The Joy of Tax
In my 16 years of being a tax adviser, it is a rare occasion I meet a property client with straight forward tax affairs. The pressure of building, development or tenants often means that tax becomes something of an afterthought. Some of the most capable people in property development and investment have invariably come unstuck and have seen the profits of their project evaporate.
Tax and property are a little like oil and water, they just do not mix. Unlike other sectors, tax on property is not always something that is intuitive and the tax on a transaction does not always make sense.
There is really a requirement for the investor or the adviser to understand the rules. When I say this, I mean all the rules.
Simon Roberts - Property Tax Specialist
The misconceptions
Who would have thought that you might have to pay SDLT when you gift a property to a company you own, but not if you gift it to a spouse? Why would a developer be able to reclaim VAT he incurs on a floorboard but not a fridge? Why would a divorcing couple be able to swap properties tax free if neither of them is going to live in the properties for 7 years, but not 5 years? Why is a zero rated supply at 0% considered a taxable supply, but an exempt supply at 0% is not?
The examples above are by no means an exhaustive list and over the years I and many other tax advisers have had to develop a skill employed when meeting property people for the first time. This skill does not have a name, but it can loosely be described as trying not to flinch when people tell you what they have already done. It is not as easy as it sounds. The size of the problem you now suspect can sometimes make your eyes water. Knowing you will have to break the bad news weighs heavily on you.
How Hentons can help
For the lucky ones, we can intervene before things go too badly wrong, but others have to learn from their mistakes the hard way. Having to explain the unanticipated tax bill is never a joyous task and reactions vary wildly. No one has keeled over yet, but some have looked like they were not far off.
However, I would never want to use tax as a reason to dissuade people from investing in property. There are so many great ways to generate financial reward from property businesses and property professionals contribute to society in a big way. I would just tell people to learn about the system or hire someone who knows it well.
Hentons acts for many property clients and have an extremely healthy practice, looking after owner managed businesses and high net worth individuals. Our property clients range from the first-time landlord to the professional housebuilder to the developer converting offices into residences and everything in between. We act for clients all over the country but concentrate our efforts on Yorkshire and London. My partners and I will always be happy to discuss your business or project.
Contact Us
To speak with us about your tax commitments why not contact Simon at simonr@hentons.com or to find out more about the company visit www.hentons.com