Commercial Property Blog
All posts tagged: tax
The rights and wrongs of tax avoidance, the morals behind executive pay and the sins of agents were all tackled by a high-powered panel assembled by the Jewish Association of Business Ethics.
Joining the Chief Rabbi on stage at London’s Park Lane Hotel were WPP chief executive officer Sir Martin Sorrell, chairman of the Delancey advisory board Sir John Ritblat and in the chair, Sky TV’s Jeff Randall.
A 300-strong audience heard Sorrell and Ritblat defend legitimate tax planning on the basis that companies should always do their best for shareholders.
But when just one member of the audience said he disagreed with their stance the Chief Rabbi caused an uncomfortable stir when he said he too could not condone avoidance of tax.
The reason? The world is in the midst of a bad financial crisis and in Britain in particular, with our yawning national deficit, everyone needs to do their bit to pull their weight.
Ritblat was the most impressive participant over executive pay.
`What is inappropriate is when failed chief executives get a big pay-off. Shareholders and stakeholders perhaps don’t exercise their power enough. Likewise, if companies were to collectively lower their fees to investment banks bonuses would be lower, too’.
The final dilemma raised by Randall was over the nuts and bolts of deals.
Many in property have been following the court case in New York between Terra Firma boss Guy Hands and his former adviser, Citi banker David Wormsley.
Wormsley is under attack for allegedly not telling Hands that an under-bidder for music group EMI had pulled out before Terra Firma lodged a sky-high bid.
Asked if he would expect an agent selling a property to tell him about possible problems with it, Ritblat took a highly pragmatic view.
`Caveat emptor’, he declared. `Never a truer word was spoken. That is why we have solicitors who make great enquiries on our behalf’.
The last word, after this, went to the Chief Rabbi himself:
`That is why the Jewish system puts an enormous emphasis on trust, and the English system has an enormous emphasis on lawyers!’.
Many thanks to JABE for hosting this excellent annual event, and to James Andrew International for inviting me along.
There are four letters that instill fear into the heart of every private investor – HMRC. Yes, Her Majesty’s Revenue and Customs, who are preparing to tax the bejesus out of us all to balance the state’s books.
Investors and businesses who file paper tax returns will soon be flapping to meet the looming tax return deadline of 31st October (a fittingly ghoulish date). Others are busy drawing up elaborate tax mitigation strategies before the new 50% top-rate income tax band arrives next April. And the Revenue is not pulling any punches - in the last few weeks, it has threatened to finger thousands of high earners with offshore bank accounts, closing off many popular tax avoidance loopholes in a bid to raise £7bn.
Think that sounds like a lot? Well, the Revenue estimates the ‘tax gap’ (the amount of tax it failed to collect in the last financial year) has risen to £42bn. This has prompted calls that it is not fit for purpose, and should be split up into two (or even three) separate departments. But would it make a difference? According to a property tax adviser I sat next to at the Women In Property awards last week, not a jot.
“What are the Revenue like to deal with?” I asked as our starter was served. By the end of the main course, I had quite a clear picture.
First up – there is no e-mail. Urgent correspondence has to be faxed (remember, that antiquated machine in the corner of your office, covered in dust?) Resolving problems is complicated by the fact that one rarely deals with the same person twice, and obtaining a direct line is about as difficult as getting a tax refund. The turnover of staff is “constant”, with people rarely staying in the same position for long. And in my dining companion’s opinion, levels of incompetence are shocking.
She acts for several property companies, some of whom are publicly listed on London’s AIM and Plus markets. Much of her day is spent telling the Revenue staff how to do their jobs properly (amazingly, few of the people she encounters have had formal accountancy training, which results in costly mistakes).
These aren’t always to the taxpayer’s detriment. One property client phoned her cock-a-hoop four weeks ago, as the Revenue had sent his firm an unexpected £50,000 tax rebate. After triple-checking the accounts, she confirmed it had definitely been made in error. Oh well then, said the client, better confess to the Revenue. She rang them, spent over an hour explaining their mistake, and still they insisted that the refund was legitimate. So her client cashed the cheque. Guess what happened three weeks later? Yes, he got a bill for £50,000. In the current climate, that kind of discrepancy could be enough to mortally wound a small business.
