Throughout 2010 it seemed that there was hardly a day without comment in the press concerning the acute problems of the property market.
2010 newspaper coverage centred largely on residential property and reflected that the position for the year was likely to be flat. That view tended to consider the picture for property as a whole and masked significant regional and sector variations.
Those variations have been reflected in the businesses of the client base that we advise in both the residential and commercial sectors, and for developer and investor alike. Our experience over the year has been that those companies that have concentrated diligently on their cost base while retaining key staff working hard to meet client/tenant issues have performed better.
Managing tax costs has played its part. Importantly expecting directors of a company to have a deep-rooted knowledge of the UK tax system is not realistic. Typically a company director will know enough to ask questions, but specific issues need to be discussed and knowledge exchanged.
Businesses can easily suffer unduly simply by not identifying 'tax wins'. It is important to keep in mind that there is still time to deal with issues from 2009 and 2010 and potentially earlier, i.e. when a number of now loss-making or break-even companies were tax paying.
Below is a brief overview of some of the reliefs that may be available to your company.
Loss planning
- Losses have value. They can unlock tax payments paid in the previous year by a company when carried back. Provisions remain in place that allow a company to carry back unlimited losses to the preceding year and this relief was extended for the accounting periods ending between 24 November 2008 and 23 November 2010 to a period of three years subject to a cap of £50,000 for each year. As the cap operates per company, groups may be able to make more than one claim.
- Maximise losses to be carried back. Provide for bad debts, accrue for costs, write down stock, etc.
- Landlord energy savings allowances. Costs of up to £1,500 per dwelling can be claimed by a landlord when, for example, insulation/draught proofing is added to a dwelling.
Enhanced tax reliefs
The following enhanced tax reliefs allow for tax deductions or immediate write-off of what would otherwise be capital spend.
Land remediation relief
Have you incurred expenditure to remediate contaminated land, i.e. where pollutants on or under the land are causing pollution? If so, a company can claim 150% of qualifying expenditure or a lossmaking company can claim a tax credit repayment of 16% of the qualifying loss from HMRC – particularly useful where cash flow is an issue.
Flat conversion allowances
Usually no costs for the conversion of a dwelling attract capital allowances. However, where space above commercial premises is converted to flats availability of this relief should be investigated as it allows for a deduction of 100% of qualifying spend.
Business premises renovation allowances
This relief allows for 100% of qualifying capital expenditure to be claimed as incurred. The relief is postcode specific (Liverpool, Birmingham, Manchester, etc).
Energy efficient allowances
100% write-off for energy efficient lighting, heating, power and their control systems, etc.
Property acquisitions and disposals
- For recent property acquisitions, commercial or residential premises (where there are common parts), claims for integral feature capital allowances should be investigated. A capital allowance pool was introduced on 1 April 2008. While capital allowance elections of a vendor may ascribe a £1 value to this pool, that is often ineffective given the mechanics of how this allowance operates. Relief could range from 5%-10% of the property purchase cost.
- Have all the costs of the initial acquisition of the property including all legal and advisory fees connected to the purchase been identified? Has the stamp duty paid on the initial acquisition been identified and included as a cost? Have property improvement costs been included? Similarly, on disposal have all legal, agent and adviser fees been identified and included?
Many companies do not maximise reliefs that they are legitimately entitled to. Please contact your adviser to discuss your specific situation further.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.