You should be thinking about your proposed exit route from the first day you start your business, as it may affect how you set it up and the strategic decisions you make as time goes on.

Everybody Has an Exit Strategy

Some businessmen say they have no exit route – they will work till they drop, and leave the business to their children – but that is itself an exit route.

The THREE Most Common Exit Strategies…

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There is no IHT liability if a spouse inherits assets from their partner. This is regardless of the value of the inheritance.

Here are four common ways of reducing inheritance tax.

1. Utilising the £312,000 threshold level
If circumstances are such that your estate is not worth more than the current threshold level, there is no tax liability for the inheritor.  However, this scenario is becoming more and more unlikely!

2. Gifting to a spouse
All gifts between husband and wife are exempt from tax as long as they are both domiciled in the UK.
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One of the advantages of a company over a sole tradership or a partnership is said to be the fact that the shareholder’s liability is limited.  This is true as far as it goes, but in the real world, this limited liability can be an illusion.

A company needs cash. When it first starts its business life, it can only raise that cash from one of two sources:

• By issuing shares in exchange for cash

• By borrowing money

The cash shareholders put into the company when they subscribe for shares is, of course, at risk if things go wrong – limited liability means that at worst they will lose this money.

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If a property has been your main residence, and at some other stage in your ownership it has been let as “residential accommodation” then there is a further relief from CGT on the part of the gain that is attributable to the period of letting.

The relief is the smallest of:

• The gain due to the letting

• The amount of the gain that is exempt as your main residence

• £40,000

The relief also applies where you own a house and let part of it throughout the time you own it.  See the case study below for an example:
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If you decide to let a room in your main residence, you can receive a rental income of up to £4,250 and have no tax liability.

In order to claim this allowance, the property must satisfy the following conditions:

a)    you must also live in the property;
b)    the room you are letting out must be fully furnished.

If you claim the rent-a-room relief, it is not possible to claim any expenditure that you have incurred with regards to the letting.

This is a very common strategy for those people who have houses that are too large for their needs. For example, if your children have left home, you may decide to rent the room they lived in for an additional tax-free income.
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The 10% Wear and Tear Allowance is an allowance that HMRC have introduced to make the lives of property investors easier when they complete their tax returns.  It can only be claimed when a property is furnished.

Before we go any further, it is worthwhile understanding what is meant by a furnished property.

Here is the HMRCs definition:
‘A furnished property is one which is capable of normal occupation without the tenant having to provide their own beds, chairs, tables, sofas and other furnishings, cooker, etc.’

What this means is that a tenant can start living out of the property as soon as they move in. The only accessories that the tenant needs to provide are his/her own personal belongings.

More importantly, this means that the 10% Wear and Tear Allowance cannot be used for partly furnished or un-furnished properties.

Here is a case study to illustrate the use of this rule:

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HMRC have the power to “enquire” into any tax return from a company, a partnership, or an individual. They do not have to give a reason for the enquiry.

Here are the four golden rules for dealing with tax enquiries:

• DON’T try to handle it yourself – get advice before you reply to the initial letter from the inspector, and at all costs DON’T ring the inspector up to “have a chat and sort this out.”

• DON’T ignore it and hope it will go away – remember the mitigation of penalties for co-operation and disclosure

• DO be honest and upfront with your Tax Adviser – only then will he be able to help you

• DO talk to your accountant about taking out insurance to cover the fees for a tax investigation – the professional fees can be very expensive

Note – The 2007 Budget announced changes to the penalty regime for tax investigations. These are being implemented for the 2008/09 tax year, and the penalties under the new rules will be significantly higher than under the present regime.

The demise of the so-called Offshore Property Partnerships (able to supposedly generate totally tax–free Income and Gains by using Offshore Trusts in the Isle of Man, Jersey and Guernsey) has left many Property Investors and Developers in a difficult situation.

The HMRC remedy is a law that closes this Tax Scheme down with a 28 Year Retrospectivity!

This ensures this Tax Scheme, that sought to use the Double Tax Arrangements to produce tax-free profits, is no longer viable.

Once an Investor realises that this route in no longer open, there are 2 key issues:

Firstly, how do they deal with profits already realized? Strategic Tax Planning is able to use its vast experience of negotiating with HMRC to bring about the best deal for Clients in such a situation.

Secondly, for Clients who have Property Assets and Developments inside an Offshore Property Partnership, we can devise bespoke Tax Planning to either minimize and defer any profits, or to ensure through Special Planning the conversion of Income profits to Capital Gains, taxed at just 18%!

We can offer each Client the specific advice they need, based on their individual situation. We then ensure the best outcome for those involved in these Tax Schemes rather than waiting many years for a case to go to the House of Lords for a decision!

Contact Daniel Feingold to learn more about International and Offshore Tax strategies.

A little known International Tax Treaty became Law in the UK on November 1st 2008.

The OECD Mutual Administrative Assistance in Tax Matters Treaty (which currently has 19 countries signed up)
enables tax debts to be recovered in any of those Countries on behalf of the UK HMRC just by making a formal request.

This is in addition to the existing EU MARD Treaty which came into effect in the UK in 2002.

Contact Daniel Feingold to learn more about International and Offshore Tax strategies.