SDLT Transfers to Limited Companies

Holding a buy to let property via a limited company can be an attractive way of holding property.  Lower rates of corporation tax and full mortgage interest deductions apply following the changes to interest relief for individual landlords.

There have been changes to stamp duty land tax and as such it has become an area that should be given more than a mere thought.  Here we are looking at the SDLT implications of property transfers in England, Northern Ireland, and Wales.  Transfers of property in Scotland will be subject to land and buildings transaction tax, and from 1 April 2018, property transfers in Wales will be subject to the land transaction tax.

Where an individual is transferring a property to a connected limited company the following should be considered:

  • The consideration is deemed to have been payable at no less than the market value of the property. The SDLT cannot be reduced if the transfer is for nil consideration or at less than market value.  There are no rules relating to gifts etc.
  • The additional rates of 3% will apply to all residential property acquisitions made by companies.
  • If the transfer to a company comprises a mixed-use property i.e. residential and commercial, then the mixed-used rates apply.
  • If two or more properties are transferred to a company, then it may be possible to make a claim for multiple dwellings relief. This relief calculates the SDLT payable by reference to the average value of the properties transferred.
  • The higher SDLT rate of 15% applies where a company acquires a single dwelling interest valued over £500,000 unless for qualifying business purposes. Relief is available where the properties are held as a buy to let investments though further SDLT may become due if there is a change of use within three years.

Based on the above a thorough review of the SDLT implications should be made before any legal or beneficial transfers of property take place as transactions of this nature can deliver surprising results!

Advertisements

Commercial Service Charges

Service charges for commercial buildings are sometimes for separate supplies with their own VAT liability and sometimes treated as additional consideration for the building so that the treatment follows that of the rent.

For business rates it depends on who is the rateable person; if this is the landlord and he simply recharges a share to each tenant to cover his outlay, with or without a profit element, then it is treated as additional consideration for the building and follows the rent.  Hence a charge for ‘Rates’ could be exempt or standard rated depending on whether a landlord had opted to tax.

The same rule applies to insurance where the landlord is the insured person and he simply passes on a share of the cost to the tenants; this is commonly the case with a landlord’s buildings insurance.

Gas and electricity are treated as separate supplies either at the standard or reduced rate (depending on usage) where each tenant has a separate meter.  However, if they are not separately metered, the onward charge is additional consideration for the building.

Where, under the terms of the lease, a service charge is imposed to cover to cover the upkeep of communal areas, this follows the treatment of the rent. However, if a tenant pays to have specific work done to his designated part of the building such as cleaning or decorating, this will be a standard-rated supply.

Office Relationships

The subject of office relationships can be a difficult one. Whilst many employers actively look to foster a culture of togetherness and cooperation, the development of a romantic relationship between colleagues can create a difficult situation in the workplace. A recent study showed that 65% of office workers have been involved in at least one workplace romance. These figures highlight the importance of having a clear workplace policy on romantic entanglements in the likely event they develop in the workplace.

You may choose to introduce a workplace policy that bans romantic relationships. There are advantages to doing this; relationships can create problems such as attracting gossip and causing friction between colleagues. Perhaps most problematic is the uncomfortable and disruptive scenario that could arise if the relationship were to end, forcing both individuals to continue to work together. There is a risk, however, that a total ban will infringe on employees’ rights to privacy.

In most instances, attempts to completely ban workplace relationships are unlikely to work and may just lead to these relationships being conducted in secret. The existence of covert relationships will pose a different problem for your client as it means they cannot manage this effectively as they are unaware of it. It may also lead to negative impacts on the workplace such as an increase in gossip or allegations of bias or favouritism.

The question then becomes how you can manage romantic relationships rather than ban them all together. Some employers even believe the existence of romantic relationships shows their staff is comfortable at work and that this is indicative of a caring and considerate work culture.

You could implement specific policies that enable them to put in place specific rules about workplace relationships. Prohibiting managers from dating their subordinates is a common solution to avoid any favourable treatment and friction amongst the wider workforce. In the event that such relationships do occur, the policy can encourage the honest disclosure of this information to allow your client to relocate one party to a different team or department, neutralising the situation for the good of the business. As with all policies, employers should ensure all employees are well aware of the guidelines and the consequences should they fail to follow these guidelines.

Smoking breaks

Smoking breaks can be a divisive issue in the workplace often causing friction between the company and both smoking and non-smoking employees. Whilst it is a common belief that employees are entitled to additional smoking breaks, there is no law to support this.

Under British law, you are is required to provide one uninterrupted break of at least 20 minutes to adult workers who are working for longer than 6 hours a day. This break is to allow the employee time to rest away from their workstation. There is no obligation to pay workers for their breaks so entitlement to pay is dependent on the terms of the employment contract.

