Commercial Aspects of Property

Investing

PROFIT

TAX

SAVINGS

INVEST

Who are we?

Part of Charles Group a professional hub for successful fast growing entrepreneurs and investors looking for leading edge financial advice.

Family run accountancy firm based in North London

Established in 1974

We offer added value services for our clients including:

»High level tax strategies and tax planning»Equity and finance raising»Property consultancy and mentoring

»Provide access to our team of IFAs, mortgage brokers, solicitors, offshore trusts and worldwide accountants.

Nicholas Charles FCCAQualified accountant who joined C Charles & Co in September 2003.

Recognised as a Fellow Chartered Certified Accountant in May 2009

Property tax expert and a consultant on niche tax strategies and planning for high net worth clients

Owns and runs a multi million pound property portfolio

Progressing on a £1m development to create 9 new flats

Chairman of Penny Power Limited and FD of Bank to The Future.

Property consultant and have brokered commercial property deals worth more than £4m

WHAT DO YOU WANT

FROM TODAY?

WHAT DO YOU EXPECT

TO GAIN OR LEARN?

AGENDA

• Property Tax

– Investing vs. Developing

– The use of companies

– Changes in PPR rules

– Capital allowances

• Property Portfolio Building

– Different strategies

– Developing: keys areas to look out for!

UK TAXESIncome Tax and PAYE

Corporation Tax

VAT

National Insurance Contributions

Inheritance Tax

Stamp Duty Land Tax

Local Taxes such as council tax, business rates, CIL & s.106

Other duties and tariffs chargeable on items such as alcohol and petrol

Govt Borrowing!!! (as of Q1 2013 UK government debt amounted to £1,377 billion, or 88.1% of total GDP)

THE PAIN OF TAX!

EMPLOYEES

Pay tax EVERY month

20%/40%/45%

NIC = 12% + 2%

Very little control of money and taxes

SELF EMPLOYED

Pay tax twice a year – 31/01 + 31/07

20%/40%/50%

NIC = 9% + 2%

Can include expenses to reduce profits

Good setup if profits are within basic rate

THE PAIN OF TAX!

COMPANIES

Pay tax twice! Corp Tax AND Income Tax

Good strategy for 40%/45% taxpayers

Small wage + dividends

Onshore vs. Offshore

INVESTMENTS

CGT vs. Income Tax and Corp Tax

CGT is flat rate @ 28%

Get this wrong and it could cost you

a LOT of money

• Sir Philip Green

• Multi-billionaire owner of Arcadia Group and BHS

• 2005 paid himself a dividend of £1.17 Billion!

• Total Tax Paid was £ ZERO!

• Saved an estimated £292 Million in taxes!

ENTREPRENEURS + TAXES

ENTREPRENEURS + TAXES

• Tax planning is the easiest way of making

money.

• Therefore does it make sense to have a good

tax advisor on your power team?

What Do You Want To Do?Start a new business?

Joint Venture?

Develop to sell?

Develop/refurbish to rent?

Invest in property?

Decide what tax planning compliments your goals. Build tax strategies around your goals and not the other way round

Choosing the Right Entity – trading or investing?

PROPERTY TAX PLANNING

1. Capital Gains Tax and PPR

2. Expenses vs. Improvements

3. Using intermediaries to reduce your tax liability

4. Utilising Interest

5. Stamp Duty Avoidance!

6. Capital Allowances for HMOs

7. …

The 7 Key Areas

Choosing the Right EntitySetting up a trading business?

– Sole trade

– Partnership

– Limited Liability Partnerships

– UK Companies

Investing?

– Personally

– Partnership

– Limited Liability Partnerships

– UK Companies

TRADING OR INVESTING?

• The UK tax treatment of a trade is different to that for an investment, whether it be as a sole trade, partnership, LLP, company or trust!

• If a company undertakes a trade and holds investments the UK tax treatment can be affected!

QUIZ: Are You TRADING OR INVESTING?

• Property brokerage

• Develop to sell

• Develop to hold

• Furnished Holiday Lets?

• Refurbish and sell PPR

• Renting out property via a

limited company?

• Flips?

TRADING

TRADING

INVESTING

TRADING – conditions must be met!

? Depends on the facts

INVESTING – entity is irrelevant!

? Depends on the facts

POWER TEAM – Who is in Yours?

• The worst mistake I have seen is when people

try and “go it alone”. This may save money in

the short run but will the MOST expensive

mistake you will make in the long run!

