Straight Talking at Mazars Property and Construction Seminar

On 7 July, national and international property and construction business owners, financial and legal professionals packed into Bedfordshire Golf Club for an intense update at Mazars’ property and construction seminar. It gave a timely forecast of how recent property market trends, industry behaviours and often hidden taxations will interact.

Lindsay Pentlow, partner at Mazars in Milton Keynes, provided seven valuable tips:

1) If possible, ensure that your business has property trading status rather than property investment status. This will enable a 10% entrepreneurs’ tax rate rather than 28% when you exit and help with family successions by removing inheritance tax.

2) If part of your business trades and the other invests in property, it may be treated as an investment group in its entirety. If you divide the group into investment and trading businesses you can access these tax breaks for the trading part of the business.

3) If you have a share premium account on the balance sheet you can, in effect, repay this as a capital dividend taxable at 10% for a property trading company or 28%for the an investment company. Both of these are hugely advantageous compared to the top rate of income tax at 50%.

4) Structure your shareholdings to maximise entrepreneurs’ relief. It is now worth up to £900k per person in tax saved. Amongst other things, you will need to be employed by the company and have 5% of the capital and 5% of votes.

5) Separating income and capital shareholdings can dramatically reduce inheritance tax. It means that capital can be passed on to the next generation whilst retaining lifetime income security.

6) If you have a property investment group, you can partner the company as an individual in making the investment – an LLP with a corporate and a personal member. Income can go to the company to be accumulated at low rates and the capital gains to the individuals.

7) Inheritance tax can be reduced by creating ‘growth shares’ within your company. This is a one-off opportunity that has resulted from the recent dip in property company share values. You can give the growth shares to the next generation so that when their value rises as commercial property prices rise, this can go to the next generation without IHT implications.

Adam McMillan, partner in capital markets at Cushman and Wakefield, added to this by sharing his market predictions.

Speculative office and industrial property development will fall to zero and remain there for at least 12 months, although prime headline rents will stabilise across the UK. Retail development will remain low with delivery dates extended beyond 2012.

High-quality industrial and office space availability will rapidly diminish due to strong private sector demand, but public sector demand will dramatically decline. In retail, the compression of property yield has slowed as investors start to meet their requirements.




Emma Wise, senior tax manager at Mazars, suggested that it may well make sense to incorporate business activities.

“There is a real case for incorporating businesses if you compare 50% income tax with 20% corporation tax for smaller companies.

There are other considerations concerning timing. At present, a business can claim a 100% tax deduction on the first £100,000 of capital expenditure, but next financial year this sum will be reduced to £25,000.” she warned.





Finally, Jacki Wells, director and VAT specialist at Mazars, rounded things up with some frightening VAT facts. The rise to 20% VAT on 4 January 2011 is going to hit residential property investors and tenants in the financial services sector.

“If you had already planned something for this year, which would run into the early part of 2011, you should be able to structure your arrangements to benefit from the lower VAT rate.

“There were a number of hidden taxes in the budget. For example, SDLT (stamp duty land tax) is calculated on a VAT inclusive price, so this will also rise as a result of the increase in the VAT rate. In addition, the 1% rise in IPT (insurance premium tax) payable on property insurance was not widely publicised. Always check the clauses in your contracts and quotes to ensure that VAT can be recovered from the customer if it becomes payable on a transaction.” warned Jacki.

Although some charitable buildings can still be constructed without VAT being charged the rules have been tightened. Previously 90% of a building had to be used for non-business purposes but this has now risen to 95%.

Jacki’s presentation was packed with real-life examples of how innocent oversights and errors can result in significant additional VAT costs and how VAT can be saved with careful planning. There have also been several changes to VAT legislation in the last year so Jacki stressed that professional advice should always be sought by anyone entering into land and property transactions.

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