Incorporating a Property Rental Business

 CGT, Property Tax  Comments Off on Incorporating a Property Rental Business
Nov 122016

The following article was written in July 2013. Since that time, the Government has introduced various changes to the tax legislation, in order to discourage private landlords operating in the buy to let sector. These changes include higher SDLT rates on acquiring a “second home” restrictions on tax relief for borrowings and higher CGT rates on residential property.

This has led to increasing interest amongst individual landlords in the question whether it is worth incorporating. Although companies are also subject to the higher SDLT rates, they are not affected by the interest relief restrictions, and they are taxed at lower rates, both on rental profits and capital gains.

There is a special CGT relief for incorporating a business. In the context of buy to let incorporations, it is crucial that the properties are held as business assets rather than as an investment – and the two are not necessarily the same thing.

(This article can be downloaded in pdf format at

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Summer Budget 2015 – Tax relief restricted for residential landlords (and other news)

 Investment Tax, Property Tax  Comments Off on Summer Budget 2015 – Tax relief restricted for residential landlords (and other news)
Jul 092015

The second Budget of 2015 has not been particularly kind to those people who buy homes to rent them out to those who need a place to stay.

Starting from 2017, individual landlords of residential property will only be able to claim tax relief on their finance costs at the basic rate. We shall look at these rules in further detail, as well as some of the other measures that will affect property landlords following the latest Budget. Continue reading »

Coming Onshore – are Investors better off when Offshore Property Funds Convert to REIT status?

 Investment Tax, Property Tax, REITs  Comments Off on Coming Onshore – are Investors better off when Offshore Property Funds Convert to REIT status?
Feb 162015

Shortly before Christmas last year, the financial press reported that the Guernsey investment company F&C UK Real Estate Investments – F&C for short – was planning to “come onshore” and convert to a UK REIT. This is just the latest of a number of closed ended property funds based in the Channel Islands that have taken this step, Standard Life being another well know name to make the change (or to give it its full name, Standard Life Investments Property Income Trust).

What does it mean to “come onshore” and why are these funds doing it now? In the following article, we shall explain the consequences of converting to a REIT, and in particular ask the question “How does it benefit investors?” Continue reading »

Nov 252014

In a previous article, we saw how the tax legislation allows a business tenant to deduct the income element of the premium paid under a short lease. In particular, we found that the deduction is spread over the term of the lease.

This makes sense and has symmetry, though this symmetry is due to the legislation. Under the lease premium rules the landlord is treated as receiving part of the premium as income, so the tenant is treated as having incurred this same amount as an income expense. However, this statement isn’t quite true as we shall find out.

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Property Tax and the Lease Premium Rules – Why is the tenant’s tax relief spread over the lease?

 Property Tax  Comments Off on Property Tax and the Lease Premium Rules – Why is the tenant’s tax relief spread over the lease?
Nov 192014

When a landlord grants a tenant a short lease for a premium, part of the latter sum is treated as an income receipt in the hands of the landlord. The tenant is allowed to deduct this income element against his own revenue receipts, the deduction being spread over the length of the lease (we are assuming that the tenant is occupying the property for business purposes).

I know this latter fact because this is one of the topics that I learned about when I attended the courses that my employer sent me on, when I started my tax career. I also know this because I read about it in an article on buying and selling real estate which appeared in one of the various tax magazines.

That article even had the statutory reference for the tenant’s deduction, so that I could feel confident that it was a true statement. But until recently I didn’t have occasion to look too closely at what the legislation said. And when I did look, I found that the answer wasn’t as obvious as I had expected.

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Nov 102014

Consider the following scenario, where we have a tenant occupying business premises which it wishes to vacate. The reasons could be various. For example, it has surplus office space, or perhaps the tenant is a big retailer who has discovered its mistake of opening a branch in a dead end part of town and now wants to make a “strategic withdrawal”.

In these circumstances, the tenant may be willing to pay the landlord a sum of money in order to free itself from its obligations under what has become an onerous lease. What are the tax implications of this transaction? In particular, is the tenant’s exit payment tax deductible?

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Jul 152014

Following this year’s Budget, the Government published a Consultation Paper on its plan to bring non-residents within the charge to capital gains tax on residential property. This article discusses the proposal, with a particular emphasis on what this means for offshore investment funds. Continue reading »

Real Estate Investment Trusts – What do they invest in? Part One – Bricks and Mortar

 Investment Tax, Property Tax, REITs  Comments Off on Real Estate Investment Trusts – What do they invest in? Part One – Bricks and Mortar
Jun 272014

This is the first of two articles where we take a closer look at the type of asset that goes into a REIT’s property portfolio. While the answer is perhaps obvious (property of course!), there are certain restrictions that wouldn’t normally apply to other commercial landlords. Furthermore, it isn’t so obvious that a REIT can hold property indirectly through other investment vehicles such as unit trusts, OEICs and partnerships.

In this article we shall concentrate on the type of direct investments that one would expect to see in a property portfolio – the bricks and mortar. Indirect investments will be the subject of the next article. Continue reading »

Nov 152013

In our introductory article on REITs, we looked at how the underlying property rental business is taxed, and how the tax position of the fund is effectively transferred to the investors.

In particular, we saw that there is no tax, both on income profits and capital gains at the fund level. The profits are taxed as property income when distributed to the shareholders, while capital gains accrue in the fund, and are only taxed when the shareholders realise their investment.

But what does it take to be a REIT and to qualify for the tax breaks? This is the topic that we explore in this article. Continue reading »

An Introduction to Real Estate Investment Trusts

 Investment Tax, Property Tax, REITs  Comments Off on An Introduction to Real Estate Investment Trusts
Oct 252013

A Real Estate Investment Trust – or REIT for short – is a property investment company which pays no tax on the income and capital gains derived from its rental assets. Instead, the tax is effectively transferred to the shareholders, who are treated as if they had invested directly in the underlying properties.

In this introductory article, we shall look at how the tax legislation achieves this result. We shall go on to look at other aspects of the REIT regime in subsequent articles.

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