Reviewing your assets, including your property portfolio, is advisable in the current economic climate. Volatile markets with historically low investment returns are highlighting the importance of managing risk and minimising costs.
In this environment recent changes to the taxation of high-value residential property could have a potential impact on your planning.
In this video Leonie Kerswill explains how new tax rules may affect your property assets, family business, income tax reliefs and wider investment portfolio.
2013 saw the introduction of the Annual Tax on Enveloped Dwelling (ATED) regime for residential properties, worth more than £2m and owned by corporate structures. This regime imposes 15% Stamp Duty Land Tax on the purchase of such properties, an annual charge ranging from £15k to £140k and a Capital Gains Tax (CGT) charge on the sale of the property.
It is important to note that although transitional provisions were in place for the first year, for the coming tax year the ATED payments and tax returns must be filed by 30 April 2014.
To date HMRC have not confirmed what the annual charges will be for 2014/15 - the original legislation stated that the charge would increase in line with Retail Price Index (RPI). They have also indicated that there will be changes to the payment process for this year.
Even with this uncertainty we would encourage people to start work on the returns to ensure that the deadline is met.
Do remember that even where a company qualifies for an exemption from the charge eg because the property is let to a 3rd party on a commercial basis, a return is still due.
A further development in relation to the taxation of residential property was trailed by the chancellor in his Autumn statement. He announced that from 6 April 2015 non residents would be subject to CGT on the sale of UK residential property - effectively extending CGT to non enveloped dwellings.
The wording of the announcement implied that only increases in value from April 2015 would be taxed but so far no further information has been released on this proposal.
Make sure you make the most of your CGT annual tax-free allowance (£10,900).
A cap on income tax reliefs of £50k or 25% was brought in from April 2013 – the only exceptions are approved limited reliefs (pensions, venture capital trusts or enterprise management incentives etc.) and charitable giving. So it’s more important than ever to make sure you're using your available limited reliefs efficiently.
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If you qualify, you can only pay CGT at the preferential rate of 10% on the disposal of up to £10m of business assets. There’s also potential for your spouse and other family members to qualify for another £10m disposal if they’re involved with the business.
If you run your own business you should be aware there are a range of business structures possible in the UK with very different legal and tax attributes for the owners. Getting the right structure for you and your business can prove cost-effective over the long term but it can also afford varying levels of legal and financial protection for you and your business assets.