In this article our guest writer, Amer Siddiq, from Tax Insider will explain when to consider tax planning and the potential situations to consider. A question you will most certainly ask yourself is ‘when should I consider tax planning for my property business?’ The short answer is “all the time”, but to be realistic, no-one is likely to do this. The trick is to develop by experience, a sense of when a tax planning opportunity (or a potentially expensive tax pitfall) is likely to present itself. You should consider tax planning in all of the following situations, for example: Buying If you are buying a property, you need to consider:
- Buying the property – It could be you as an individual, you and your spouse, you and a business partner, a Limited Company owned by you, or perhaps a Trust you have set up. Your decision will depend on your future business strategy.
- Financing the property – You will need to consider whether you are taking out a mortgage, and if so how will it be secured. It may not always make sense to secure the loan on the property you are buying if you have other assets on which you can secure the loan.
- Plans for the property – It could be that you are buying the property to sell it again in the short term, or to hold it long term and benefit from the rental income. The tax treatment will be different according to each case, and different planning should be done before the property is bought.
- Whether you are doing it in order to sell it again in the short term, or whether you will continue letting it.
- If the work being done is classed as a repair to the property, or an improvement.
- Who is the property going to? – If it is to someone “connected” with you, such as a close relative or a business partner, and if you do not charge them the full market value, HMRC can step in and tax you as if you had sold it for full value.
- Will you be paying CGT or income tax on the profit you make? – The planning opportunities are very different, depending on the tax is involved.
- What are the terms of the sale? Is it just a cash sale, or is the buyer a developer who is offering you a “slice of the action” in the form of a share of the profits from the development? There is important anti-avoidance legislation to consider if this is the case.
- Getting married – a married couple (and a civil partnership) have a number of tax planning opportunities denied to single people, but there are also one or two pitfalls to watch out for.
- Changing your job - You may become a higher or lower rate tax payer and this may mean you should change your tax strategy.
- Moving house – it is usually not a good idea to sell the old house immediately as there are often tax advantages to keeping it and letting it out.
- Death – IHT is charged at 40% on the value of your estate when you die, to the extent that the value is greater than (for 2013/14) £325,000. By planning early enough it is possible to reduce the IHT burden considerably.
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