If during this minimum 20 minute period, employees wish to smoke then they may do so, however, this must comply with your smoking policies. Some companies have a complete smoking ban on the entire premises to prevent employees smoking directly outside the building because this practice is often credited with causing litter or portraying an undesirable company image.  Alternatively, if smoking is not completely banned on site, you may wish to provide a smoking shelter to accommodate smokers, however, they are not legally required to do this.

Changing your current rules on smoking breaks – removing additional breaks, for example – may cause friction with smokers because you are essentially changing their terms and conditions of employment. Even if you have never officially covered smoking breaks in your policies and procedures, a sudden withdrawal may still qualify as a change to an implied term of employment if you were aware that it happened but turned a blind eye. If you have allowed the practice for a significant period of time and then decide to forbid it, you should inform all employees that you are drawing a line in the sand and that, from a chosen date, no more additional breaks are permitted.

In many cases, additional smoking breaks causes resentment towards smokers from their non-smoking colleagues who do not take extra breaks.  Where these instances occur, it may be difficult to justify the extra breaks where the result is that smokers are essentially being paid the same to work fewer hours. Requiring smokers to make up the time spent smoking may be a resolution. Another option would be to allow non-smokers informal break periods of a similar length.

It is important that any practical decision made is based on ensuring fairness and equality between smokers and non-smokers. This should be supported with clear policies that are in line with the relevant legal requirements.

Student Loans

If the director of a company were to take a minimal salary (say, £10,000) via the company payroll and the employer was issued with a form SL1 (notice to make Student Loan deductions), the salary is below the relevant threshold and no deductions will be made. 

However, they are also a shareholder in the company and receives dividends of £20,000.  How are these treated for Student Loan purposes?

It is correct that if the employee has earnings below the relevant threshold, no Student Loan deductions will be made through the payroll.

If the former student has any other sources of income, then any loan repayments will be calculated and paid via the Self Assessment Tax Return.  Dividends (or other “unearned income”) of £2000 or less per annum are ignored – however, if the total unearned income exceeds £2000 then the whole amount is taken into account. The first £2000 is not exempted.

The normal thresholds will apply.  With effect from April 2017, the thresholds for making Student Loan deductions are:

  • Plan 1 – £17,775 annually (£1481.25 a month or £341.82 a week)
  • Plan 2 – £21,000 annually (£1750 a month or £403.84 a week)

HMRCs guidance on Student Loans (https://www.gov.uk/hmrc-internal-manuals/collection-of-student-loans-manual) states that unearned income is included only if a statutory return has been issued to the borrower.  There is no requirement to complete a Self Assessment return solely for Student Loan purposes, though it will be rare for such a return not to have been issued.

In the situation described, the director’s total income (£30,000) will be taken into account, so even though there were no deductions via the payroll, the individual’s employment income is still included in the calculation and will thus increase the liability.

Exceeding the Annual Pension Allowance

If your pension savings exceed the annual pension input limit (generally £40,000) then there is an annual allowance charge. The effect of the annual allowance charge is to reduce tax relief on any pension saving over the annual allowance.

The annual allowance charge is not at a fixed rate but will depend on how much taxable income an individual has and the amount of their pension saving in excess of the annual allowance. Hence for a higher rate taxpayer the charge would be 40% on the excess over the annual pension allowance. Note that annual pension input includes any contributions made by the employer and it may be those contributions that trigger the charge.

You can ask your pension provider to pay HMRC out of your pension pot if you’ve gone over your annual allowance and the tax is more than £2,000. You must tell your pension provider before 31 July if you want them to pay the tax charge for the previous tax year.

Good habits

Getting ahead can be a struggle at the best of times. If you want to be successful, you need to be highly disciplined. Perhaps one or two of these can become your new “good habits” for 2018.

Read about your industry and beyond

Set time aside to read about your industry, related industries, current affairs, pop culture and what is trending around the world. Bookmark or tag articles that you come across throughout the day and come back to read them during your dedicated “reading time”.

Healthy mind and healthy body

The most successful entrepreneurs focus on their mental and physical fitness. The two are inextricably linked. Most IronMan triathletes are senior business people and successful entrepreneurs. A good workout helps to clear your mind and prepares you to face the daily challenges of your business.

Unplug

Time away from email, wifi and your computer is crucial for your sanity, productivity and general well-being. Try to switch off in the evenings and/or at weekends. Turn off your smartphone and focus on family life, friends and hobbies.

Listen more

The best business leaders are those that realise they cannot be the best at everything. Your greatest asset is deciphering valuable information and actioning it quickly. Spend more time listening to your people, your customers and your peers in order to make better informed decisions.

Get organised

Effective managers make lists and set daily goals to stay focused. Try to stay task oriented in order to keep on track. Schedule regular planning meetings in order to map out progress towards the achievement of the vision and goals of your business. This can help you to focus on the big picture.

Focus on your objectives

De-prioritise things which do not fit with the achievement of your objectives. Write down your key objectives. If something comes up which does not (in some way) support the achievement of your goals, de-prioritise it or if necessary, just say no. Keep focusing on your key objectives and focus on being productive.