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Private Residence Relief and Lettings Relief - CGT

Practical Issues
Cookie
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Private Residence Relief and Lettings Relief - CGT

#248255

Postby Cookie » August 31st, 2019, 6:42 am

I would be grateful if someone could sense check my calculations below

Myself and my wife jointly own a rental property we own and are considering what to do about the loss of LR and reduction to 9m for PRR next April

We are considering whether to sell from personal names this same tax year and sell to our Limited Company. That way benefiting from the reliefs prior to their reduction, but also moving to the company to avoid personal taxation on rental profits (although these rental profits are minimal)

I believe the company would pay the higher SDLT, as it is effectively a cost to us as directors, I have included this in the calculation

We have used some of our CG allowances and only have £2,604 each remaining

SECOND PROPERTY
OWNED 5723 days
LIVED 727 days
LET 4996 days

NET GAIN £ 45,470
INDIVIDUAL GAIN £ 22,735


RELIEFS <2020
PRIVATE RESIDENCE RELIEF £ 5,063.07

LETTING RELIEF £ 17,672.07
Lowest of the 3 limits (PRR,LR,£40K) £ 5,063.07

Remaining Gain £ 12,609.00

Allowances £ 2,604.15 (remaining for the year)
Remaining Gain £ 10,004.85
Tax 18% £ 1,800.87

STAMP DUTY
3% £ 3,750
5% £ 2,000
TOTAL SDLT £ 5,750

TOTAL £ 7,550.87



RELIEFS >2020
PRIVATE RESIDENCE RELIEF £ 3,975.57

LETTING RELIEF £0
Lowest of the 3 limits (PRR,LR,£40K) £0

Remaining Gain £ 18,759.57

Allowances £ 12,000.00 (new tax year)
Remaining Gain £ 6,759.57
Tax 18% £ 1,216.72

SUMMARY
RELIEFS <2020 £ 7,550.87
RELIEFS >2020 £ 1,216.72

For our specific circumstances, particularly with most of the CG allowances used up this year, it appears selling in subsequent years would result in less tax

Charlottesquare
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Re: Private Residence Relief and Lettings Relief - CGT

#248325

Postby Charlottesquare » August 31st, 2019, 11:29 am

To me I would leave where it is, triggering a definite tax charge now if moving it for a maybe benefit later (and I do not see the maybe benefit in your calculations anyway at present) does not look appealing.

At the end of the day gains accruing going forward in a company are taxed at 19% , outwith a company 18% or 28% depending on marginal rates, the front end SDLT really makes this a pretty unappealing e gamble specially if the company;

1. Has compliance costs re accounts/tax compliance
2. If company makes the gain if it later sells there will be further tax if you want to extract the gain from the company, remember dividends can and will attract a tax as will future wind up of company.
3.The fact that you use 18% for the CGT suggest you are possibly habitual basic rate taxpayers, having future income taxed at 19% in company ,when it would only be 20% if you are taxed as individuals, does not look stunning- also if a Labour government last manifesto had CT rates rising.

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Re: Private Residence Relief and Lettings Relief - CGT

#248492

Postby Cookie » September 1st, 2019, 5:01 pm

Charlottesquare wrote:To me I would leave where it is, triggering a definite tax charge now if moving it for a maybe benefit later (and I do not see the maybe benefit in your calculations anyway at present) does not look appealing.

At the end of the day gains accruing going forward in a company are taxed at 19% , outwith a company 18% or 28% depending on marginal rates, the front end SDLT really makes this a pretty unappealing e gamble specially if the company;

1. Has compliance costs re accounts/tax compliance
2. If company makes the gain if it later sells there will be further tax if you want to extract the gain from the company, remember dividends can and will attract a tax as will future wind up of company.
3.The fact that you use 18% for the CGT suggest you are possibly habitual basic rate taxpayers, having future income taxed at 19% in company ,when it would only be 20% if you are taxed as individuals, does not look stunning- also if a Labour government last manifesto had CT rates rising.


That's some pretty persuasive and technically accurate reasoning! A good overall picture too, thanks!

Start up SDLT and running costs for a similar taxation

PRR+LR = £10k VS £4k = £6k more
SD = £6k more
ALLOWANCE = £2.6 VS £12k = £9.5k more
COMPANY = Running costs + 18% CT (similiar to CGT)

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Re: Private Residence Relief and Lettings Relief - CGT

#248515

Postby Charlottesquare » September 1st, 2019, 6:38 pm

I should also have mentioned the legal etc costs shifting the title.

There can be sound reasons for holding assets in companies but they are not, in my opinion, an automatic cure to all ills for tax planning and of course once in the asset is subject to the future vagaries of politicians re tax whilst within the company and also those that impact my extracting value from the company in the future, accordingly unless there are compelling reasons to move an asset into or for that matter out of a company I tend to favour sleeping dogs.

My decision making would more be:

1. a relief I can currently enjoy is being removed
2. given 1 do I want to long term continue to hold the asset or not?
3. If I do want to long term hold then the relief in question actually has limited current value to me even if not being removed, so why do I need to act or do anything?
4. If I do not want to hold long term just sell the asset now to A N Other, take the relief, bank the cash.

The other cost hidden is if asset in company and it then sold by company then whilst you might be able to wind up company and get capital gains treatment re the shares in same, this, if company assets over £25,000, can only now be had via formal company liquidation, if not, and assets would be over £25,000, the receipts from company would be distributions (dividends). Whilst you could move property in to company and create loan for current value owed to you by company, so no tax withdrawing that, all future increase in value, if over £25,000, would need this point considered.


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