We have been working with Croner Taxwise for a couple of years, we now have a microsite which explains more about the benefits of our relationship http://bicknell.cronertaxwise.co.uk/
Many property investors lend to other property companies via their company, often in a Joint Venture approach because 100% LTV isn’t available.
Their property business could have losses from their trading activity but the losses can’t be offset against interest received unless its an integral part of the business.
General test – whether an integral part of the business
The general test is that interest normally rank as trade receipts only where it is an integral part of the business operations to employ capital to produce such income, for example, in the case of banks and other financial concerns.
HMRC practice regarding interest
In the particular case of interest on investments, the HMRC view is that interest on an investment may be treated as trading income if:
# the investment is for a short term and
# it is an integral feature of the trading activity to make such an investment and
# the funds deposited can be regarded as continuing to be employed in the business and to form part of the current working capital.
Investments made in the course of banking, insurance and other financial trades will normally meet these conditions.
Investments by non-financial concerns are unlikely to meet these conditions, if for example they:
# endure from one period of account to another, or
# represent capital even if it is only temporarily surplus to requirements, or
# although short term, represent part of a series of deposits which together constitute a long term setting aside of part of the capital.
The rules are in
How will yesterday’s budget affect you?
Download our report to find out Click Here
Budget Highlights 2018
• The personal allowance threshold, the rate at which people start paying income tax at 20%, to rise from £11,850 to £12,500 in April – a year earlier than planned
• The higher rate income tax threshold, the point at which people start paying tax at 40%, to rise from £46,350 to £50,000 in April
• After that, the two rates will rise in line with inflation
• National Living Wage increasing by 4.9%, from £7.83 to £8.21 an hour, from April 2019.
Off Payroll IR35
• The employer will be responsible for deduction of tax and NI for personal service companies
• Small organisations will be exempt
• The crackdown is the biggest revenue-raising measure in this year’s Budget
Support for the High Street
• Small retail businesses will see their business rates bills cut by a third for two years from April 2019, saving them £900 million.
• Local high streets will benefit from £675 million to improve transport links, re-develop empty shops as homes and offices and restore and re-use old and historic properties.
• Public lavatories will receive 100% business rates relief.
• This adds to previous reductions in business rates since Budget 2016 which will save firms over £12 billion over the next five years.
Annual Investment Allowance
• The government will increase the Annual Investment Allowance five-fold from £200,000 to £1 million to help businesses to invest and grow.
• Also, from October 2018, businesses will be able to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax.
Following the success of my Making Tax Digital Seminars and I am making 3 filmed webinars for MBL on Property Tax
Furnished Holiday Lets & Serviced Accommodation – Tax Matters
Using a Company Vehicle for Property Investment – A Guide for Accountants
Option to Tax on Commercial Property Conversions – A Guide for Accountants & Tax Advisors
These are a useful guide to current tax and accounting rules and include tips on how to avoid problems.
I have recently taken out Relevant Life Insurance and this explain why.
When you are formally employed and working for a large company, you can benefit from group life schemes and death in service.
When you work for yourself however, as a contractor and company Director, you will likely be paying for life insurance out of your own pocket and taxed income.
This no longer needs to be the case.
Relevant Life Insurance was designed to afford small businesses the opportunity to benefit from the same tax breaks large corporations enjoy through group life schemes. Essentially,
a Relevant Life Policy allows for you to pay your personal life insurance through your company and as a business expense, rather than through taxed income.
Paying for your life insurance through your business in this way means that you can make significant savings:
Let’s use the example that you own your own business and pay £100 a month on life insurance from your own pocket.
If you’re a 40% taxpayer, there’s income tax and 2% employee national insurance contribution, plus 13.8% employers’ national insurance contribution.
In fact, after 19% corporation tax relief the net cost to your company works out at £158.93
If you pay £100 a month for a Relevant Life Plan you won’t pay any national insurance contributions or income tax on the premiums but you still get the 19% corporation tax relief which means the net cost is only £81.
That’s a saving of £77.93 a month or £935.16 over the year.
To qualify for a Relevant Life Insurance policy you or your client simply need to be a salaried Director or an employee of a limited company and resident in the UK.
Assuming you own the property personally and its not your main residence (and benefiting from Principle Private Residence Relief), there are 2 rates of capital gains tax 18% for lower rate tax payers and 28% for higher rate tax payers.
You also have a CGT allowance which for 2018-19 is £11,700.
