Forbes Dawson Tax Bite – Incorporation of property investment businesses

This idea is relevant for individuals or partnerships with property investment businesses. The main issue is that these individuals could currently be paying high rates of income tax on profits from the business. There may therefore be an appetite to incorporate the business to ensure that profits are taxed at low corporation tax rates in the future.

Pros

1. There is a relief to ensure that any gains in respect of the properties are effectively rolled into the cost of the shares.
2. For tax purposes there is an uplift in base cost to market value for the properties. This means that they can be sold without crystallising tax.
3. In certain circumstances there will be no stamp duty land tax on incorporation.
4. Lower tax environment allows for growth of the portfolio at a faster rate.

Cons

1. There can be a stamp duty land tax charge.
2. Future gains will have a double layer of tax because the company will be taxed on them and there will be extraction costs.
3. HMRC do not always appreciate that the incorporation of a property business qualifies for capital gains relief (although we can usually successfully defend this point).

In summary this is a very valuable opportunity which any individual or partnership should at least be considering.

Tax Bites are a fortnightly article featuring simple updates about key tax opportunities for other professional colleagues and clients.  For further details, contact the author or your usual Forbes Dawson contact via our ‘Contact Us’ page.

 

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