So I will be paying close attention to the growing calls for reform, which I suspect will get louder as the austerity measures pinch harder. In the meantime, private investors can arm themselves with a free guide to tax planning in this Friday’s edition of the Investors Chronicle.
Claer Barrett is associate editor of the Investors Chronicle, and edits its weekly property section
by Carl Bayley, senior tax writer at Taxcafe
One of the biggest problems faced by property owners who want to take action ahead of the capital gains tax increase is that we do not even know from what date the new CGT rates will apply. There is a possibility that the increase may apply immediately from the date of the Emergency Budget on 22nd June or from 6th April 2011. It could even be backdated to 6th April 2010.
It is generally too late to make open market property sales before the Budget without having to sell at a substantial discount. Transfers to family members, trusts or companies, however, can be carried out fairly quickly. So it is still possible to take action before 22nd June without sacrificing part of your property’s value just to make a quick sale.
Provided that the CGT increase is not backdated, transfers of this nature will generally result in the property’s increase in value to date being taxed at 18% but should shelter the current value from the higher rates applying in future.
More Considered Responses
Not everyone wants to rush into beating the CGT increase, however. There are many good reasons to ‘sit tight’ for the time being and plan to deal with the new CGT regime when it arrives.
The first thing that all property owners need to remember is that the increase in CGT rates cannot affect them unless and until they actually make a property disposal: i.e. a sale or transfer.
If you have no plans to dispose of your property in the foreseeable future, you may have no reason to be concerned about the increase in CGT rates. The CGT increase is part of a programme to cut the current deficit: there is every reason to believe that it will not be a permanent feature of the UK tax system and that a return to lower rates of CGT in a few years’ time is a strong possibility.
The Government has stated that there will be generous exemptions for business assets. They have not stated which assets will qualify but this may include most business property, as well as furnished holiday lets (albeit perhaps with a more restricted definition). There is therefore a strong chance that the effective CGT rate on these properties will be no more than the current rate.
One of the great criticisms of the current CGT regime is that there is no relief for long-term investment: the same rate of 18% applies whether you have owned a property for one year or over 20. The new regime may see the re-introduction of some reliefs similar to those we have seen in the past, such as indexation relief or taper relief. These reliefs often resulted in the effective CGT rate on long-term investments being similar to the current 18% rate in many cases.
Apart from furnished holiday lettings, there may be no new reliefs for residential property under the new CGT regime.
What we can hope, however, is that the existing principal private residence relief, which applies to capital gains on your own home, will be left intact, or at least not drastically altered. This relief provides enormous scope to reduce the CGT liability on residential property if the owner is prepared to undergo the inconvenience of moving house.
Principal private residence relief is extremely powerful because not only does it exempt a property from CGT for the period during which it is the owner’s main residence but it also exempts it for the last three years of ownership. Furthermore, a property which is eligible for principal private residence relief, and which is also let out as private residential accommodation, is also eligible for private letting relief. This second relief will generally provide a further exemption equal to the lower of the amount of relief already obtained under principal private residence relief or £40,000 per person.
In summary, some people could benefit by taking their time and planning a more considered response. Many properties will benefit from current or future exemptions and reliefs and a lot of property owners could be better off by planning how to get the best out of the new CGT regime rather than rushing into trying to beat it.
However, those sitting on big capital gains may want to consider all their tax planning options and find out whether it is worth transferring properties to other family members, a trust or company.
Buy-to-let investors have been thrown into panic by the widespread belief that the Con-Dem coalition government will more than double the tax on second homes in June’s emergency budget.
Estate agents are reporting an exodus from the sector – but will it really happen?
The Lib Dem’s pre-election manifesto proposed hiking up Capital gains tax (CGT) from its current flat rate of 18 per cent to a system akin to income tax banding.
