chester racecourse 27 june 2019 - mitchell charlesworth€¦ · 27-06-2019 · chester racecourse...

www.mitchellcharlesworth.co.uk

Property Update SeminarChester Racecourse – 27 June 2019


Property Update Seminar - TaxChester Racecourse - 27 June 2019

Tim Adcock - Partner

Phil Hartley - Manager

Contents

Pro’s and Con’s of different property business structures

• Sole Trader

• Partnership/Limited Liability Partnership (LLP)

• Limited Company

Incorporation of a property business

• What is this?

• Possible tax consequences

• How to minimize the tax consequences

Pro’s and Con’s of different property business structures – Sole Trader

Pro’s

• If only source of income, no Income Tax will be due until profits are above £12,500 per annum

• No Capital Gains Tax on sale of property if total net gains from sale are below £12,000.

Con’s

• Pay Income Tax at 20%/40%/45% of profits depending on the tax band they fall into

• Capital Gains Tax payable on gains on sale of 10%/20% (Commercial) or 18%/28% (Residential)

• Potentially, interest costs on mortgage will not be fully allowable against profits

• Additional Stamp Duty to pay on further property acquisitions.

Pro’s and Con’s of different property business structures – Partnership/LLP

Pro’s

• If only source of income, no Income Tax will be due until profits are above £25,000 per annum

• No Capital Gains Tax on sale of property if total net gains from sale are below £24,000

• If through LLP, liability on wind up or insolvency will be restricted.

Con’s

• Although operating as an LLP, still required to pay Income Tax at 20%/40%/45% of profits depending on the tax band they fall into

• Capital Gains Tax payable on gains on sale of 10%/20% (Commercial) or 18%/28% (Residential)

• Potentially, interest costs on mortgage will not be fully allowable against profits

• Additional Stamp Duty to pay on further property acquisitions.

Pro’s and Con’s of different property business structures – Limited Company

Pro’s

• Would pay Corporation Tax at 19% on the profits of the business, reducing to 17% from April 2020

• No Mortgage Interest restriction for limited companies – therefore cost would be fully allowable against profits.

• Limited liability if company is wound up – restricted to amount of share capital subscribed for

• Salary received from company would qualify for state pension credit.

Con’s

• Income Tax/Capital Gains Tax to pay on extraction of profits from the company –although this can be planned for.

• No threshold before pay tax on profits

• Additional Stamp Duty to pay on initial property acquisition.


What is this?

• In simple terms, this is the transfer of a sole trade or partnership/LLP into a limited company

• Instead of the limited company buying the properties for cash they issue shares to the current owners

• This then provides the shareholders with limited liability in respect of the property

• Also provides a lower tax base on the profits the business makes.


The consequences of incorporating:

• The transfer of the business is treated as a disposal at market value of the properties, triggering a Capital Gain

• Stamp Duty could also be triggered on the disposal of the property, calculated based on the market value

• If transferring commercial properties, will need to consider the VAT implications and Capital Allowance implications – this will require specific advice

• Bank/Lender consent required prior to transfer – could result in higher cost of borrowing once company becomes borrower.

• Additional administration requirements as a result of operating through a company.


There are ways to mitigate the tax burden on incorporation:

• Capital Gains Tax – could claim Incorporation Relief

• This would allow the company to inherit the cost of the property as incurred by the sole trader/partnership/LLP

• To obtain relief, need to demonstrate that activities are being carried out as a business rather than purely a trade. This can be done by completing sole trade/partnership pages on tax return

• Stamp Duty - the transfer could be exempt from Stamp Duty

• To obtain this exemption, need to be operating as a partnership/LLP. HMRC clearance needs to be obtain to demonstrate its not purely for the avoidance of tax

• If not available, will need to consider Multiple Dwellings Relief to reduce rate of Stamp Duty.


VATChester Racecourse – 27 June 2019

Alison Birch, VAT Partner

Agenda

Property development

Leasing of property

Sale of property

Domestic reverse charge

Words of warning

Property Development

Zero-rate

• Construction of a dwelling

• Construction of a property to be used for a relevant residential purpose

• Construction of a property to be used for a relevant charitable purpose

Reduced rate

• Conversion of a non-residential building to a dwelling

• Conversion which changes the number of dwellings

• Conversion or refurbishment of an empty dwelling

Standard rate

• Construction of commercial property

• Construction of any other property

Letting of property

Short term assured tenancy

• The letting of residential property is exempt from VAT. The option to tax cannot be applied to residential property.

Holiday lets

• Holiday lets are specifically excluded from the exemption and are subject to VAT at 20%.

Commercial lease

• The letting of commercial property is exempt from VAT. However it is possible to opt to tax your interest in the property which means it is subject to VAT at 20%. This will allow any VAT on costs to be reclaimed.

Sale of Property

The first grant of a major interest (freehold sale or lease over 21 years) is zero-rated for the following:

• residential property

• property to be used for a relevant residential purpose

• property to be used for a relevant charitable purpose

• dwelling converted from a non-residential building

• sale of a property that has been vacant for at least 10 years

Commerical property

• Older than 3 years and not opted to tax – exempt

• Sale of a commercial property less than 3 years old – standard rated

• Sale of a commercial property which is opted to tax – standard rated

Sale of an existing residential property – exempt

Sale of a tenanted property where the tenants remain in situ – outside the scope of VAT.

Domestic Reverse Charge

Does the supply fall within the scope of CIS?

Is the supply subject to VAT at the standard or reduced rate?

Is your customer VAT registered?

Is your customer registered for CIS?

Has your customer provided confirmation that it is not an end user?

If you answer yes to all of these, the domestic reverse charge applies.

