26th February 2015 – Simon Misiewicz
Are you hearing conflicting information of how to administer your joint venture deal?
Are you looking for a quick way to understand how to structure your JV deal?
Whilst you are reading this article you may wish to read our page on the subject of “buy to let tax for UK landlords” where we discuss all the different types of tax that you need to be aware of. Read Here for more (opens in a new tab)
Tax issues need to be diagnosed in order to be understood and a remedy implemented.
There are many ways that joint venture deals may be set up as per the below list:
- Own the property in both names
- One person owns the property and the other takes a profit
- One person loans the other person money
The problem with the above scenarios is that it can cause confusion. What’s worse is that one person may interpret the structure differently from the other.
More to the point if you are buying and selling the property please be mindful that the person on the land registry will be responsible for the payment of any CGT / Income tax due on the profit.
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Applying the right tax reducing medicine to your tax illness.
As Stephen Covey once said “start with the end in mind”. You will need to agree up front what the structure is. In particular, I would suggest that answers to the below questions would be useful:
- Who will own the property?
- Who will project manage the property?
- Who will administer the paper work and accounts?
- Who will account for the tax, and how?
- What type of tax will apply? (CGT, Income tax, corporation tax)
Once you have worked out the above then you are ready to get on with the job at hand and to make money front the deal.
Applying the treatment
Now we have identified the treatment, here are a few ways that you can apply it to your tax pains.
You should be in a position to agree who will buy the property. If you both own the property then the property income and costs will be split 50/50 and CGT/Income tax will need to be accounted for on the respective tax returns. Please ensure that the numbers that flow onto the tax returns are consistent.
If one person is to own the property and be responsible for the payment of taxes then the other party can simply invoice their share (net of tax) or charge a finance charge on the loan.
I would always advise you to do the following when deciding to work with a joint venture partner:
- Identify clear roles and responsibilities up front
- Identify the strengths and weaknesses of the parties involved in the project
- How accounts and profits will be accounted, reported and communicated out
- Agree the profit split and exit strategies
- Identify the risks of the project and be clear with the mitigating actions
If you are looking for an accountant or thinking of changing your current accountant because they do not understand property investing then please feel free to contact us via our homepage: https://www.optimiseaccountants.co.uk/