PROPERTY TAX

PROPERTY STRATEGIES1. Buy to let

2. Property developing

3. Commercial property

4. Overseas property

5. HMOs

6. Options – Lease, Buy, Sandwich

7. Purchase, add value and re-mortgage

8. Flips

9. Developing new builds for sale

POTENTIAL PITFALLS OF DEVELOPING

• Planning! It is not as straightforward as you think

• S106 – the new local tax CROYDON: http://bit.ly/1nlFIMx

• CIL which coincides with S106

• Building regulations - Appoint a private company for this!

It’s not all bad news!

• You can choose your own building regulator even your own

Borough!

• New rules allow conversion of B1 use to residential!

1. CGT and PPR

Principal private residence relief (“PPR”)

• What is PPR available on? Personal residences

• What relief is available?

- 100%

• What if house is only a PPR for part of the ownership period

- Time apportioned, but

- Certain periods of non occupation are deemed to be occupied:

- First 3 years, last 18 months (05/12/13), periods spent working away

- Complicated –seek advice

1. CGT and PPR

Partial lettings exemption• What is partial lettings exemption available on?

- Personal residences subsequently let

• What relief is available? Max of:

• £40,000, or

• PPR claim or

• The remaining gain

• Therefore, there are tax advantages to living in a property before letting it out!

2. Expenses vs. Improvements

Expenses:• Are deducted from Income to arrive at taxable profits –

Income Tax or Corporation Tax

Improvements:• Are deducted from proceeds to arrive at chargeable gains

– CGT or Corporation Tax

Maximising Expenses:“Wholly and Exclusively” – you cannot deduct an

expense that is used partly for the property unless the property portion of that mixed use is separately identifiable.

Expenses vs. Improvements

STRUCTURAL COSTS

You can claim for any costs which “prevent the property from deteriorating” but NOT for improvements

• Allowable Structural Costs– Painting: exterior and interior– Damp and rot treatment– Re-pointing– Roof repairs including replacing roof slates, flashing & guttering

– Mending broken windows– Replacing single glazed windows with double glazing– New loft or cavity wall insulation up to £1,500 per property but provided its already let.

Allowable Structural Costs

• Repairs to goods supplied with the property (eg

washing machine)

• Replacing like for like on an existing let

property

– radiators

– light fittings

– kitchen units

– baths, wash basins & toilets

2. Expenses vs. Improvements

• Furniture and Fittings

10% Wear and tear allowance of rents received after deducting charges normally paid for by the tenant

OR

Renewals basis

But can only use 1 method for your whole portfolio and you CANNOT change methods year on year!

2. Expenses vs. Improvements

Useful strategy for higher rate tax payers

Rent your property to your own letting agency and effectively divert your profits into an entity that pays a lower rate of tax!

Pay 45% or 20%?

On £10,000 annual profits = £2,500 tax savings!

3. Using Intermediaries

Interest on the mortgage of the investment property but NOT the capital element

Interest on the mortgage of your own home

Interest on the re-mortgage of your investment property

� up to the value of property when first let

Interest on personal loans

Finance agreements

Interest on credit cards

4. Utilising Interest

5. Stamp Duty AvoidanceStrategies may be dead but planning is very much alive

Strategy vs. Planning? DOTAS?

Charles Group currently works with the UK’s leading experts on SDLT.

Currently we have a planning opportunity that is NOT aggressive,acceptable by all banks, acceptable by solicitors and cannot be deemed a tax strategy. Therefore there is no requirement to notify HMRC

Planning is based on banking law that has been in existence for over 150 years.

The planning is based on the nature of the transaction. Ask to see if we can help you.

Only available for purchases > £500K

6. Capital Allowances

• Usually only available for Commercial

Property.

• In certain circumstances CAs can be used for

properties with communal facilities such as

HMOs!

• Can increase allowable expenses by £100K per

property owner!

• Affects loss relief!

7. Appoint a Quality Tax Advisor

If you are serious about property investing then you need to focus on building your power team:

Tax accountant

Mortgage broker

Property broker and Estate Agents

Solicitor

Mentor

Builder and decorator

Electrician

Plumber

7. Appoint a Quality Tax Advisor

To learn more about me and to join my network:

Web: www.charlesfcca.com

Tel: 020 7263 3295

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• Youtube: TNCharles

• Twitter: TNCharles

WITH ACTION COMES RESULTS

A conversation with me could save you and

your businesses THOUSANDS OF £s