If you answer no to any of these, normal VAT rules apply.

Words of warning

VAT can only be reclaimed on costs if it relates to a taxable supply – 0%, 5% or 20%

If only exempt supplies are made, no VAT can be claimed

If you have a portfolio of property that generates both taxable and exempt income, you will need to undertake partial exemption calculations

The option to tax lasts 20 years – think about who may wish to lease or buy it

The option to tax cannot be backdated so consider this early

Capital spend over £250k falls within the capital goods scheme and the taxable use of the property needs to be reviewed over a 10 year period

If you are selling a new dwelling or property to be used for a relevant residential or charitable purpose there are statutorily blocked items – for example, white goods and carpets

Legal Updates

HMOs

• Occupied by five or more persons

• Occupied by persons living in two or more separate householders

• Over three or more stories

• Minimum room standards

• Local Authority conditions

Assured Shorthold Tenancies

• New rules for all ASTs to evict tenants and gain possession of property

• Tenant Fees Act 2019 (England only)

• Wales Act 2019

Energy Performance Certificate

• The property must have an EPC of E or better

• Time limits for compliance differ for residential and commercial properties

• Implications for Landlords

• Exemptions

• Things to watch out for

Schedules of Condition/Dilapidation

‘The Tenant shall keep the Property in good repair and condition’

OR

‘The Tenant shall keep the Property in good repair and condition except that the Tenant shall

not be required to put the Property into any better state of repair or condition than it was at

the date of this lease as evidenced in the Schedule of Condition’

Other Changes

• Service charge requirements

• End to ‘no fault’ termination of residential tenancies

• Brexit

Speakers – Matt Davies and

Martin Johnson

Our Team

What we offer

✓Residential investment mortgages

✓Commercial investment mortgages

✓Trading business mortgages

✓Bridging finance

✓Auction finance

✓Residential Development Finance

✓Commercial Development Finance

About

Empire Commercial Finance Call: 01244 470 250 | Email: [email protected] | Website:

www.empirecommercialfinance.co.uk

Locations: Chester Grosvenor Court, London, Gerrard's Cross

Finance provided £1.6 million to facilitate the development of an exclusive scheme of 4 executive homes in an affluent area of Cheshire

This development in a picturesque village location required a build-out facility

The experienced clients had completed numerous schemes previously but needed to get works underway immediately.

Empire was able to identify an appropriate lender that would not only treat the case with the required urgency, but would also provide 100% of the development costs and pricing at a very competitive level.

Strong applicants and a healthy GDV of £3 million certainly helped in this instance, however the rapid response and efficiency of the funder was key to providing the clients with what they were looking for.

CASE STUDY

Little Budworth, Tarporley CW6

Appropriate LenderWe were able to find a lender that would provide the following:-

• 100% funding of development cost

• Roll-up of interest for an 18 month term

• Site visit within 48 hours of application and credit backed decision 48 hours after that

• Speed & efficiency throughout the underwriting, valuation and legal process

Key FiguresLoan Amount: £1.6 millionType: DevelopmentSize: 4x Executive HomesLocation: Mid-CheshireGDV: £3 million

Residential Development £1.6m

About



Locations: Chester and London

Finance provided £800,000 to facilitate the land purchase for a development scheme of 74 homes in Chester

This development in a suburb of Chester required a facility against land with outline planning

The experienced client had completed numerous schemes of similar size previously but needed a fast & flexible lender on this occasion.

Empire was able to identify an appropriate lender that would treat the case with urgency and take a view on the current planning position. In addition, the lender in question would be willing to support with development funding as the scheme progressed.

The excellent track record of the applicant and a sizeable GDV of £12.75 million helped to make this deal an attractive one, but the flexibility of the lender to support a land purchase without full planning was the key element.

CASE STUDY

Former Allied Bakery, Saltney CH4

Appropriate Lender

We were able to find a lender that would provide the following:-

• 53% LTV against land with outline planning

• Roll-up of interest

• Quick decision and process

• A lender prepared to support the scheme from land purchase and throughout

Key FiguresLoan Amount: £800,000Type: DevelopmentSize: 74 HomesLocation: ChesterGDV: £12.75 million

Residential Development £800k



Locations: Chester Grosvenor Court, London

CASE STUDY

Cambridge Street, ManchesterResidential Investment £12.5m

AboutWe obtained a facility of £12.5 million to a Saudi Arabian national to purchase a tower block of flats in Greater Manchester.

The tower block that was purchased was one of two new builds. We did help the developer by providing a facility, however we are unable to go into much detail due to use signing a non-disclosure agreement.

Our client purchased the larger of the two blocks for £30 million of which £12.5 million Empire arranged on a interest only basis. The other block was sold of to a group of Chinese investors for an undisclosed figure.

The security was constructed and furnished to a high standard in a desirable location in Manchester City Centre, this coupled with the fact that the client had a substantial amount of wealth and experience in the property market made this a very attractive proposition to a number of lenders.

Appropriate Lender

We were able to find a lender that would provide the following:-

• Interest only facility for 10 years

• They prioritized this deal and were efficient.

• Met with the client and his advisors on numerous of occasions

• Willing to lend to a BVI limited company

Key FiguresLoan Amount: £12.5 MillionType: InvestmentSize: Block of 125 FlatsLocation: Greater ManchesterGDV: £30 Million

How to contact us

Matt Davies:

Email – [email protected]

Mobile – 07921 221355

Martin Johnson:

Email – [email protected]

Mobile – 07889 394909

mailto:[email protected]

mailto:[email protected]

Any questions?

chester racecourse 27 june 2019 - mitchell charlesworth€¦ · 27-06-2019 · chester racecourse...

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