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3 hidden pitfalls of owning commercial property personally


|  Posted 18th January 2018

 

 

 

 

 3 hidden pitfalls of owning commercial property personally

Considering that commercial property is one of the biggest investments that many business owners will make in their lives, it is often surprising how little thought is given to this – and in no respect is this more true than tax.

One of the unique things about property is how many taxes can be involved in a single transaction – and any one of those can trip you up.  What’s more sometimes you could be involved in a property-related transaction without even realising it.  So what are some of the pitfalls to watch out for? 

1 - Owning property personally – if you are in a limited company structure, one of the worst places you can hold property is in your own name or through a non-trading property partnership.  The reasons for this?  There are several but a couple of the key ones are:

a - Inheritance tax(IHT).  If your trading premises are not owned within your trading company or trading group, this is a personal asset, which means that usually you will get no relief whatsoever from IHT on this asset in the event of the death of one of the owners.  With IHT rates of 40% above available nil rate bands, is this a risk you want to take?

b - Entrepreneurs’ Relief(ER).  Often our clients have owned property for many years and find that on incorporation they have a property worth considerably more than they paid for it.  On a future sale this gain element is taxable, but at what rate?  If they sell within 3 years of incorporation they can usually claim ER, resulting in one of the lowest rates of tax at just 10%, but go one day beyond this and the tax rate doubles to 20%.  However, with a bit of planning around the time of incorporation you can get ER ‘in the bag’ and boost your directors’ loan accounts in the process, at a very low rate of tax.

2 - Property improvements can be a killer.  For those who own property personally, often the obvious perceived solution if property improvements are planned is for their limited company to pay for these.  The limited company has the money, needs the work doing and can (supposedly) reclaim the VAT.  However you could be unwittingly incurring a significant tax liability for the directors and shareholders of the company, and the company may not even be entitled to reclaim the VAT.  Similar problems can arise if you hold property through another vehicle such as a holding company.

You can see that it pays to spend some time getting the right advice ahead of time, even on something as innocent as a property improvement project.

The solution

There are smart solutions for owning commercial property, and we will be launching more about this soon.  

If you can’t wait for this and would like to get a privileged consultation ahead of the launch to find out more, then click here for a free advisory session.


Posted by
Gerry Surtees
Chartered Tax Advisor

info@oldfieldaccountants.co.uk
connect on LinkedIn

 

Please note – This report is provided for information only.    No action should be taken without consulting detailed legislation or seeking independent professional advice.   Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this report can be accepted. 

 

 

 

 3 hidden pitfalls of owning commercial property personally

Considering that commercial property is one of the biggest investments that many business owners will make in their lives, it is often surprising how little thought is given to this – and in no respect is this more true than tax.

One of the unique things about property is how many taxes can be involved in a single transaction – and any one of those can trip you up.  What’s more sometimes you could be involved in a property-related transaction without even realising it.  So what are some of the pitfalls to watch out for? 

1 - Owning property personally – if you are in a limited company structure, one of the worst places you can hold property is in your own name or through a non-trading property partnership.  The reasons for this?  There are several but a couple of the key ones are:

a - Inheritance tax(IHT).  If your trading premises are not owned within your trading company or trading group, this is a personal asset, which means that usually you will get no relief whatsoever from IHT on this asset in the event of the death of one of the owners.  With IHT rates of 40% above available nil rate bands, is this a risk you want to take?

b - Entrepreneurs’ Relief(ER).  Often our clients have owned property for many years and find that on incorporation they have a property worth considerably more than they paid for it.  On a future sale this gain element is taxable, but at what rate?  If they sell within 3 years of incorporation they can usually claim ER, resulting in one of the lowest rates of tax at just 10%, but go one day beyond this and the tax rate doubles to 20%.  However, with a bit of planning around the time of incorporation you can get ER ‘in the bag’ and boost your directors’ loan accounts in the process, at a very low rate of tax.

2 - Property improvements can be a killer.  For those who own property personally, often the obvious perceived solution if property improvements are planned is for their limited company to pay for these.  The limited company has the money, needs the work doing and can (supposedly) reclaim the VAT.  However you could be unwittingly incurring a significant tax liability for the directors and shareholders of the company, and the company may not even be entitled to reclaim the VAT.  Similar problems can arise if you hold property through another vehicle such as a holding company.

You can see that it pays to spend some time getting the right advice ahead of time, even on something as innocent as a property improvement project.

The solution

There are smart solutions for owning commercial property, and we will be launching more about this soon.  

If you can’t wait for this and would like to get a privileged consultation ahead of the launch to find out more, then click here for a free advisory session.


Posted by
Gerry Surtees
Chartered Tax Advisor

info@oldfieldaccountants.co.uk
connect on LinkedIn

 

Please note – This report is provided for information only.    No action should be taken without consulting detailed legislation or seeking independent professional advice.   Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this report can be accepted. 

 

 

 3 hidden pitfalls of owning commercial property personally

Considering that commercial property is one of the biggest investments that many business owners will make in their lives, it is often surprising how little thought is given to this – and in no respect is this more true than tax.

One of the unique things about property is how many taxes can be involved in a single transaction – and any one of those can trip you up.  What’s more sometimes you could be involved in a property-related transaction without even realising it.  So what are some of the pitfalls to watch out for? 

1 - Owning property personally – if you are in a limited company structure, one of the worst places you can hold property is in your own name or through a non-trading property partnership.  The reasons for this?  There are several but a couple of the key ones are:

a - Inheritance tax(IHT).  If your trading premises are not owned within your trading company or trading group, this is a personal asset, which means that usually you will get no relief whatsoever from IHT on this asset in the event of the death of one of the owners.  With IHT rates of 40% above available nil rate bands, is this a risk you want to take?

b - Entrepreneurs’ Relief(ER).  Often our clients have owned property for many years and find that on incorporation they have a property worth considerably more than they paid for it.  On a future sale this gain element is taxable, but at what rate?  If they sell within 3 years of incorporation they can usually claim ER, resulting in one of the lowest rates of tax at just 10%, but go one day beyond this and the tax rate doubles to 20%.  However, with a bit of planning around the time of incorporation you can get ER ‘in the bag’ and boost your directors’ loan accounts in the process, at a very low rate of tax.

2 - Property improvements can be a killer.  For those who own property personally, often the obvious perceived solution if property improvements are planned is for their limited company to pay for these.  The limited company has the money, needs the work doing and can (supposedly) reclaim the VAT.  However you could be unwittingly incurring a significant tax liability for the directors and shareholders of the company, and the company may not even be entitled to reclaim the VAT.  Similar problems can arise if you hold property through another vehicle such as a holding company.

You can see that it pays to spend some time getting the right advice ahead of time, even on something as innocent as a property improvement project.

The solution

There are smart solutions for owning commercial property, and we will be launching more about this soon.  

If you can’t wait for this and would like to get a privileged consultation ahead of the launch to find out more, then click here for a free advisory session.


Posted by
Gerry Surtees
Chartered Tax Advisor

info@oldfieldaccountants.co.uk
connect on LinkedIn

 

Please note – This report is provided for information only.    No action should be taken without consulting detailed legislation or seeking independent professional advice.   Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this report can be accepted. 

 
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