Care homes - be careful about how you treat your property for tax purposes

When a business owner comes to sell the business, that business owner might be in for an expensive tax surprise. It is automatically assumed that a business sale will attract Entrepreneurs Relief, thereby limiting the Capital Gains Tax (CGT) liability to 10%.

However this will not be the case if the property is held under separate ownership and rent is received for the use of that asset.

It is not uncommon for property assets to be held in a Holding Company away from the trading company, as protection against an unexpected and costly crisis in the trading company. This used to be ok for tax purposes, but then the government changed the rules and said if the property generates rental income, it will be treated as an investment asset.

To be eligible for Entrepreneurs Relief, the company being sold must be a trading company, not an investment company.

So how can you get round this?

One way is to make sure the holding company is part of a trading group and rather than charging rent for the use of assets, charge instead a management charge but this might mean VAT will need to be charged and that is not helpful for Care Home businesses that are unable to reclaim VAT.

Alternatively, a dividend can be passed up to the Holding company, and this is a neat solution, to go alongside a management charge that is below the VAT limit.

Another option is to transfer the property to the trading company but that might involve a stamp duty cost if not done correctly.

Care Homes making profits generally need to be operating out of a Limited company - and it makes sense to protect your prime assets when you can.

As usual - the answer is to go to a specialist adviser who understands the issues and potential pitfalls.

Call Michael Ogilvie 01323-720555 now , if you think you might be affected by this.

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