Incorporation relief on Capital Gains Tax on buy to let properties

conrad100

Hi everyone!

I am trying to help someone who has built up over 25+ years a good sized portfolio of buy to let properties - 10 in total. She operates this as a sole trader. This person is not young anymore, they are well in to retirement age and although she is extremely confident in many areas, underlying this, she is increasingly being paralysed by fears, and worries surrounding what the tax man will do to her as far as capital gains tax.


She desperately needs to downsize her business and enjoy herself more now, she is a genuinely a great person as well as a model landlord and deserves a proper retirement. However, she feels that capital gains tax stops her from getting out of this business or even cutting back on it.


I am trying to learn more about capital gains tax, and its implications in terms of buy to let properties and furthermore, how it can be mitigated. I have looked at the HMRC website and one type of relief that I feel may be viable is incorporation relief.



I would be really grateful if someone could give any advice or suggestions on CGT mitigation in this area and the feasibility of incorporation relief.


Many thanks!


John

00ec25

you should post this question on the cutting tax board as its a tax related question requiring the wider technical knowledge of the accountants as more of them hang out over there rather than on this board so you'd get a wider response over there

in simple terms incorporation relief simply defers the CGT it does not remove or reduce it, she will still have to pay CGT when she sells up, so what is her exit strategy for the company?

either she eventually sells the company as a going concern to another investor (ie she sells the shares) in which case CGT is based on the shares

or the company sells off the properties at which time CGT is payable by the company anyway and she has not reduced the total CGT payable since the costs of the properties remains the same. Indeed as companies do not get personal allowances her taxable gain would actually be 10,600 higher as it is a personal allowance for selling personal, not corporate assets

conrad100

Thanks for your advice!

martinsurrey

Tax planning is best done at the outset, and as she is now looking for an exit strategy, most avoidance measures are not going to be much use.

Can I ask why she thinks she won’t be able to meet any capital gains tax liability?

She’ll only pay tax if she sells for more than she bought for.

At a guess she has remortgaged the properties and now worries that the sales proceeds less the mortgage wont cover the tax due?

If that is the case, what was done with the proceeds of the remortgages?

Does she have an accountant who deals with her income tax affairs?

What sort of levels of equity are we talking about across the portfolio?