Property Trading and Development
Creating a tax-efficient property investment portfolio is essential for ensuring bricks and mortar assets are working as hard as you expect them to.
Seeking property tax advice from experienced consultants allows you to structure your investment in such a way that your current and future property development plans are sustainable, compliant and importantly, efficient from a taxation point of view.
If they trade through a company, as well as limiting liability, their profits will be taxable at the appropriate rate of corporation tax rather than income tax. Corporation tax, which starts at 20%, is much lower than the tax to which they would be subject were they trading in their own name or through a partnership. With partnerships income tax of 40% or 50% for a trading business and on any rental income, or capital gains tax (CGT) of 18% or 28% for an investment business.
If a client is an employee or officer of a trading company and owns 5% or more of the ordinary voting shares in the company, and has done so for longer than a year, they may be eligible for entrepreneurs’ relief when they sell the shares. They would be subject to 10% CGT on the sale proceeds, rather than 28%. This may also be available on the disposal of a partnership share.
Another popular tax planning technique is to combine the use of a LLP with a company by making the company one of the partners. This can be a flexible way to reduce or defer tax liabilities. Make sure business clients factor in stamp duty land tax, which can be 15% of the price of £2 million-plus residential properties. There are some exemptions for developers, but they will need expert advice and some forward planning.