This means higher rate tax payers could be hit for 40 – or even 50 per cent – of the profits on the sale of buy-to-let investments.
I spoke to the National Landlord’s Association this week, who tell me they have had more panicked phone calls and e-mails from their landlord members on this subject than any other issue.
They are mad, as the CGT system was overhauled by Labour a few years ago, introducing a flat rate by scrapping two crucial “checks and balances”.
These were the Indexation Allowance, which took house price inflation into account when working out the ‘gain’, and Taper Relief, which encouraged long-term responsible investing by reducing CGT the longer assets were held.
The NLA regrets it has not heard any whispers in the corridors of power that either caveat will be reinstated. And the talked-of cuts to corporation tax are no good for landlords either.
Unlike furnished holiday lets, conventional buy-to-let properties are not eligible for business asset relief, even though they are held for the purpose of business activities.
So it seems, many landlords have decided to try and sell their properties before 22nd June. Estate agency Chesterton Humberts reports a knee-jerk rise in sales instructions nationally, as detailed in my property column in the Investors Chronicle this Friday. Ironically, landlords can put homes straign on the market now that housing minister Grant Shapps has (sensibly) scrapped Home Information Packs (HIPS).
But if you’re a landlord contemplating whether to sell, here’s my advice. Firstly, there’s a risk the CGT hike could be retrospective. Secondly, it’s unlikely to be as high 50 per cent. If you’re holding your investment for the long term as most landlords are, it could well go down again in the future. Thirdly, and most importantly, what will you do with the cash if you sell up?
Take a long, hard look at the income you are currently receiving from your buy-to-let. If you’ve defaulted onto a tracker rate, chances are your gross yield is the best it’s ever been. Can you really hope to match that by investing in equities or bonds? (and by the way, you’ll be liable for CGT on any profits you make from those too).
Everyone is going to be squeezed by the budget ahead, but long-term investment decisions should not be tinged by short-term panic.
My first big surprise last week was the announcement that the government has finally abolished HIPs. I think that all residential agents have let out a huge sigh of relief that this useless bit of legislation has been done away with for good.
I personally do not know of any agents, sellers, buyers or solicitors that have ever bothered to actually read one and I have never found it useful in completing a residential conveyancing transaction.
I do however have to admit to being probably the “twit” of the week, having put my house on the market and my HIP was finally completed the day they were abolished! I asked the agents to reimburse me for the cost of this waste of paper which has been met with a stony silence that I guess it deserves.
I would like to say a big thank you to Tony Murphy of Bridge Business Recovery for putting on possibly one of the best golf trips I have ever been on. They treated around 25 clients to a trip to Chateau de Taulane in the South of France to an excellent two days of golf in the most stunning surroundings approximately one hour’s drive from Cannes.
This 18th Century Chateau has been transformed into an Hotel/Spa and in my opinion is one of the best golf courses in Europe. Well worth the trip.
The only bad news was the event was won by Noel Ruddy of PDT Law, playing off 17, who happily accepted the winning trophy wearing his Mexican hat!
So what is Good, Bad and Funny this week...
GOOD – We have had an influx of new business come into our office and put under offer well over £100 million pounds of new transactions.
We are naturally hoping that some of these will even proceed to exchange and completion and who knows we may even be paid on these!
I will keep interested readers updated on these developments as some of these deals will be ground breaking and are I believe a good indication of a real recovery in the property market.
BAD - I think we are all unhappy about the emerging plans that the new coalition government have on the tax front. Looking at the heads of terms there is a real chance of capital gains tax increasing from 18% to 40% or even probably 50% so to align more closely with income tax.
That is going to affect both individuals and trusts. There is no doubt that this will have an effect on our dealing markets and already we are seeing a number of sales going through the market as people want to take advantage of the lower tax regime.
I personally think this is a shame, the tax is fair and it intensifies people to trade rather than to hold property or look for other ways of ownership which will avoid these draconian measures.
