In a recent tribunal case (MJ and BA Harte (TC1951)), a gentleman inherited a house from his father in 1992. In May 2007 he transferred a half share in the property to his wife, and in October of the same year the property was sold.
The couple claimed Principal Private Residence relief (PPR) on the property sale even though they had another home during this period. Their claim was based on the fact that they had intended to make the inherited property their home, but had only ever spent brief spells there.
The Tribunal found that their spells in the house did not add up to occupation, and it could not have been their home because they did not transfer any possessions.
Furthermore the appellants did not permanently vacate their original residence, so their original home remained their principal private residence. A married couple can only have one PPR at any one time.
The claim for PPR was therefore denied.
Those who take part in the Olympic Torch relay can buy their Olympic Torch as a commemorative keepsake for £215 .
A number of Olympic Torches have been put up for sale on online auction websites, however torchbearers should be careful because where the sale proceeds are above £6,000 the sale will be a chargeable disposal for capital gains tax (CGT).
The amount of CGT will depend on whether the seller has already used their annual exemption (£10,600 for 2012/13) and the amount of their other income (18% rate of CGT for basic rate taxpayers and 28% for higher rate taxpayers).
Those planning to donate the proceeds to charity should be careful because the gain will still be chargeable to CGT although income tax relief may be available for the amount of the gift.
Top Tax Tips for Owner Managed Businesses
7. Ownership Structure of Business Property
The ownership structure of a property can have a major impact on the overall tax charge.
Where properties are expected to be sold for a significant gain, it can often be beneficial to retain personal ownership (or operate through a limited liability partnership) as the tax cost of extraction of capital gain from a company can be prohibitive.
Where property is held in the taxpayer’s personal name, the taxpayer may wish to charge rent in order to extract funds from the company. However, entrepreneur’s relief may not be available to secure the 10% rate of capital gains tax on a future sale of the property if the company pays rent to the taxpayer for the use of the property.
Pure investment property held for the long term may be better through a personal company.
It is sensible not to hold business property in a trading company. If the trading company gets into financial trouble then the creditors can access the property.
There are partnership structures available for more significant portfolios that can provide hybrid tax arrangements to cater better for capital growth and rental profits.
Another option is the use of a personal pension scheme. The pension can charge a rent to the trading company and it will not pay tax on the rents received. However, the entrepreneur must way this very tax efficient mid to short term arrangement with the tax costs of extracting the property’s value from the pension scheme in retirement.
Top Tax Tips for Owner Managed Businesses
6. Entrepreneurs Relief on Sale of Shares/Business
Entrepreneur’s relief (ER) allows individuals to pay tax at 10% on the disposal of qualifying assets including shares in trading companies and represents a very important relief for business owners.
ER may be due where in the 12 months prior to the disposal the individual was an employee / officer of the company and held at least 5% of the share capital and voting rights.
An entrepreneur/shareholder may expect the 10% rate of capital gains tax but potential pitfalls are lurking:
- Shares with restricted rights may not qualify for relief,
- The relevant conditions must be met throughout the 12 months immediately prior to disposal,
- The existence of preference shares in the company could complicate the 5% calculation
- Investments and/or surplus cash could taint the trading status of the company and ER could be lost all together
- A purchaser of the trade may prefer to buy the trade and assets of the company rather than the shares. In such a transaction the company will be subject to tax on the sale and additional tax will be payable on extraction of the funds from the company. Therefore the overall rate would be much higher than 10%.