Buy-To-Let, Another Twist On Company Ownership

You’re considering getting into the buy-to-let market. You’ve read that because of changes to the rules in April 2016 it is now more tax efficient to buy the property through a company. Is this correct?

Landlords Under Attack

The Chancellor has made no secret of his intention to increase tax on profits & capital gains made by landlords in the buy-to-let market. However, not all the changes which affect individuals apply to companies. This has fuelled the long running debate over whether or not residential buy-to-let properties should in future be bought personally or through a company.

What Are The Changes?

Since 2015 three major changes have been announced which affect the taxation of residential rental properties:

* The restriction of higher rate tax relief on loans & finance costs for individuals. This will be phased in from 6 April 2017. Companies aren’t affected.

* A 3% stamp duty land tax (SDLT) (LBTT in Scotland) surcharge applies from March 2016 to purchases of residential property by companies &, if it is their second or subsequent residential property, to individuals.

* Exclusion from the general reduction in capital gains tax (CGT) rates by 8% for gains made after 5 April 2016. This does not affect companies who are liable to corporation tax on gains.

Corporate Advantage?

As you can see the changes don’t hit companies as hard as individuals. Companies also have another advantage over individuals. When they sell a property & make a gain they are entitled to reduce the amount liable to tax to take account of inflation. This is known as indexation. On the other hand, getting the rental profits & gains out of a company triggers personal tax liabilities which can significantly reduce the amount you actually end up with.

A Guessing Game

Personal or company ownership is a tax conundrum which experts have been arguing about for a long time. This is because there are so many factors involved, any one of which can sway the outcome one way or the other. To name just a few:

* the rate of increase in property values

* inflation

* the rate of interest on money borrowed to buy the property

* how much other income you have?

In order to assess the consequences, you’ll have to predict each of these factors & more for the whole period you expect to own the property.

Conclusion:

Notwithstanding the above, one factor which might be a game changer is that since 6 April 2016 it’s been possible to extract property rental income & gains from a company at zero tax cost. By extracting money from the company as dividends of £5,000 per year or less, the tax cost will be zero. What’s more, if you’re buying a property with your spouse, unmarried partner or children (aged 18 plus), they too can share in the income & gains from the property rental company at zero tax cost.

The changes don’t automatically make company ownership a better option. However, a change in the general income tax rules from 6 April 2016 means that you & the other property owners can take up to £5,000 per year of income or gains tax free. This could tilt the balance in favour of company ownership.

For more information on the Tax services we provide, please visit our Tax Compliance services page here.

If you require more detailed information on these proposed changes & the potential impact it could have on you, then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers on our website here, together with our featured page on ‘The Best of Thetford’ website.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Residential Property Income Tax Changes

Individuals who let residential property face a number of changes to their tax position in the next few years.

The Changes

Currently, letting residential property (even by individuals) is treated as a ‘property business’ for the purposes of calculating the taxable profit. Therefore, using normal business tax rules, interest paid on a loan to finance the purchase of a property which is subsequently let can be deducted 100% from the rental income received within the property business. For individuals who are landlords, the Government has decided to change this longstanding rule. In future, instead of deducting the interest from the letting profit before that profit is taxed, the individual will only be allowed an income tax deduction at the basic rate (20%) on the interest paid.

The Details

This is a major change for landlords, & the Government has stated that it does not wish to cause substantial short term disruption to the private rentals market. Therefore, the change will be phased in from the 2017/18 tax year, with transitional rules until 2020/21.

During the transitional years, the amount of the tax deduction from rents will reduce and the proportion of loan interest that will only qualify for basic rate tax relief will increase. In these transitional year’s landlords will be able to claim the following relief:

* 2017/18 - 75% of the interest against rents, 25% basic rate tax relief

* 2018/19 - 50% of the interest against rents, 50% basic rate tax relief

* 2019/20 - 25% of the interest against rents, 75% basic rate tax relief

However, any unrelieved interest can be carried forward to future tax years. HMRC have confirmed that the changes will have no effect where a property meets all the criteria to be a furnished holiday let.

What Are the Implications?

