We have covered this topic before in Are property transfers between spouses taxed?
That blog discussed Capital Gains and SDLT.
We also explained the process in this blog How do you share property ownership income between spouses?
That blog covered Form 17 and Declaration of Beneficial Interest
Today there was a great blog from Croner Taxwise that I wanted to share it
Can I assign the income from my investment property to my spouse so it is taxed at a lower rate?
A. Due to the abundance of legislation that applies to land transactions and gifts, various tax implications are of concern.
Where only an income stream is transferred and the transferor retains an interest in the capital value of the property generating the income, the income is treated for income tax purposes of the income of the transferor under the settlement legislation at ITTOIA 2005 s.624.
To effect a transfer of the income stream and achieve the client’s objective, the transferor must also transfer a proportionate capital interest. To transfer 50% of the income stream effectively, a 50% interest in the capital value of the property also must be transferred.
Capital assets are transferred between spouses at nil gain or loss for capital gains tax purposes. The deemed consideration is so much as would secure a net gain of £0 after accounting for enhancement expenditure, costs to transfer, etc. There are exceptions to this rule where the spouses are not living together so do not assume tax neutrality will apply.
Take additional care where the property in question was previously the main residence of the transferring spouse, as private residence relief may be inadvertently lost. A transferee spouse will only acquire the ownership and occupation history of the transferor where the property is transferred whilst it is the main residence of both spouses (TCGA 1992, s.222(7)). If the property is not their main residence, a gain which would have been 100% relieved in the hands of the transferring spouse will come into charge on a future disposal by the acquiring spouse.
The final tax charge to consider is Stamp Duty Land Tax. There is no exemption from SDLT for transfers between spouses. SDLT is chargeable where the acquiring spouse provides consideration for their interest in the property, including assuming liability for debt.
Although not technically a tax issue, it is of note that a transfer of beneficial ownership of a property does not require a conveyance of legal title. Although a trust arrangement does not need to be written to be effective, a written declaration which is signed and dated can prevent disputes with HMRC over the validity and commencement of the transfer, particularly where income continues to be deposited into a joint bank account.
Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).
The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.
HMRC make it easy to join CIS but its hard to find the instructions on how to leave or cancel CIS.
For those who have struggled to find the instructions here they are
If you stop trading or using subcontractors
stop filing monthly CIS reports
Do this even if you’ve stopped using subcontractors temporarily, for example because you’re using your own employees to carry out work.
In general I find a letter works best as you can send it recorded delivery and prove it was sent, you write to this address
National Insurance Contributions and Employers Office
HM Revenue and Customs
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In business everything is run by dates.
There are so many filing and payment dates its hard to keep track of them and if you are an accountant the problem is multiplied by the number of clients.
We use inform direct for all the companies we work with, its a brilliant system that monitors everything for you and helps you produce the paperwork needed.
On their website they have published the 2018 Review of UK Company Formations
634,116 new businesses were formed in the UK in 2017.
52,411 businesses registered in Dorset at the end of 2017.
On the 28th February 2018, MSN and the Daily Mail reported
Experts warn of buy-to-let crunch as landlords sell off unprofitable properties and hike rents
David Cox, ARLA Propertymark chief executive, said it pointed to ‘a rough ride’ for renters in 2018.
‘Housing stock is falling as rising taxes continue to force established landlords out of the market and deter entry into the sector,’ he said.
‘And the volume of renters is increasing as the cost of buying a home is moving further out of reach for many. The fact that one in five tenants is experiencing rent increases is just another blow.
‘Ultimately, until the prospect of investing in the buy-to-let market is more attractive for prospective landlords, and stock subsequently increases, tenants will continue to feel the burn.’
We have known for some time that Landlords have been hit hard by recent tax changes:
- Clause 24 restricting relief for interest
- 8% extra capital gains tax
- 3% extra stamp duty
How much extra tax do Property Investors pay?
We also know that Companies are a better way to invest in property for most investors because
- Clause 24 doesn’t apply
- The extra 8% capital gains tax doesn’t apply to Share Sales
- The stamp duty on shares is 0.5%
It hardly surprising that individual property investors will be increasing rent to cover the extra taxes.
Some landlords with high levels of borrowing will definitely start selling off properties to avoid clause 24, which will lead to some landlords becoming insolvent.
How will Clause 24 affect you?
But for those Landlords investing via Companies, the higher rents will lead to enhanced profits.
Croner Taxwise question of the week covered this
My client purchased a small industrial unit in 2010 on which he was charged VAT. He lodged an option to tax on the building and charged the tenant VAT on the rent. The last tenancy expired in 2014 but he found he could not get a new tenant easily because the unit was built in the early 1970s and businesses looking to rent space were more attracted by newer units with modern facilities. My client decided that to reap real benefit from the investment he would demolish the existing unit and build a new one on the site, which would then command a higher rental figure. He has now done this at a cost of around £100,000 and is ready to market the unit for rental. He is assuming that he will not charge VAT on rents to any new tenant as he has not lodged an option to tax on the new property. Is he able to do this?
Legislation on the option to tax underwent some changes in 2008 and since then it has no longer been possible to opt land and buildings separately. This means that the option to tax made on the unit in 2010 covers not only the original unit, but also the land on which it was built and also to any buildings later constructed on that land if the original building is demolished. Therefore in your client’s case, as he opted to tax the unit, the option is still in force and will apply to his supplies of the new unit, and allow him input tax recovery on the redevelopment.
The corollary is also true that if he had placed an option to tax on the land then that option would apply to any buildings on the land at the time of the option and to any future buildings constructed on the land. However, where the option to tax has been made on land, rather than on a building, it is possible to exclude a new building constructed on the opted land from the option to tax, provided the new building is not within the curtilage of any existing building. Notice 742A explains how this is done in paragraph 2.7.
VAT Notice 742A
2.4 What is covered by the option to tax?
2.7.1 In what circumstances can I exclude a new building from the effect of an option?
If you construct a new building on opted land (and that building is not within the curtilage of an existing building – for the meaning of ‘curtilage’, see paragraph 2.4) you may exclude the new building (and land within its curtilage) from the effect of the option to tax by notifying us of the exclusion.
If you decide to do this, the new building will be permanently excluded from the effect of your existing option to tax. But you may, if you wish, make a fresh option to tax in the future, subject to obtaining permission from us if appropriate – see Section 5.
If you choose to exclude a new building from the effect of an option to tax this may affect your entitlement to recover input tax on your costs. See Section 9 for further information about input tax.