Q&A for Business Doctor
How and when should I reorganise my business now to try and save tax in the future?
Jacquie Adams, tax partner at accountants and business advisors Beever and Struthers.
Due to the current economic climate business assets have fallen in value, and now might be the time to capitalise on this scenario. Here are some options for business owners.
Taking the property out of the business
Holding the property you trade from within your company, may not presently be efficient. This is because capital gains in a company are taxed at the corporation tax rates which are likely to be much higher than the standard rate of 18% for capital gains tax for individuals, partnerships or trusts.
It might be a good time to consider transferring the property out of the company and putting it into for example, a private pension scheme or a trust, prior to selling the property at a later date when the market picks up.
If you transfer the property it may also be worth considering leasing the property back immediately via a Sale and Leaseback arrangement. While this provides the new owners with an income stream, it also allows your company to benefit from stamp duty land tax relief on the leaseback element, based on certain criteria being met.
Should the company have current trading losses, the gain arising on the transfer of the property could be offset against them, thus reducing or even eliminating the tax charge.
Maximising value within the business
Are there elements to your business that no longer form part of your core activities but that could in future be attractive to investors or potential buyers? If so, these elements could be demerged now to reduce the potential gain arising, and once the market improves they could attract investment or be sold off.
If the company has any current trading losses these can be used to minimise the tax charge on the gains arising.
Transferring assets now
If you are intending to pass your shares in the company to your children, restructuring now whilst the capital gains are lower could be an attractive tax efficient strategy. Likewise, if you are thinking of giving specific assets to your children in the future now is the time to consider making the gift – as well as minimising the capital gains this would also start the seven-year clock for inheritance tax purposes. Should you die within the seven-year period, the value on which inheritance tax would be payable may also be lower than if the assets were transferred at a later date or even on death.
Business owners have a wide range of options to choose from and should consult with professional advisors to discuss the best course of action.
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