I also hear that they want to bring an end to potential stamp duty land tax avoidance schemes by bringing forward legislation to look through any transactions so that, where there is any beneficial UK ownership, the purchase of the property will be liable to SDLT.
FUNNY – I read in the Daily Mirror that a property developer was selling a Geoff Hurst England shirt that he wore in the 1966 World Cup final for £2.3 million pounds.
It would be interesting to see if this property developer could be named (and shamed). I have a sneaky suspicion I know who it is, but if anyone has any ideas please let me know, not that I want to make a bid of course!
‘Vote for change,’ scream the Tory banners, with airbrushed-Dave peering down creepily like the ghost of Gareth Gates.
‘The choice,’ we’re told, is of ‘five more years of the same pants, or queuing up in M&S to buy some new ones.’ And you know how long the queues are in Marks since they brought in the self-service tills.
Change though, is what we got in yesterday’s Budget.
‘I’m gonna change the definition of strong cider,’ Darling proclaimed, like Moses bellowing out the six commandment. Expect it to be like when the chancellor changed the definition of ‘ATM’ and ‘public toilet’ to become an ‘empty property’ when offering rate relief in response to the award-winning campaign I jointly coordinated with Property Week.
Apart from much electioneering and some light fiddling of the figures, there was Scrumpy Jack in this Budget of any real substance. In truth, the whole thing was Tab Clear (Coke’s filthy clear cola). Remember that?
And as so many have done in times of despair, let’s turn to the Smiths for our Budget analysis as we apply the title of one of their early hits, What Difference Does It Make?, to some of the key announcements.
‘We have been through hell and high tied,’ Morrissey moans throughout. And he’s right, but things are getting better though: the national deficit is ONLY £167bn down from £178bn. Get in! I don’t know about you, but any number where the noughts resemble using an x-ray to peer into a tube of Smarties means nothing.
So let’s try some other figures and see what other Smiths song titles fit the order of play.
A Rush And A Push And The Land Is Ours
Inheritance tax is to be capped at the current threshold of £325,000, or rather, it will be pegged to September’s inflation rate like so many other bits of the economy. It was one of several deep political dividing lines drawn yesterday, but given you only pay it when you die, what difference does it make?
William, It Was Really Nothing
The look on Hague’s face when the crackdown on Belize was announced was priceless. It is a shame though that this was probably the highlight of Darling’s career. I’m of course referring to the three new tax treaties announced yesterday which will probably raise a few quid to pay for Liam Byrne’s latte’s and head polish. But given that most people don’t invest in a fund in some hard-to-find country, what difference will it make?
Sweet And Tender Hooligan
Official figures claim there’s around 1.8m people not working, compared to 4m last time around. Clearly they’ve not counted all the RBS and Lloyds property guys sitting on their hands, although a few dozen of them were out ‘working’ at Mipim. Lazy teenagers will now be ‘guaanteed’ training or ‘work’, according to Darling, in a statement that has strangely slipped by the media’s stupid filter. As the recent BBC documentary by Evan Davis (‘The Day The Immigrants Left’) showed, British people are, on the whole, lazy and stupid, leading one to ask of this measure – what difference will it make?
Barbarism Begins At Home
Hosing benefit will be capped at £1,100 to stop poor people living in posh areas apparently saving £50m a year by 2014-15. Of course this ignore the fact that the people who own their homes in these plush neighbourhoods will still want cleaners, and other low-paid jobs will still need to be filled. If people who have lived there on benefits for years are forced out, who will do these jobs? Benefit in this country is over £17.4bn – but what measures are being taken to kick off those people who don’t deserve it? And in the grand scheme of things, this will only save £50m from a debt of £170bn. What difference will it make?
Shoplifters Of The World Unite
The empty rates holiday is being extended in further admission that Mandelson was talking Nick Brown when he said it was “good for business” and there is also a general business rates cut for firms in cheap premises. But as we know, London is the world, and how many shops in London will have a rateable value under £12,000? The ones near me I Holloway might, but few others. As with all of these figures, the Treasury cleverly rig the figures so that they get a maximum claim of help for minimum cost. They call it politics while normal people call it lying.