As a rough guide to assessing the tax
You can now pay CGT straight away using the HMRC online service but most people do via self assessment and pay by 31st January following the end of the tax year.
HMRC are getting tough on those who seek ways to avoid tax and the schemes are often treated as Tax Fraud.
The Finance (No. 2) Act 2017 contains some of the most significant changes to tax legislation in recent memory (the 2019 Loan Charge).
The legislation which is retrospective targets Employee Benefit Trusts, Employer Financed Retirement Benefit Schemes, Contractor Loans and many others where an employee was rewarded with a loan from the employer or a trust, but in realty the employee was never going to repay the loan and just wanted tax free money.
The 5th April 2019 Loan charge will require Income Tax and National Insurance to be paid on the balance outstanding, as most of the loans will be high value that probably means 40%/45% income tax and Employee NI at 2% and Employers NI at 13.8%, so that could be 45% + 2% +13.8% = 60.8% tax on the loan, plus possible interest and penalties
How re-describing loans is claimed to work
Scheme users are being told they can sign documents saying that the sums they’ve received from their disguised remuneration scheme under loan agreements are not loans at all. Instead, these sums of money are merely held by them in a ‘fiduciary capacity’ – for example, an individual acts in a fiduciary capacity if they hold money, or assets, for the benefit of someone else, not themselves.
It’s wrong to claim that the loan charge won’t apply because the sums received aren’t loans.
Why you shouldn’t use this scheme
Renaming something now doesn’t change what happened in the past. Attempting to describe a loan as something else doesn’t mean it’s not a loan.
The loan charge will apply to more than just loans, including any form of credit or other right to a payment regardless of what it’s called. If you adopt this approach and choose not to reflect the loan charge on your tax return you may face a significant penalty in addition to the tax charge.
Deliberately misleading, or concealing information from HM Revenue and Customs (HMRC) may result in criminal prosecution.
Doing nothing is not an option, its likely you lead to bigger penalties and possible legal action.
The Advice from HMRC
Any arrangements to avoid the loan charge, which seek to deceive HMRC as to what is really happening, may be fraudulent.
A number of previous cases promoted as being compliant and legal have resulted in criminal convictions for the key people involved and extensive investigation of several hundred users. HMRC will investigate all of these arrangements and is likely to take similar action if it finds any that are seeking to deceive. At the very least, anyone who takes part in an offensive arrangement is likely to face penalty sums, chargeable along with any tax and interest that will be due.
Tax avoidance doesn’t pay. Most arrangements simply don’t work and people can end up paying more than they were trying to avoid. Users may have a long-term requirement to deal with the cost, commercial and tax fallout from these transactions with no support from the promoter of the original arrangement. If users are worried about their financial position, it is better to contact HMRC rather than risk more investigation and what is likely to be a larger bill.
Last week it was announced that due to Brexit some of HMRC’s plans have had to be put on hold, so they have decided that Digital Services for Individuals would be put on hold.
HMRC’s email stated: ‘We have made the decision to delay plans to introduce further digital services for individuals, to release project capability to EU Exit work. This means halting progress on simple assessment and real time tax code changes.’
‘We will pause work to digitise services that impact fewer numbers of customers, such as those paying Inheritance Tax, or applying for Tax Advantaged Venture Capital Schemes and PAYE settlement agreements.’
But Making Tax Digital for Businesses will not be delayed, so from 2019 VAT will be the first stage then Business Tax potentially starting in 2020.
Come to one of my seminars to find out more
The rules for service charge accounts are set out in Tech 03/11
Service Charges are designed to pay for management, repairs and maintenance, they are not intended to make a profit and so will not generally incur a tax charge.
If, however, they include Interest or Ground Rent potentially there could be a taxable profit.
Service Charges in accordance with ICAEW Technical Release Note 03/11 are accounted for outside of the company and are a type trust account.
As with so many things the answer is may be!
Many Freeholds are owned by a Company in which the tenants hold the shares.
When the Company was set up to buy the freehold often the tenants will grant new long leases as part of the purchase process and have their articles of association changed to set out their entitlement to leases. The lease terms are often different lengths and values so you could have £1 voting shares and then separate non voting shares for the payments above the £1 at the time the company buys the Freehold.
In order to offer free extensions in the future the company would be set up as a Bare Trust for the tenants/nominees, this could allow the company to issue free lease extensions.
However, if this wasn’t done then a company would normally be expected to charge arms length market prices for leases or for the lease to be taxable on the tenant as a distribution or benefit.