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bigduckontax
bigduckontax, Accountant
Category: Tax
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I have a client who went ahead and bought a but to let in a

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Hi Keith
I have a client who went ahead and bought a but to let in a trading company. I have said he should have had a separate company as this may impact his ER relief one day and in addition need to keep separate accounts for property income etc . I have warned him that there could be (unlikely) repercussions re ER in the future as even with goodwill property will exceed 20% of assets. I do understand this can be argued with HMRC as "in the round" may not fall foul. What say you ?
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 question.

I concur with your opinion that a separate company would be a more convenient and safer vehicle by isolating the buy to let from other possible risks. However, providing that the accounting for the buy to let can be clearly delineated, there should be no problem. Remember companies are not subject to the Capital Gains Tax (CGT) regime at all, any gains or losses merely passing through the company's trading account and exposed to Corporation Tax (CT) at 20%. The Chancellor has recently stated his intention to drop this rate to 15% at some time in the future. Thus ER will not come into the equation at all, see HMRC Helpsheet 275.

I do hope that you find my reply of assistance.

Customer: replied 1 year ago.
Thanks Keith
I am aware re CT for the company -my concern was that if the company ceases to trade or is sold then in order to get 100% ER for the client -we need to prove that the Rental income in not more that 20% of total company income and that property is not more than 20% of the company's total assets ?
You made no comment re this -assume you meant this as "one of the possible risks" you mention above?
Thanks
Blaine
Customer: replied 1 year ago.
Hi Keith
what about second half of question which I have restated above?
Thanks
Blaine
Expert:  bigduckontax replied 1 year ago.

I am at a total loss as to what you are getting at with this 20%; please elucidate.

Customer: replied 1 year ago.
Hi Keith
In terms of claiming 100% ER -should company be sold or wound -up,
the ER can be restricted if more than 20% of turnover /profit /assets is
from non-trading activity .
Kind regards
Blaine
Expert:  bigduckontax replied 1 year ago.

ER can only be claimed in general terms against a cessation of trading activity. The cash holdings if significant do not attract this relief. Application should be made in cases of genuine doubt as to trading status, to HMRC for non-statutory clearance on behalf of its shareholders. HMRC has published a checklist of information to be included in such clearance applications. The Gov UK guidelines can be found here:

http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/manuals/cg4manual/CG64100.htm

Customer: replied 1 year ago.
Okay Thanks ,Keith
Expert:  bigduckontax replied 1 year ago.

Delighted to have been of assistance.

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Expert:  bigduckontax replied 1 year ago.

Thank you for your support.

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