The change will likely affect higher & additional rate taxpayers who let out highly geared residential properties. Additionally, there are currently no proposals to change the eligibility criteria for tax relief on letting related borrowing. For example, it should still be possible to release equity on a buy to-let property by increasing the mortgage secured on it & still claim relief for all of the interest (albeit eventually only at the basic rate tax relief of 20%).

Individuals who currently pay tax at 40% or 45% on letting profits will pay more tax as a result of this change, although the increases planned for personal allowances & the basic rate band up to 2020 will help to mitigate the impact slightly. Landlords will need to consider these tax changes carefully when setting rent levels in future.

What Options Are Available to Mitigate the Tax Changes?

Ownership through a limited company could be a favourable option for some as the changes will have no direct impact on those who own & let residential properties through this method. Companies will continue to deduct loan interest as a business expense & get effective tax relief at up to 20% (although this will fall in future as the rate of corporation tax falls). However, by 2020, this change will remove the interest relief disincentive to holding buy-to-let properties through a company. Similarly, the ability to take income flexibly in the form of dividends will be more attractive to landlords who might otherwise lose their personal allowance. Of course, the effective rate of tax on dividend income has changed from 6 April 2016. Those taking low levels of dividends may suffer a lower effective rate because of the new £5,000 allowance, but those taking higher dividends may pay more as the rate of tax on dividends rises.

Conclusion:

As there are many issues to consider, deciding on the most tax efficient way to hold buy-to-let properties is not straightforward. The best option will depend on individual circumstances & long term objectives. Incorporation of an existing property letting business may not be practicable in many cases, including where this would result in a large stamp duty land tax liability.

For more information on the Tax services we provide, please visit our Tax Compliance services page here.

If you require more detailed information on these proposed changes & the potential impact it could have on you, then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers on our website here, together with our featured page on ‘The Best of Thetford’ website.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Thetford Golf Club Official Corporate Brochure

Emerald Accountants are delighted to be a part of the Thetford Golf Club Official Corporate Brochure 2016.

Thanks to Ludis Publications and Thetford Golf Club for our inclusion into the 2016 Brochure. You can find our advert on page 30. You can view the online publication here.

We are a small family run practice based on the edge of Thetford, Norfolk. Our goal is to take the strain & worry out of accounting & taxation without it interfering with your day to day life &/or the running of your business.

Our promise at Emerald Accountants is to provide a network of professional resources to our clients, delivering expertise and exceptional customer service with that added personal touch.

Call Today for a Free Consultation on 01842 337290.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Digital Records Will Be Compulsory!

The government intends to force all businesses, large & small, to keep records electronically. When will this happen & how should you prepare for it?

Making Tax Digital

It would be easy to read the government’s manifesto about the future of tax administration “Making Tax Digital” as merely a vague policy document. While it’s just an outline it spells out changes that will have serious consequences for many businesses.

Who Will It Affect?

Unincorporated businesses with income of £10,000 per year or more, which don’t currently use software to keep financial records, will be required to do so. It seems that companies will have to use digital record keeping no matter what the level of their income. The new regime will include landlords who receive rents etc. of more than £10,000 per year.

Which Software?

The good news, if you can call it that, is that the government will provide free apps to help businesses. However, reading between the lines these won’t be sufficiently comprehensive for some businesses & therefore you may have to purchase commercial software. This can be relatively cheap, less than £100 per year for a small business, but using software isn’t as simple as keeping manual records. Most require a working knowledge of double-entry accounting, which may mean having to pay a bookkeeper instead of doing it yourself.

When Will It Happen?

Although the deadline given is “by 2020” the document also says that some businesses will need to comply with digital record keeping by April 2018. It doesn’t give any clues as to which businesses the earlier date applies to.

Conclusion:

If you keep records manually, we recommend that you start planning for the change now. Look for suitable software & someone who knows, or can learn, how to use it. If you wait for the government’s free apps it might be too late to get to grips with them in time.

For more information on the Bookkeeping & IT services we provide, please visit our Bookkeeping & VAT services page here.

