Tax efficient property investment planning during uncertain times

We are currently operating in a market place ravaged by Covid-19. Everyone has been affected by it somehow, but the property market appears to be booming for now.

My perception is that with the changes to Stamp Duty Land Tax many people are looking to move house or considering property investment if the opportunity is available to them.

We have had a number of new enquiries in recent weeks about Capital Gains Tax (CGT) implications of selling property but also in respect of how best to structure their investments be it existing portfolios or new ones.

The government has deferred the autumn budget to allow time to assess the impact that Coronavirus is having on the economy. Given the rumours of substantial changes to CGT, this delay was welcomed allowing more time for property transactions to be arranged. There is still a perception that tax rises will be inevitable and the next budget will be significant in setting that path out.

Investment Strategy

In recent years many landlords have considered incorporating their rental businesses i.e. through a Limited Company, but there are many factors that should ultimately guide that decision.

For example, is the company for new properties being acquired or are you looking to transfer an existing portfolio? It is much easier to put new property into a company than to transfer existing properties as there are stamp duty, CGT and other tax traps to avoid, although with careful planning it can be done tax efficiently.

Companies can provide flexibility in building a portfolio if the rental income is not required by the investors personally and Corporation Tax is currently a lower rate than Income Tax, but there is a potential double taxation charge if funds need to be removed from the company.

The “new kid on the block” is a Family Investment Company which can be a useful tool in planning for family investments looking at passing wealth on to family members’ tax efficiently.

Trusts also appear to be gaining in popularity again. Allowing you to pass on wealth with reduced exposure to Inheritance Tax as the assets in the trust and any accumulation in value sits outside your estate.

So what do you need to consider when structuring your property investments?

  1. What is right for the long term for you and your family?
  2. What are your ultimate goals and what do you want to achieve? Your commercial and personal objectives rather than tax motivated decisions
  3. Make sure you understand the overall tax implications now, but you must take into account longer term implications such as inheritance tax and wealth planning

It is important to bear in mind above all else, especially living in such uncertain times, that taxes are constantly changing, what is good today, may not be good tomorrow and that is why it has to fit with your overall objectives.

Rob Case is Partner and Head of Tax – his team can help you with your property tax questions and we run free advice clinics please call 01242 776000 or email to arrange one with one of our team.