Tax planning considerations when selling a property business

Chris Street

8th July 2017

Are you thinking of selling your property business?

What are the tax planning considerations to understand?

I had a call from a long-standing property investment client yesterday.  He wanted to discuss selling his property business and retiring. He was considering the pros and cons of selling and wanted advice on tax planning to ensure the selling of his property business would happen in a tax-efficient manner.

One of the key issues for property business owners planning to retire and sell their business depends on how effectively they plan their tax liabilities.

How can you navigate the tax liabilities when selling up?

The first consideration is Capital Gains Tax (CGT) and this needs to be examined carefully.

Capital Gains Tax (CGT) is payable when you sell an asset such as a property or a business and there has been an increase in the value of the asset.

Currently, CGT rates on most gains reduced from 18% to 10% for basic rate tax payers. From 28% to 20% for higher rate tax payers since April 2016.

However there are exceptions: gains from the sale of a residential property continues to be taxed at 18%/28%. This was part of the budget announcement changes that we wrote in more detail in our article

How much tax do I pay when I sell my property business?

Don’t leave it too late to consider Capital Gains Tax (CGT) liabilities. Especially if you’re planning on selling investments made years ago. As I advised my long-standing property investor client on the phone, it can be daunting to realise how large a CGT liability can be.

Capital Gains Tax (CGT) liabilities can be reduced by utilising tax allowances. Plus, they can be reduced by careful planning of your CGT position throughout life and in tandem with the growth and maturity of your property business.

A priority for any property business owner should be the setting up of a Will as the first step in any estate-planning exercise to make certain that matters are dealt with in a tax-efficient way.

We recently featured a Guest Blog discussing the importance of why property investors should be reviewing their Wills to gain maximum advantage from new tax allowances – read the article in full here.

In essence, having a Will means you avoid relying on the intestacy rules that come into effect when there is no Will in place. Effectively, the Law decides what happens to the estate.  This can lead to financial stress for the surviving spouse and family along with a potential Inheritance Tax charge.

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The second tax planning consideration I discussed with my property investment client on the phone was of Inheritance Tax (IHT).

With a little planning, you can transfer assets into a trust with Inheritance Tax (IHT) consequences and it can also reduce your taxable estate.

There are, however, some additional tax charges and costs related to trusts that may be applicable. Interested in setting up a Trust? Speak to your accountant first to ensure that setting up a Trust will meet your requirements. Me and my expert team of property tax specialists can advise you.

As it currently stands, all of my property investment clients have an inheritance tax (IHT) Nil Rate Band of £325,000 and this will remain frozen until 2020/21. Discuss this further with me and my team if unsure.


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How can Business Property Relief impact the business sale?

Business Property Relief can also (with careful planning) potentially remove the full value of a business. Including sole trader, partnership, or shares in a private property company from being subject to an IHT charge, either via lifetime gifts or on death.

As I advised my property investor client on the phone, you can gift as much cash as you like during your lifetime.  This, we refer to as a ‘potentially exempt transfer’.

Gifting income producing assets to your children, such as shares in the family business or an investment property, is also a good way of reducing the overall family income tax bill.  Whilst at the same time conducting succession planning.

Take care to ensure, though, that there are no Capital Gains Tax (CGT) or Inheritance Tax (IHT) liabilities that crystallise on the gift or transfer.

These tax planning considerations can be intimidating to some property business owners looking to retire and sell up.  With careful planning and professional property tax advice it’s possible to mitigate certain CGT and IHT liabilities.

It’s important to remember that certain tax liabilities are in place depending on your property business structure. Not all property investors will be eligible for tax savings in certain areas. I always advise my buy-to-let landlord and property investment clients to seek professional advice on tax planning issues.

I have written a number of useful articles for property investors around tax planning, including:

Using capital allowances to reduce income tax bill

Structuring your property business

The best business structure for tax planning

Budget Announcement impact on investors

Capital Gains Tax – the basics & tax planning

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