If you require more detailed information on these proposed changes & the potential impact it could have on both you & your business, then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers on our website here, together with our featured page on ‘The Best of Thetford’ website.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Thetforce – Exciting Prizes & Offers From A New Local Business…

Emerald Accountants is delighted to announce that they have teamed up with a new local business called Thetforce.

In order to ensure Thetforce provide the best all round package for their clients, they have recruited our business as an affiliate company to provide additional resource services at a significantly reduced rate to their client’s.

You can benefit from our expertise in Accounting with as much as an additional 20% discount by signing to an advertising package with Thetforce. Their packages start from as little as £20 per month which is incredible value.

In order to support the launch of Thetforce, we along with other local businesses have been kind enough to donate prizes towards their Christmas Prize draw with the winner set to be announced on Sunday 20 December 2015.

Prizes include the following;

* Signed Norwich City FC Shirt
* £60 Zak’s Thetford Voucher
* Date Night For 2 With Cinema Tickets For Cineworld & A £40 Frankie & Benny’s Voucher
* Hot Food Party Package For 5 Children
* Luxury Relaxation Package For 2 Adults
* Free MOT Testing For Your Vehicle
* Full Dog Groom For A Small/Medium Dog
* Personalised Goody Bag Of Usbourne Books

For more information on Thetforce & to enter their fantastic prize draw, please visit their web page here.

Or alternatively visit their Facebook page here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Fun2Play – Looking For Something to do This Winter With The Kids?

With the cold & wet weather settling in, it can be hard to keep the kids entertained. Why not keep warm & dry this winter & take the kids for a visit to Fun2Play in Thetford.

They’ve recently made a change to their opening hours & activities, & have a lot of fun events happening between now & the New Year. Additionally, they’ve made changes to their children’s party packages!
For more information on Fun2Play & what activities they have going on, please visit their web page here.

Or alternatively visit their Facebook page here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Henry’s Stem Cell Treatment Fundraiser…

This blog is for my son Henry who was diagnosed with ASD ‘Autism Spectrum Disorder’ at the age of 2. In his young life he’s endured so much medical analysis but very little professional medical support to assist with his disability.

My wife & I like all parents work extremely hard to ensure that he has the best facilities available to him, but unfortunately in the UK we’re streets behind what the rest of the world is doing in understanding Autism & also treating it. Autism is something that is unlikely to ever be cured but with the disability increasing within children in the UK at an alarming rate, you would think that more medical resource would be put into research to help these children.

In light of this, my wife & I have taken it upon ourselves to research alternative treatment/therapies for Henry to give him the best possible life. We came across Stem Cell treatment for Autism & have since read every article we could find on the treatment, the success stories & the science behind it. We truly believe that this treatment could be the next step forward for Henry's development. 

However the treatment is very expensive & not yet available in the UK. We have spoken with other families across the world in a similar situation & have chosen a clinic in Panama which has had amazing results from the use of Stem Cell Treatment. The money raised will fund 2/3rd's of the actual cost of treatment & we would appreciate any donation or support you can offer to help us succeed.

My wife will be setting up a Facebook page shortly which will have more information on Henry’s story from now until treatment, together with additional fundraising activities that we will be organising in the near future.

My wife & I would like to thank you for taking the time to read this article & also for your support!

For more information on Stem Cell Therapy for Autism patients, please visit their web page here.

Additionally, if you would like to make a contribution towards Henry’s treatment, please visit our Fundraising page here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Budget 2015 – The End of Tax Motivated Incorporation?

The Summer Budget 2015 contained some key measures that were a thinly veiled attack on small business owners. What do you need to be aware of?

Dividends:
Perhaps the most controversial announcement was the overhaul of tax on dividend payments. From April 2016 the notional tax credit system (which sees basic rate taxpayers pay no tax on dividends) will be abolished & instead replaced by a new dividend allowance of £5,000. Any dividend payments received above that will be taxed at the following rates;

• 7.5% Basic rate taxpayer
• 32.5% Higher rate taxpayer
• 38.2% Additional rate taxpayer

Initially there had been some confusion as to how this allowance would work in practice but HMRC have confirmed that all taxpayers, regardless of their individual tax rate, will benefit from the first £5,000 of dividend income being tax free. Essentially it is a special type of personal allowance.

