Tuesday 29 September 2009

Transfer Investment Property to Stock


The property markets in all sectors have been through terrible times lately. A number of businesses, which were set up in the good times to invest in let property for the long term, have been forced to sell some properties to generate enough funds to cover costs.

Where the property investment business starts to develop properties for sale, rather than keeping them for long term letting, the business has started a trade of property development. In this case where a property, previously held as an investment, is transferred to the "stock pile" as stock ready to be sold, the property must be treated as if it had been sold at its open market value at that point. This can create a capital gains tax charge, or a capital loss, before the property has actually been sold.

To avoid this difficulty the business owners can make an election to treat the value of the property when it enters the stock pile, as the value when it was acquired by the business. Any gain or loss will then only arise when the property is sold by the business. This election must be sent to the tax office within two years of the end of the accounts year for a company, or by the first anniversary of 31 January following the tax year end for an unincorporated business.

The advantage of making this election is that the loss, if one arises, becomes a trading loss made on the sale of stock by the business rather than a capital loss. Generally a trading loss can be set-off against a wider range of income than a capital loss. However, to use this trading loss the Taxman will have to be convinced that the property business has actually started a trade of property development, and is not simply selling off its surplus investments.

This can be a very difficult area and full advice is essential so please contact us for advice in your own circumstances.

New Company Forms from 1st October


When something changes with the set-up of your company, such as a new director, change of company name or registered office address, you need to fill in a form and send it to Companies House. All the forms that are used to report these events are replaced with new versions for changes effective from 1 October 2009 or a later date. You must use the new form to report the change as the old form will be rejected and this could lead to your company being fined if the event is not reported within the statutory deadline.

Most of the new forms can be filed online through the Companies House website, which is quicker, cheaper, and more secure than sending a paper form through the post. If you sign-up to the Companies House PROOF scheme you can only file changes to your company's details online. This prevents anyone hijacking your company by submitting a fraudulent paper form.

Late Tax Returns and Payment Penalties



Late Tax Returns: Your personal tax return for the year to 5 April 2008 should have been submitted to the Tax Office by 31 January 2009 at the very latest. Tax returns submitted on paper for that year were due in by 31 October 2008. These deadlines may be later if the 2007/08 tax year was the first year for which you needed to submit a tax return, and you didn't receive the tax return form until after 31 July 2008.

The Taxman does not have much patience when it comes to late delivery of tax returns and has instructed his computer to send out £100 penalties every six months. The first penalty would have been issued in February 2009 and the second one in August 2009. If the Taxman gets really cross he will ask the Tax Tribunal to issue daily penalties of up to £60 per day, until you do deliver a complete tax return!

If you have paid all the income and capital gains tax you owed for 2007/08 by 31 January 2009, or you are due a tax repayment for that year, the £100 penalties can be reduced to nil. However, you do have to appeal against the £100 penalty notices to claim the reduction.

Late Payments: If you have not paid all the tax you owe for 2007/08 you will have been issued with a 5% surcharge in February and another 5% surcharge in August, plus interest will be mounting up at 2.5% on the amount owing. This interest rate on late tax increased to 3% from 29 September 2009. Where you have agreed a time to pay plan with the Tax Office, and are paying the instalments due under than plan on time, the 5% surcharges should not have been raised. If this is the case the Tax Office should be contacted as soon as possible to get the 5% surcharge cancelled.


VAT Option to tax – 20 Years are up!



On 1 August 1989 the VAT law was changed to permit property owners to elect for specified buildings to be subject to VAT at the standard rate. This election is known as the "option to tax".

Without activating the option to tax by election, the letting or sale of the building would be exempt from VAT (with some exceptions), so no VAT can be charged on rents, and VAT on maintenance costs cannot be reclaimed. Opting to tax is generally beneficial for commercial landlords, as they can reclaim VAT on their costs, including VAT on the acquisition of the building itself. However, some tenants such as charities and banks, cannot reclaim the VAT charged on the rent, which makes the lease on a a building with a VAT option to tax far less attractive.

The option to tax election can now be revoked if 20 years have passed since the election was made in respect of the building. You could now be in a position to revoke an option to tax you made over 20 years ago. You may want to do this to encourage a wider range of tenants to take on a lease, or to effectively lower the price of the building in this difficult market. Remember Stamp Duty Land Tax (SDLT) is charged on the VAT inclusive cost of a building or lease, so a VAT exempt building means there is less SDLT to pay.

In most cases the revocation does not need HMRC permission if 20 years have passed since the option to tax took effect, and the same person still holds an interest in the building. You just need to complete the HMRC form VAT1614J to inform the Tax Office the option to tax election for a particular building is being revoked. However, you need to check whether the anti-avoidance conditions numbered 3 to 5, on that form are also met. If those conditions are not met you need the permission of the tax Office to revoke the election. If you have any questions about the option to tax election or how to revoke it, please ask us, as it can be very expensive if you get it wrong.

Tuesday 15 September 2009

OKAY...
This is our first steps into blogging, which is really an add on to the thoughts for the day section on our web site http://www.defacto-fd.co.uk/Publicsite/Services_blog_history.aspx.

Once I get the hang of this I or the team will be adding to it regularly, whether it be our thoughts for the day or just links to useful information that we think our clients or potential clients may find useful.
Have a successful week.
The team at defacto fd
Glasgow based chartered accountants