Landlord Tax Planning By Cotswold Barristers Click mouse to proceed through this presentation Mark Smith Barrister-At-Law Qualified as a solicitor in 1986 and has been a Barrister-AtLaw since 1996 Head of Chambers at Cotswold Barristers and Hon. Legal Counsel for The Landlords Union Property118.com
We hold the UK record for having conducted and won the largest Direct Public Access case, recovering 27,500,000 from West Bromwich Mortgage Company plus 100% of legal costs and additional compensation on behalf of 6,200 private landlords via a Court of Appeal ruling, thus creating case law A substantial amount of my recent caseload has been to help private landlords to optimally restructure their tax affairs There is no one-size-fits-all strategy Example
one: Mr X is a 40% higher rate tax-payer and owns three properties His spouse has no income Using a Declaration of Trust we allocate the beneficial interest in the properties to Mrs X Mrs X pays no tax on the first 11,700 of rental profit and just 20% on the next 33,500
As the taxable income for Mrs X remains below the higher rate tax band she is unaffected by the Government restrictions on finance cost relief The Family Partnership Strategy Example: Mr & Mrs Y are both 40% higher rate tax-payers They run four HMOs between them, two of which they own and two are Rent-To-Rent deals
They have three children aged 18, 21 and 22 who are all students and have no income The A children do help to manage the HMOs family partnership is formed, which enables disproportionate allocation of profits to ownership Family Rental Partnership Strategy continued profits are allocated to the children, who have
no other income hence they pay minimal tax Their incomes are all retained on the partnership balance sheet (save for the tax), hence their capital accounts grow Mr & Mrs Y continue to draw the profits out of the business, thus reducing the value of their capital accounts The outcome is significantly less income tax, Mr & Mrs Y are able to draw more from the business than previously and the reducing value of Mr & Mrs Ys capital account is also reducing the value of their estate for IHT purposes Mixed A Partnership company is formed and appointed as Managing Partner
The Managing Partner Company charges a commercial rate of 15% of gross rental income to manage the partnership assets Any more would fall foul of HMRCs FA2009/S25 Transfer of Income Scheme rules This reduces the partnership profits on which the partners would otherwise pay higher rate tax The management company only pays 19% corporation tax on retained profits Incorporation The All It Z Family Partnership now has 8 HMOs partners are now higher rate tax payers
is more tax efficient to restructure as a limited company They transfer the whole business into a company and roll capital gains into the shares created to acquire the equity in the properties The value of the shares can be used to offset CGT using incorporation relief under TCGA92/S162 The company pays no Stamp Duty based on relief in FA2003/sch15 Cotswold
Barristers has developed two HMRC compliant structures to enable advantageous mortgage arrangements to remain in place, i.e. refinancing is not required Capital Account Restructure Example: The Z Partnership has minimal mortgage liabilities but incorporation is still very attractive to them for tax and other reasons Prior to incorporating they take a very short term bridging loan to
withdraw their capital account balances from their business Soon after incorporation they lend the money they borrowed to their company, which then uses that money to repay the bridging finance novated to the company at incorporation The company now owes a substantial amount of money in the form of Directors Loans to the former partners The company repays the Directors Loans out of future company profits with no tax implications to the Directors Becoming
non-resident Example: Mark and Svetlana were considering selling their properties Their concern was CGT because their business model had always been to refinance to raise money for new deposits CGT would account for nearly all sale proceeds net of mortgages By
becoming non-resident they only pay CGT on capital gains made after April 2015 Combining these structures EXAMPLE Become non-resident and use the capital account restructure to maximise the Directors Loan Accounts post incorporation When the company sells properties it uses the sale proceeds to repay the Directors Loans
The management company is also transferred into the new company, meaning that all profits it had previously retained can also be used to repay Directors Loan Accounts Mark & Svetlana Alexander Mark & Svetlana Alexander Landlords since 1989 2. Founders of Property118.com and The Landlords Union 3. Have been living in Malta since Feb 2016
4. They are living testimony to all of the strategies outlined in this presentation 1. Initial Consultation Process 1. Proof of identity and money laundering checks 2. Fact Find (email based) 3.
Bespoke report and recommendations via email including quotes for implementation of recommended strategy 4. Email, telephone or Skype based Q&A as required 5. Client Care Letter and Terms of Business issued for legal work necessary for implementation of recommended strategy Peace of mind 1.
Fact find, analysis and initial recommendations are all dealt with via Property118 Limited 2. Cotswold Barristers check the recommendations made to ensure we are comfortable to adopt them as our own professional advice 3. Legal work is carried out by Cotswold Barristers Costs 1.
Initial consultations 400 inc VAT 2. Counsels opinion on recommendations made by Property Limited is provided at no extra charge 3. Counsel is happy to join Skype Q&A sessions with clients of Property118 Limited and their professional advisers at no extra charge (subject to the initial consultation process having previously been completed) NEXT STEP
All initial consultations to be booked and paid for via www.Property118 .com/Tax NOTE Green text in this presentation is linked to HMRC manuals or legislation, save for the link below which is to the Property118 website www.Property118 .com/Tax
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