Small companies will be severely affected by this change. Those following the traditional accountant advice of taking a small salary & topping up to the basic rate tax band with dividends will potentially see their tax bill increase by up to £1,800 (enough to trigger payments on account).

Employment Allowance:
In a second swipe at micro companies, it was also announced that the allowance which reduces the Employers National Insurance liability by up to £2,000 per annum for companies will no longer be available where the only employees are the directors (one-man bands, husband & wife set ups etc.). This will come into effect from April 2016.

Goodwill Amortisation:
Finally, the announcement that there will be no allowable tax deduction for the cost of purchasing the goodwill element of another business or trade from 8 July 2015 will affect businesses that buy the trade of small competitors or retiring persons.

Conclusion:
Many small business clients are likely to be frustrated at these changes, with many commenting that the government have simply failed to recognise the financial risks that small companies have to take on.
It’s likely that small company client’s tax positions will worsen significantly next year.

Our client’s will be receiving detailed information on how the Budget changes will affect them, together with individual discussions so they can consider all options available to them.

For more information on the Taxation services we provide, please visit our Tax Compliance services page at https://www.emeraldaccountants.com/tax-compliance/.

If you require more detailed information on the Budget & the potential impact it could have on both you & your business then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Budget 2015 – Small Firms Facing Tax Shake-Up

On 8 July 2015, The Chancellor delivered his budget to Parliament. Like all budgets there are ‘Winners & Losers’ but this Budget in particular has provided plenty ‘food for thought’ amongst accountants as we look at ways of minimising the impact to our clients.

Our main focus in this blog is regarding the impact the Budget will have on small firms & the shake-up within the taxation rules associated with it.

As such, one of the main advantages of incorporation was to reduce tax but the tipping point at which incorporation starts to deliver significant tax savings has clearly gone up. It looks as if incorporation at earnings even as high as £30,000 will now deliver a very marginal benefit.

Thinking of this in broad terms, the advantage of incorporation has been that much of the income could be received as a tax-free dividend. Of that £30,000, something like £20,000 could be taken as dividend (using the personal allowance to cover salary).

From the 6 April 2016 that £20,000 will create additional income tax of £1,125 (£15,000 x 7.5%) - Each taxpayer will receive a £5,000 tax free Dividend Allowance, hence the reduction to £15,000. That is a significant increase whereas, broadly speaking, the self-employed will see little change. Additional tax at that level would make incorporation much less attractive.

With the tax benefits of incorporating being reduced (& I expect them to be further reduced in the coming years) there is a lot to be said for them to remain as self-employed. Also it’s worth mentioning here that for self-employed people the view to incorporate generally reduced the need for payments on account upon cessation of their trade for the following tax year & as such provided those with a tax break period upon incorporation. With Dividend income to be taxed from 6 April 2016 this could potentially throw another spanner in the works for those considering incorporation at this time!

For those who are already incorporated, there will be different considerations. Some will be happy to operate in corporate form but others may start to wonder whether it is time to disincorporate.

So what do we say to clients about these changes & the further ones that are almost certain to come?

The first thing is to remind clients that the dividend tax does not come into effect until next year, so there is nothing to do immediately. For clients who are considering incorporation, it might be best to put any plans on hold until the position is clearer.

This is certainly the case if the benefits are only marginal or if there are concerns about the additional complexity. Clients will be forewarned that next year’s tax is likely to be higher than this year’s, despite all the talk of tax cuts in the Budget.

For those with significant income, where the dividend tax will make a big difference, we will start thinking about timing of dividend payments next spring to ascertain if more tax-efficient.

HMRC can be expected to look closely at the timing of dividends paid in March and April next year, so getting the paperwork right will be essential.

Our client’s will be receiving detailed information on how the Budget changes will affect them & advice also on how to tackle them as each case will differ dependant on their circumstance.

For more information on the Taxation services we provide, please visit our Tax Compliance services page.

If you require more detailed information on the Budget & the potential impact it could have on both you & your business then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…