Preserving your assets

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.

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You’ve probably worked long and hard to build up your assets so why wouldn’t you spend some time making sure they’re safe.

The most important thing is to have an up to date Will – I will assume that you all have one but if not please put this at the top of your to do list.

So thinking about your assets let’s start with property. Many of you who were born or have lived abroad may well have bought UK residential property through a company. If the property is worth more than £2m then we now have some new tax rules to think about. From April 2013 there will be an annual tax charge of at least £15,000 a year, and the company, whether it’s a UK company or an overseas company, will have to pay capital gains tax on any gain on the eventual sale of the house. The new rules also mean that you need to know the value of the house in April 2012 and 2013, and although you don’t need to get a professional valuation it might just be worth just putting together some evidence, for example estate agent’s details of similar properties for sale in your area, just to support your figures.

The new rules don’t apply to property businesses run on a commercial basis, but we have now got caps on income tax reliefs which may impact. These new rules only allow you to offset losses up to the greater of £50k or 25% of your income, with the only exceptions being charitable donations and investments which have their own limits, for example pension contributions.

Turning to businesses more generally then if you have more than 5% of the shares in a trading company and you’re a director or employee then on a disposal you may qualify to pay CGT at the preferential rate of 10% on any gain. The relief could also be extended to family members who work in the business so it’s worth reviewing the family shareholdings, and this is particularly important if you consider the inheritance tax reliefs that can apply to holdings in unquoted trading shares.

And finally your investment portfolio - determining the right overall investment strategy for you will depend on many things including your personal circumstances and attitude to risk. You may be concerned about leaving money outright to your children whilst they’re so young, so maybe a trust arrangement would be sensible, or you need to fund school fees or save for your retirement, but whatever your concerns we can work with you and help you solve them.

You’ve worked hard to build up your wealth, so please work as hard to protect it, and if you want to discuss any of these issues or have any other queries please speak to me or one of my colleagues.

Principal Private Residence (PPR) changes

In the autumn statement the chancellor announced a change to principle private residence (PPR) relief which will come into effect from 6 April 2014.

This will affect individuals who own one or more properties that they had previously lived in as their main residence.

The final 3 years of ownership have historically been treated as a period of deemed residence for the purposes of PPR relief. This means that, for example if on moving between properties it takes up to 3 years to sell the first property you would still qualify for full relief for the gain generated on the sale of the first property.

From April this final period of deemed residence will be reduced from 3 years to 18 months.

UK residential property tax changes

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. 

Capital gains tax (CGT) for non-residents

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.

Utilise your capital gains tax (CGT) annual exemption

Make sure you make the most of your CGT annual tax-free allowance (£10,900).

Cap on income tax reliefs – maximise approved limited reliefs

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.

Investment advisory – planning your investment strategy

Determining what the correct investment strategy is for you will depend on your unique circumstances.

Whether you want to manage your investment risk (through market changes or institution failure), model your future cashflow requirements, understand and structure the most tax effective environment for your assets, or obtain assistance with allocating your capital to meet required investment returns; we can assist.

Entrepreneurs’ relief – capital gains tax at 10%

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.

Protecting your business assets

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.