A couple of current “tax traps”
Annual Investment Allowance – from April 2008 most businesses are entitled to an Annual Investment Allowance for Capital Allowance purposes of £50,000 – this amount can be written off against taxable profits in full (effectively a 100% first year allowance on £50,000).
However whilst this applies to individuals, partnerships and companies – and in some circumstances an individual and a company they control get an allowance for each – it doesn’t apply to partnerships if any of the partners are companies.
So if you have a partnership, where one or more partners are companies, then please seek our advice on the best structure for you.
Entrepreneurs Allowance – from April 2008 the old Business Asset Taper Relief regime for Capital Gains Tax is replaced by Entrepreneurs allowance on the disposal of business assets in certain situations, normally aligned with the disposal of a whole / significant part of a business.
The practical effect of this is that if you sell a business asset, eg a building, at some time other than the sale of your business you will not receive a privileged Capital Gains Tax treatment – however roll over relief, to defer the tax charge, will often be available.
However if you sell a property at the same time as selling a business then Entrepreneurs Relief will normally be given meaning the first £1m gain is taxed at 10% rather than 18%.
There is one exception to this however – if the property has been rented to a partnership / company of which you are a member / partner then the Entrepreneurs Relief will be denied to the extent that the rent is in proportion to a commercial rent. Over recent years it has been common place for commercial properties to be owned outside of businesses and rented to the company / partnership and if this is the case then relief will be affected, even if, as is common, the rent only relates to interest charged on a mortgage loan. If the business uses the property rent free then there is no restriction.
NB1 periods before April 2008 are disregarded.
NB 2 this doesn’t apply to “renting” part of your home to your business as an office.
So, if you have a company or partnership, and rent a property to that company / partnership, even if the rent is just to cover loan interest, then please seek our advice on options available to you.