HM Revenue and Customs: Last orders, please
What does a pub chain have to do with your finances? We explain the link
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Current volatility in the property market can make investment decisions challenging. And this may be further complicated by tax increases in the pipeline. Investors should consider bringing forward any plans to refurbish or buy property, to take advantage of the current tax rates and minimise payments to HMRC. Investors should also remain abreast of new regulations and legal principles.
That isn't always easy. For instance, unless you have a particular interest in the arcane workings of the UK tax tribunal system, you probably won't be aware of an ongoing dispute between HMRC and pub chain operator JD Wetherspoon that could have implications for a large number of investors.
The disagreement revolves around the fit-out of 288 Wetherspoon properties. The pub operator sought to claim capital allowances on a range of expenses, some of which were rejected by HMRC. Following a First Tier tribunal ruling, it appears Wetherspoon will now be able to claim on an apportioned percentage of preliminaries (mainly upfront fees), plus work to strengthen and alter floors. But it failed in its bid to claim an allowance on the installation of panels and architraves.
Although subject to appeal, the tribunal ruling as it stands establishes principles that clarify the tax treatment of refurbishment work and it is potentially good news for investors in commercial property.
Fixtures and fittings
Changes announced on Budget day are easier to track and investors should certainly be aware of capital allowance rules that enable claims on a much wider range of fixtures, including general electrical and lighting systems. However, if the scope of allowable spending is widening, the sums involved are set to become less generous. From April 1, 2012, rates of capital allowance will fall to 18 per cent (general plant) and eight per cent (integral features). The amount of expenditure qualifying for annual investment allowance (100 per cent) will fall to £25,000 from £100,000. The 100 per cent business premises renovation allowance is also due to expire on April 11, 2012.
The slated increase in VAT to 20 per cent from January 4, 2011 will add significantly to the cost of construction of commercial properties and to the purchase of opted and new commercial properties (those under three years old), if the taxpayer uses the building for exempt business activities. If your aim is to let a building, it is worth considering whether to opt to tax it. That way, VAT charged on purchase or construction will be fully recoverable as long as VAT is charged on the rent.
Stamp duty land tax
Stamp duty is also set for a steep rise. From April 6, 2011, SDLT on residential property considerations over £1 million will go up to five per cent. To avoid the new rate - and save one per cent on the purchase price (a minimum of £10,000) - acquisitions must have an "effective date" (normally the date of completion) no later than April 5, 2011.
Tax considerations will always be relevant to property investment decisions and should not be ignored, so take advice to avoid falling foul of the details of the law. Who said "tax doesn't have to be taxing"?
Howard Freedman is a partner at Baker Tilly and head of its property and construction group, 020 7413 5100