Stop Me If You Think You've Heard This One Before
And then there was the Daily Mail card. The stamp duty cut for first time buyers. For two years. Meaning it’s a political move that the Tories (if they get in) would be forced to either repeal and risk looking silly or continue with when it runs out. Of course there are two very obvious points here. Firstly, it does nothing to help one obtain the massive deposit you now need to buy a house. And secondly, there’s nothing to stop the partner of someone who already owns a house buying another for investment purposes and saving money. In truth, the inheritance tax cap will probably do more good for the housing market given that first time buyers make up such a tiny proportion of the market. And if 1% is the difference between a house being affordable or not, then one should arguably steer clear.
Still, the main reason why it helps the Daily Mail readership is the large proportion of mums and dads funding their kids’ home buys. Which reminds me, when is mother’s day again?
So give or take a few script-dividends amendments, a few green funds designed to play catch up to the rest of Europe (even Portugal have had subsidised green technologies for years), there’s little here to change the world. But Labour has at least given us one important benchmark that can be carried forward to Cannes next year to help you all judge the really swish boat parties.
They won’t have champers, they’ll have premium cider.
To House of Commons Dining Room B on Wednesday lunchtime to hear the latest on the property industry’s continuing battle to reinstate empty rate relief.
The big guns led by the British Property Federation appear to have given up the ghost, but the Business Centres Association, fights on.
It was hosting a reception for MPs as a key part of its efforts to retain the £15,000 Rateable Value threshold on Empty Property Rates which was introduced in last year’s Pre-Budget report, for at least another year.
Westminster sources put the business centre lobby’s chances at 50:50.
The argument for keeping the threshold is that it helps the business centre world to keep empty space available in support of the 700,000 small businesses that use it.
The argument against is that this was only a temporary measure introduced in the teeth of the recession, and that bringing the threshold back down to the previous £2,200 Rateable Value could earn the Treasury a much-needed £185m a year.
There is another view over empty rates developing: that cutting the relief has driven landlords to agree a slew of cut-price leasing deals across the UK.
That, though, is only part of the story.
As Workplace chief executive Harry Platt points out, those landlords would have been desperate to do deals anyway in a recession.
And the biggest irony of all?
Why has the Government been exempting properties below the £15,000 rateable value threshold from empty rates if, as it has always argued, re-introducing empty rates does no harm at all?
Okay, this is not going to be as much of a problem for everyone as it is for me but have you ever tried to send anything bigger than a holiday snap over the internet to someone, somewhere else?
Anyone got any ideas on how to do it?
We've all heard of You Send IT and there are various others out there like Senduit and even sendbigfiles.com and a few months ago MSN offered me 5GB of space on their Spaces servers - lovely!
The good news is they all claim to be FREE!!!
The bad news is they don't appear to work - unless you are willing to pay.
I was trying to send a video i had shot of a Property Week European Awards winner who couldn't go to Munich to pick up his award in person.
Mr Peter Vernon, chief exec of Grosvenor UK & Ireland, kindly allowed me to record his acceptance speech at his office on Grosvenor Street and our AV Team in Germany were on stand-by to receive the footage.
After i had hastily edited it and saved it out as an AVI (which meant it was going to be large ) i looked for ways to send it to Germany - or in real life i was looking for a place on the internet which would allow me the server space to save my file and allow my colleague Matt Papworth to download it in Munich and play it at dinner.
Not hard you may think. You'd be wrong.
After trying various file share sites with my -hardly massive 160MB file - i found that none of them wanted to accept it. Prize for most infuriating goes to Sendbigfiles.com who made me wait an hour and 45 minutes before giving me an error message which read 'An unknown error has occured'. Yeah, my error in using your site i reckon.
Even the usually reliable MSN Spaces and Senduit were both having none of it.
in the end i had to have the file added to the root folders of the website! Then hastily removed once it had been downloaded.
Anyone got any answers?? I might even offer a prize for the best solution.