DAC Beachcroft Real Estate Advisory: Tip of the week - Keep Good Records and Save Tax - DAC Beachcroft

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DAC Beachcroft Real Estate Advisory: Tip of the week - Keep Good Records and Save Tax

Published On: 19 May 2014

Most companies and individuals hold property as an investment and when they sell the property broadly the difference between the acquisition and disposal cost will be treated as a gain, subject to CGT (for companies technically this is corporation tax on capital gains). This will almost always be better than paying income tax/corporation tax on trading profits.

If the property was bought with the intention of selling it then the property will be trading stock such that income tax/corporation tax on trading profits is due. Equally if the intention changes half way then any increase after that point is no longer a capital gain.

A trap arises for vendors who have only owned a property for a relatively short period of time, who are at risk of HMRC saying they must have bought the property with a view to selling it, and therefore seeking to charge income tax/corporation tax on trading profits on the total upside. There is no magic wand to rebut this, but it is very useful to have clear statements such as board minutes or the like from the outset, showing that the reason for the purchase was always to hold the property and use it for the purpose of the business (which can include letting it to third parties). Should there be a sale in relatively short order and especially if the property was never used for the business, it should be clearly reported that this was not evidence of the original intention being wrong, but rather that circumstances have changed since the purchase.

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