With the Conservatives and Liberal Democrats now snugly installed at Number 10 amid widely ranging opinions from the press speculating on how long the coalition will last, announcements on the UK economy are flooding the press as David Cameron and Nick Clegg set about the British economy with their financial hatchets.
So far, the largest cause for uproar has been the announcement of a change to Capital Gains Tax (CGT). Whilst currently at 18%, speculation by the media suggests the rate could be raised as high as 50%. What few have mentioned though is that the CGT increases will “only be for non-business assets, with allowances made for entrepreneurs.”
If the latter statement is to be taken as read, this does open up some interesting points with respect to multi property owners and the Buy to Let industry. At present the vast majority of the press have really only pointed out the doom side of things. However, if you look a little more closely, there is some light at what would appear to be the end of a very dark tunnel.
Given that the CGT increases are set only for “non business assets”, it would suggest there might be some financial solace to be found by converting ones Buy to Let portfolio into a company. (To be honest, if you have more than one it would be a wise move given the tax breaks possible anyway). Corporation tax stands currently at 28%, which, granted, is a lot higher than the existing 18%, however, if you anticipate offloading a sizeable amount of your assets in the not too distant future (and not just property at that) then it could be suggested that forming a company, or at least looking into it, might be an idea for the short term.
UK VAT, although not covered specifically in reports so far, is being suggested by the media to be in for a hike too, up to 20%. If this is the case, the company route for managing your own investments is even more valid.
In Scandinavia, the use of private companies as tax shelters and investment containers is quite common, especially where income tax is set at very high rates, the other side benefit to be gained is, in the cases of investment losses, liquidation of a losing asset can in some situations be written off against other gains.
Of course, most of this is still talk at the moment, the coalition has hardly had time to change the names on the headed notepaper yet, but with the emergency budget scheduled to arrive within 50 days there is no doubt that concerns will surface.
What to do?
Undertaking portfolio restructuring is a significant task to say the least, and qualified professional advice should be sought in these matters. Moving all your assets into a company will not be suitable or cost effective for everyone, but well worth looking into when taxation changes of this magnitude are on the table. There has been no real doubt in anyone’s mind that a change in UK Government would lead to more tax somewhere, and there are other areas in which relief is being offered, it’s just a case of managing investments a bit more carefully.
- Thursday 13 May 2010