Agricultural Addition Issue 21 AutumnWinter 2017-18 - page 3

PROPERTY BUSINESS
INCORPORATION
ANYONE?
Many UK farmers who are also residential landlords are feeling it has been a personal
attack following the government’s introduction of both;
a) the restriction on loan
interest relief and
b) the 8% surcharge for
capital gains tax (CGT)
….therefore many are
considering incorporation.
But is this a good idea?
The issues to consider:
• Where a farmer’s
residential property is
actively managed with a
high degree of activity,
within the property, to
quantify it as a’ business’,
then if transferred to a
company, Newco, there
will be a CGT charge
at 28% based on the
properties market value
due to the ‘connected’
party rules.
However, incorporation
relief under S162 TCGA 1992
is available if all the business
is transferred in exchange
wholly or partly for shares.
The relief allows the gain
arising on the property
transfer to be rolled over
into the base cost of the
shares. Capital gains tax
only then becomes due if
and when the shares are
sold. Careful consideration
will need to be given to
the Stamp Duty Land Tax
implications.
• Rental income in the
hands of the farmer
owner will be subject to
income tax at a marginal
rate up to 45%. However,
a company receiving rent
is subject to corporation
tax currently at 20%
(due to fall to 17% by
2020). Profits within
the company can then
be flexibly withdrawn
to keep the farmer’s
personal income tax
levels to a minimum.
From April 2017, loan
interest is restricted to
the basic rate of income
tax, if the farmer owns
the property personally.
However, if within the
company no such
restrictions will apply.
• When selling a property,
if owned personally
capital gains tax will
be at 18% or 28% after
deducting your tax free
annual exemption and
assuming it has never
been used as your main
residence. If sold by
a company, any gain
arising will be subject
to corporation tax as
detailed above.
Deciding on the most
efficient way to hold
let properties is not
straightforward therefore
contact us to discuss your
specific position.
addition
agriculture
• autumn 17 • Issue 21
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