Turning economic gloom into economic boom
A firm of Swindon accountants is encouraging clients to turn economic gloom into economic boom.
Tax experts at Morris Owen Chartered Accountants, of Devizes Road, Old Town, say Swindon businesses should be looking on the bright side and exploring ways of making the economic downturn work in their favour.
Peter Crozier, tax consultant at Morris Owen, says: “In these times of economic gloom, there may be opportunities to benefit still. It’s all about a positive approach and maybe doing things differently than you might have done before.”
Peter cites the current state of the housing market as one example, saying: “Companies might be holding property which 12 months ago was showing a substantial capital gain. Obviously this might not still be the case, so now could be the time to remove the property from the company, possibly by sale to the director. This could still result in a capital gain, but it will be reduced.”
This could also be considered in cases where businesses are recording trading losses. He says: “If companies have trading losses, these can be set against the capital gain. For example, a company with £50,000 capital gain and a trading loss of £100,000 could set the £50k against the loss, which would result in no capital gains tax to pay.”
If a business does sell a property to its director, on eventual sale the annual capital gains exemption (currently £10,100) could be used and a lower tax rate of 18 per cent would apply. Peter says there are also other factors to consider, such as the director claiming Entrepreneurs Relief if the property is still used in the company business. This could reduce the tax rate to 10 per cent.
Now could also be a good time to consider giving property to family members.
“With property prices reduced as they are, gifting property to relatives is certainly something which is more attractive than it was a year ago,” says Peter.
“The gift could, depending on tax reliefs available, create a capital gain, but it will be a reduced one. And if the property is in joint names, two annual capital gains exemptions (totalling £20,200) could be used. When the market recovers, the property will be in the hands of the people you wanted it to be and you won’t have paid as much capital gains tax as you would have done in more buoyant times. For Inheritance Tax purposes, as long as the donors survive for seven years afterwards, the gift will fall out of their estate.”
Peter added: “Stamp Duty Land Tax and professional fees would be payable on the above transactions, so care should be taken to ensure that any tax savings generated are cost effective. The impact of removing a property from the company when raising business finance also needs to be considered, so financial advice should be taken before entering into any transaction.”
This article originally appeared in the June 2009 edition of Swindon Business News
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