Higher rate (40%) 25%
Additional rate (45%) 30.56%

 

This will change from April 2016, see the table below

Dividend tax rates after April 2016

Tax band Effective dividend tax rate
Tax Free £5,000 0%
Basic Rate Tax Payers (20%) 7.5%
Higher Rate Tax Payers (40%) 32.5%
 Additional Rate Tax Payers (45%)  38.1%

 

Capital Gains Tax Allowance

Each year individuals get a capital gains tax allowance, this year its £11,100. If you have capital gains it could worth phasing them to use up the capital gains tax allowance.

Here are some great blogs on how you could transfer a personally owned property or sell shares in a property company to take gains in stages

http://stevejbicknell.com/2014/08/13/how-do-you-give-away-property-in-stages/

http://stevejbicknell.com/2015/08/24/5-reasons-why-you-need-a-property-investment-company/

Other Ideas

steve@bicknells.net

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