Someone told me I should invest in property through a company...

Well, if they did that's pretty sound advice. Want me to explain why that's the case? Okay then...

For most property investors its almost a certainty that they will be borrowing some, if not most of the money to fund their fledgling (or in some cases burgeoning) property empire. Also, for most it will be something they're doing in addition to holding down a day job, or running their own business. For this reason, becoming a landlord is for most people an investment choice, rather than their day job (although I would question why it couldn't be both).

The down side of this means that typically, any rents you make end up getting taxed at your highest rate of tax, which for most is 40% and for some even as much as 45%. What this means is that you've got to pay a big chunk of tax before you can start paying down those mortgages.

So, I'm guessing most of the initiated property investors reading this already know that, but may still be wondering how a company can possibly help that situation as companies still pay tax right? Well, yes they do, but from April 2015 all companies in the UK regardless of size and/or activity only pay tax at 20%, which lets face it is a lot better than 40%/45% right.

Now, this is where the real magic happens, because what this means is that you now have 80% net rents (after expenses of course) to pay down those mortgages, which in turns means you can buy more properties faster. Therefore, provided you are looking at property investment as just that, and investment, you're growing your fund a lot quicker by using a company structure!

Well, that's just dandy for tax planning purposes, but what about the banks? I'll admit, some don;t like the idea of lending to a brand new company, but there are those out there that will.  Yes, you might pay slightly more in interest, perhaps as much as a a couple of percent, but you're saving 20%/25% in tax, so its well worth it.

Property investment companies don't work for everyone, it is very much dependant on your own circumstances, goals and objectives, but where those elements align it can be a powerful piece of structuring. Unfortunately most of us look at transactions in their component parts, instead of looking at the bigger picture. That's where really good, focused tax professionals can help you make the difference. We don't just save you tax, but in a lot of cases that tax saving can make an nonviable project viable in terms of cashflow. So, if you're a property investor, or just have what you see as a rather knotty tax problem why not get in touch and see what we can do for you?

Disclaimer - The above blog does not constitute advice and not should be taken as such. The author accepts no responsibility for losses arising from taking action based on the contents of this blog alone.

Could a Family Investment Company help your tax position?

For many years trusts have been considered the standard way to pass family wealth on to future generations. The last few years however have seen tax changes which mean that Family Investment Companies (FICs) may be the more tax-efficient option…

Significant changes were introduced in the Finance Act 2006 affecting the UK's tax regime for trusts. Now we see that nearly all new lifetime trusts are dealt with under the relevant property regime, which means:

• An immediate charge to inheritance tax (IHT) at the lifetime rate of 20% for gifts made into trust in excess of the available nil rate band(NRB) - currently £325,000;
• A 10-yearly IHT charge (capped at a maximum rate of 6% over and above the available NRB);
• A further charge to IHT if assets 'exit' the trust (also capped as above).

These changes mean that those wishing to pass down substantial wealth in the protected manner that trusts offer need to look to different solutions, which may be more tax-efficient. All of this means that FICs have become increasingly topical in recent years, primarily owing to the increasingly competitive rates of corporation tax available in the UK (20% from 1 April 2015) that we have enjoyed under the current Government.

So, what is a FIC?

In its simplest sense a FIC is a UK-resident private limited company whose shareholders are family members. Such a vehicle can be extremely tax-efficient where an individual transfers significant sums of cash, property or investments into a company. These assets can then be utilised to generate income for the family.

Three benefits of a FIC

1. Provided that an individual has available cash to transfer into a company, the transfer into the company would be tax-free.
2. There would be no immediate charge to IHT, as a gift of shares from the donor to another member of the family is deemed to be a potentially exempt transfer (PET). Provided the donor survives for seven years following the gift there will be no further IHT implications. Furthermore, the donor could still retain some control of the company providing the articles of association are appropriately drafted.
3. The FIC would only pay tax at a rate of 20% on the profits that it generates. Shareholders then only pay tax to the extent the company distributes dividends. If the profits are retained within the company therefore, no further tax would be payable.

Three disadvantages of a FIC

1. If non-cash assets are transferred into the company, the donor may be incur a capital gains tax (CGT) charge at a rate of 18% or 28% based on the market value of assets that are transferred into the company at the date of transfer.
2. It is possible for there to be an element of double taxation in using the FIC structure. The profits are first subject to corporation tax at a rate of 20% and then are subject to income tax when they are subsequently distributed to the shareholders, albeit accessing capital through a purchase of own shares can be highly tax-efficient in some circumstances.
3. As the company has to comply with company filing regulations there are costs to consider, but this is equally true when setting up and running a trust.

The attractive corporation tax rates mean that a FIC is something that should be seriously considered as an alternative to a trust. It will still allow the donor to retain some control over their investments while avoiding an immediate charge to IHT. As with all planning of this kind though, proper care does need to be taken and professional advice should always be sought. It is certainly not something one should enter light-heartedly.

Disclaimer - The above blog does not constitute advice and not should be taken as such. The author accepts no responsibility for losses arising from taking action based on the contents of this blog alone.

Do I need to complete a Self-Assessment Tax Return?

You can file your tax return online or in paper form (although if you haven't filed your 2013/14 Tax Return yet, online is your only option),  but either way you must be registered for Self-Assessment in order to do so. If you haven't registered before you’ll get a Unique Taxpayer Reference (UTR) number. If you’re re-registering you'll need to use the same UTR as last time.

You should have registered by 5 October following the end of the tax year you need to send a tax return for (so if you haven't yet, you're already late). This is so that you should have enough time to complete registration before the tax return and any tax is due. Full details of how to register can be found here https://www.gov.uk/register-for-self-assessment.

As to whether you need to file a Tax Return, you must always send one if you’re either a self-employed sole trader, a partner in a business partnership, or a company director (unless it’s for a non-profit organisation, eg a charity, and you don’t get any pay or benefits, like travel expenses or a company car).

That said, it’s always wise to check whether you need to file a Self-Assessment Tax Return or not, helpfully HMRC provide a handy little walk through that you can find here https://www.gov.uk/check-if-you-need-a-tax-return.

So, you've discovered that you do need to file a Tax Return, but there’s only ten working days until the filing deadline! If you are filing for the first time and have not registered your details with HMRC, you need to do so by 21 January. This is because it takes seven to ten days for the online account to be set up. An activation code needs to be posted and can take ten days to arrive.

Fortunately, if you’re using a qualified tax professional, or even just a normal accountant, they should have their own software package that means you do not have to wait for the HMRC activation code. However, even they will have to wait for HMRC to issue you with a UTR before they can submit your Tax Return, which could still take several days for HMRC to send to you.

Missing the tax return deadline results in an immediate penalty of £100. As the deadline for paper Tax Returns (31 October 14) has already passed, you'll need to file a tax return online by midnight, Friday, January 31, 2015. This can be further compounded by penalties for late payment of tax that result from late filing.

If in doubt, speak to a specialist, as if your tax affairs are complex it will be well worth your money to hire a tax professional to complete your self-assessment tax return rather than risking it yourself.