Strategic Transaction Planning
Acquiring and disposing of property can be a rewarding but costly business; a property’s financial performance, its return and yield can be significantly enhanced by effective tax planning.
Issue
The business case and speed of acquisition have long been key factors governing property acquisition strategies; leaving little time for peripheral considerations. But with increasing competition, purchasers and property owners are demanding more of their property assets. Tax relief can provide significant returns, but is rarely included in a property acquisition or disposal; when it is included, the advice is often too late.
Relief
Capital Allowances are available to purchasers who incur capital expenditure when acquiring property. This relief is deducted from profits and can easily be matched against capital outlay. As such, it can represent significant cash savings - either as a claim on an acquisition or by retaining tax relief on a disposal. Sometimes, the saving can be through the transaction, if arranged and negotiated with the other party.
Approach
We are a team of tax qualified property professionals with senior level experience at the Big 4 Accountancy firms. As a result, we understand the development issues, and all the tax and accounting aspects of construction projects. We are specialists who can work alongside your own tax and project advisers. Offering a complete service, we can undertake feasibility and entitlement reviews through to claim preparation and securing the best possible claims with HMRC.
Detail
The tax relief is available to owners who buy and sell property for the purposes of their trade. Whilst capital elections can often be used to jointly fix disposal and claim values, recent changes to the regulations mean that new unclaimed relief will be available on all transactions after April 2008. As anti-avoidance and disclosure legislation can severely impact on
the transaction planning strategies, it’s vital that the relevant parties are fully briefed on all
the latest tax implications.
Opportunities
- Considering tax implications at the pre-acquisition or disposal stage ensures that potential claims can be incorporated into the transaction strategy.
- Thoroughly reviewing historic claims can determine future transaction tax strategies.
- As time elapses, the benefits of sale and leaseback arrangements are reducing e.g. Finance Act 2004.
- Planning the transfer of a business as a whole or in parts can optimise the tax planning available.
- Failing to consider tax sufficiently early enough may reduce potential savings, but some relief may still be available.
- Changes to the capital allowances rules mean that all commercial properties acquired after April 2008 are likely to have substantial unclaimed allowances.
Example
An investor disposing of an office building for £2,000,000 (acquired for £3,000,000) :
| Disposal price | £2,000,000 |
| Expenditure originally qualifying for relief (Say 30%) | £900,000 |
| Election to fix disposal value of fixtures valued at £100,000 | |
Overall tax saved and retained
(at 28% large companies rate) | £224,000 |
cash savings = £224,000 |