What is the best tax vehicle for us?

[AI]

We are currently trading as a partnership in retail. The plan is to set up a manufacturng facility and open another retail outlet. Both new ventures are to be housed in a property that we intend to purchase privately. Does it make sense to incorporate the whole or keep parts separate as partnership/sole traders/ltd company?
Any suggestions are gratefully received.

Thanks Anna

[accountant@uktaxshop]

Anna,

This isnÂ’t a straight forward issue - there are both considerable commercial and tax issues here.

Sticking to the tax issues, assuming this property is used wholly for the purposes of the trade, it will - if you hold it in your own name, be eligible for a powerful taper relief treatment if you need to sell the property. 75% of the gain after 3 complete years is relieved.

Within a Ltd co, all you get is indexation allowance.

If you let the property to the limited co, you will then be eligible to offset any mortgage interest you have incurred.

However this ignores commercial issues of the ability to borrow against the asset, having a more solid looking balance sheet and having a "complete" company to sell if required. (Putting the property into the Ltd co prior to sale would incur stamp duty and a CGT charge)

What is right for you really depends on your intentions for the business.

In general in the current taxation of Ltd co's vs Partnerships, Ltd co's can give savings, depending on how you you extract the profits. There is some further guidance on the "tax doctor" Q3 on this topic.

If you would like some further help in planning this venture, please let me know.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436

[Ian McTernan CTA]

The usual scenario here is to put the trade in a limited company and keep the property separate, and then charge rent to the company for the use of the property at a commercial rate. This also protects you to some extent if a claim is made against the company - the major asset is yours rather than the company.

This also helps in profit extraction from the company as the rent is taxable income but does not attract NIC, and the business can be sold separately from the property and a rental income stream kept after disposing of the business.

As James says, this is a complex area and advice should be sought prior (and I emphasise this, PRIOR) to doing any deals.

Ian McTernan CTA
McTernan Associates Ltd
Chartered Tax Advisers
ian@imcternan.com

[AI]

Thank you both for your valuable advice. Apologies for my delay in ackknowledging your responses earlier.

We are continuing to look into the pro's and cons of Ltd vs. partnership. We are considering purchasing the property as a partnership because we have a trading history but with the intention to incorporate later, not much later though.

Thank you again

Anna