If you own a company and run it out of your home it can be tax efficient to charge the company a rent. However, this does need to be structured correctly to avoid jeopardising your capital gains tax (“CGT”) exemption.

If the company has exclusive use of any part of your home then that part ceases to be your “principal private residence” and some of the gain on the sale of the house could be chargeable to CGT. To avoid this outcome the agreement should make it clear that the company only has use of the space at certain times of the working week and that, for the rest of the time, the room is free for use by the whole family.
 

• Comments (1)
• Trackbacks
• Email This
• Print

A Revenue Statement of Practice first published in 1975 sets out how the CGT rules are to apply to partnerships. HMRC has now decided that the statement is deficient, and have recently issued Revenue & Customs Brief 03/08 to “clarify” the position. 

The specific point at issue relates to assets which are transferred to a partnership by means of a capital contribution. Previously, where no cash or money’s worth was received, the partner would not be treated as having disposed of their asset. HMRC now consider this to be incorrect. Their current view is that there will be a partial disposal equal to the fractional share in the asset which passes to the other partners, and that a sum credited to the partner’s capital account represents consideration for the partial disposal.

The Revenue will not go back on any decisions made on past events, but will apply the “correct treatment” to all other cases.

This “clarification” represents a major change for partnerships and needs to be considered carefully.

• Comments
• Trackbacks
• Email This
• Print

If you are concerned about the proposed change to a new flat Capital Gains Tax rate of 18% you may be interested to know that a petition has been opened on the Downing Street website.
If you wish to add your name to this the link is - http://www.number10.gov.uk/output/Page1.asp  

• Comments
• Trackbacks
• Email This
• Print

There has been a lot of press speculation recently that, following the calls for a shake up in the tax breaks enjoyed by the private equity industry, the Chancellor may change capital gains tax for everyone. According to the FT, the Chancellor is considering an increase in the effective rate of capital gains tax from 10% to 20% for businesses assets e.g. shares in unquoted trading companies and partnership goodwill. Additionally, he is apparently proposing an increase in the taper relief period from two years to five years.

The reforms were allegedly discussed in meetings between Treasury officials and private equity representatives. This may be a relief to the private equity industry but, unless some distinctions are made, it is very bad news for other business owners.

Watch this space!

• Comments
• Trackbacks
• Email This
• Print

I was asked recently for advice by a client, a 40% taxpayer. He wanted to make a substantial donation to charity, funded by the sale of an investment property. The property had a market value of £100,000 and the cost was £20,000.

Basically he had two choices : gift cash, or gift the property.

If he sold the property and gifted the funds to charity the position would be:

• Tax on the disposal £32,000, i.e. 40% x (£100,000 - £20,000). This assumes no taper relief is available
• Net £68,000 available to donate
• A qualifying donation of £87,179 (£68,000 x 100/78)
• Higher rate tax relief £15,692, i.e. £87,179 x 18% (40% - 22%) provided he has sufficient taxable income
• The charity would reclaim the basic rate tax of £19,168 (£87,129 x 22%) from HMRC

 If he gave the property instead the position would be: 

• Income tax relief of £40,000, i.e. £100,000 x 40%
• Charity receives a property worth £100,000, which it could then sell.
• No CGT charge on the charity
• No CGT charge on my client.
  

By giving the property itself rather than selling and giving the cash my client was £24,308 better off and the charity £12,871 better off (£100,000 - £87,179).

If taper relief at full rates had been available (and my client had enough income the result would reverse and a sale and cash gift would be better.

This is not easy – but it is always worth checking.

• Comments
• Trackbacks
• Email This
• Print