How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4196
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

I have a number of related tax questions. I am a landlord

Customer Question

i have a number of related tax questions.
I am a landlord owning a property portfolio of approx £7million, in a personal capacity. The portfolio is funded by bank loans and generally produces profits of approximately £300k per year. My questions are as follows:
1) in the tax 2014/15; I was involved in the FCA mis-sold swaps enqiry and the main bank (RBS), decided that they had unfairly over-charged me £150k of interest in previous years-but rather that make the repayment to me, they unilaterally decided they would keep the refund and set it against the outstanding loans. So the total interest was credit to my current account, and deducted from my current account the same instant-without me having a say in the deployment of said funds.
My question is "is this amount taxable as a refund of interest"-even though the funds were retained by the bank without my say-so?
2) Question 2: as part of a restructuring arrangement driven by the bank, I am thinking of transferring a large part of the portfolio to a newly formed family company-the bank is worried about succession issues (I am 57 years old). The plan is that I would own say 55% of the shares of Newco, and my 2 sons (both older that 19 years and currently at university), would own the balance of the shares. I have 3 questions in this regard:
-on any sale of the properties to newco-capital gains tax would be payable in the normnal way? would any capital losses be restricted as to their future use?-for example, would I be able to use these losses against other unrelated gains?
-stamp duty: is there any stamp duty land tax relief for connected party transfers?
-what is the possibility of HMRC viewing the gross transfer of assets as one transaction and charging stamp durty at the highest marginal rate for all the assets being transferred?
any thgought would be appreciated.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your questions. If that is interest being refunded then it would be subject to Income Tax, but not in one tranche. You could insist on its being applied to the appropriate years. The authorities may not like it but there is little they can do about it. The behavior of RBS is typical, rather than have an adverse cash flow they reduced your loan. If you transfer land to a limited company then it will count as a disposal for Capital Gains Tax (CGT) and you will be liable for the tax on the gain (calculated at current market value) at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale. Stamp Duty Land Tax or Land and Buildings Transaction Tax in Scotland is levied on the consideration passed so there would be none in the scenario you propose. There is also the latent problem of the new company structure. It is effectively making a gift to your children of say 45% of the property. Gifts create a Potentially Exempt Transfer (PET) in your Inheritance Tax (IHT) affairs. PETs run off at a taper over seven years and in the event of your demise within this time frame are added back to your estate to determine your IHT liability. PETs are the first to suffer IHT (40% flat rate on assets over 325K on current rates, but times they are a changing and by 2017 your children could inherit up to 1 million free of IHT). If your estate is insufficient to meet the IHT on the PET the liability cascades down to the beneficiary for immediate payment. I have painted a rather grim picture, but it may not be quite so bad as you could benefit from Incorporation Relief. Gov UK web site advises: 'Delay paying Capital Gains Tax when you transfer your business to a company. Transfer all your business and its assets (except cash) in return for shares in the company' Of course you don't actually save anything, you just don't pay the CGT at transfer, but defer it and roll the liability into the company. I have given you a general view of the situation, but there is a lot at stake here. You would be well advised to take trusted, local, professional advice before commencing these activities. 28% of 7 million is a tad under 2 million, the sort of tax bill which could creep up on you like a sock full of wet sand! I do hope that I have shed some light on your position.
Customer: replied 1 year ago.
thanks-I am in England-and not Scotland-and all the properties are located in England-so would the stamp duty be the same?
Customer: replied 1 year ago.
any comments on teh stamp duty point
Customer: replied 1 year ago.
no money will change hands
Expert:  bigduckontax replied 1 year ago.
As there is no consideration ie moneys passed Stamp Duty Land Tax does not arise. The same is true for England and Scotland, just that the name of the impost and the rates have changed with devolved powers.
Please accept my apologies for the delayed response. I am answering your question from Thailand where I am staying and we are seven hours ahead of GMT. I was in bed!
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 1 year ago.
Thank you for your excellent support.