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I do not currently own any residential property but am now buying a house with a granny annex, will I have to pay the 3% surcharge?

There is a special exemption where a “subsidiary dwelling “ is purchased with a house. As long as the smaller dwelling is purchased in the same transaction as the main dwelling, it is valued at less than one third of the total purchase price and it is within the grounds of the main house then you are not treated as buying two dwellings. However, there may still be an opportunity to benefit from multiple dwellings relief, which can lower the overall SDLT bill.

I am buying the house next door in order to extend my home

The higher rates will apply as following the purchase you will own an additional residential property and is this is not replacing your main residence.  Unfortunately, a refund of the higher rates cannot be claimed once the properties have been merged as refunds are only available where a previous main residence has been disposed of.

My other half and I each own a property, but we both live in my home. We want to buy a new home together, will we be subject to the 3% Stamp Duty surcharge?

The answer here depends on whether you are a married/in a civil partnership or are unmarried. A husband and wife each own a residential property (with neither having any interest in the other’s property) but both live in the property owned by, say, the husband, with the property owned by the wife being rented out. If they sell their main residence and jointly buy a new one the higher rates will not apply to the joint purchase.  As they are married and have both lived in the property owned by the husband as their main residence they will both be treated as replacing their main residence, even though the wife retains the rental property. An unmarried couple (A and B) each own a residential property and both live in the property owned by A, with B’s property being rented out.  If the main residence is sold and they jointly purchase a new one, which will be their new main residence, the higher rates will apply to the joint purchase of a new main residence.  As they are not married (or in a civil partnership) B will not be treated as replacing his main residence as, even though he has been living in the property owned by A, he has no interest in the property A is selling.

If I give my existing home to a family member prior to buying my new main residence, will the 3% surcharge apply?

A replacement of a main residence can be achieved by making a gift of the former main residence, as this still counts as a disposal. However, a gift to a spouse would not avoid the surcharge as neither the purchaser or their spouse can retain an interest in the former main residence in order to be outside the surcharge. Gifts should be considered carefully, as they could create other tax liabilities, such as capital gains tax on disposals, inheritance tax and income tax on future rental income.

I own a residential property overseas, but am buying my first home in the UK, will I have to pay the 3% surcharge?

When looking at the 3% surcharge you must consider any residential properties owned, regardless of where they are located. However, in some case property owned overseas may not cause the surcharge to be payable on a UK purchase, perhaps because the overseas property is valued at less than £40,000, or the beneficial ownership sits within another party. There are many types of ownership, such as certain usufruct rights, which mean that the legal owner would not be treated as owning a major interest in the property, so it would not count for the purposes of the 3% surcharge. If you have an overseas property with unusual rights in place it is worth seeking further advice.

Can I still benefit from Goodwill on incorporation?

Historically, when considering the incorporation of an existing sole trading activity or partnership into a limited company, a big benefit to doing this was the ability to ‘realise’ the goodwill built up in the existing business, and access this value at a low tax rate (if Entrepreneurs’ Relief applied).

Since 3 December 2014 the rules on incorporation and goodwill have gone through significant changes, impacting on both the tax reliefs available on incorporation, and the tax deductibility of the amortisation of any goodwill acquired by the new business.

It is therefore important that when looking at incorporation, the tax position is considered so that there are no unexpected surprises.

What tax will I pay on my share of the profits?

This will depend on a number of factors depending on your personal circumstance and position.

If you are an employee/director in a company or a salaried partner in a partnership (or LLP) you will be taxed, broadly, on the salary and any benefits paid to you during the tax year.

If you are a partner in a partnership or a member in an LLP you will generally be taxable on your share of the tax adjusted profits for the accounting year ending in that tax year (e.g. the profit from the accounts ending 30th April 2018 would be taxable in 2018/19).  However, in the early years of being a partner or member there are special rules which set out what profits you will be taxable on, and also in the final year of being a partner or member.

In addition, things like business expenses incurred personally and pension contributions will have an effect on the amount of tax which you pay.

What operating structure should my firm adopt?

This is a complex question with a number of different options available including

  • A Partnership
  • A Limited Liability Partnership (LLP)
  • A Limited company
  • Or a hybrid mixture of the above entities.

New structures are developing all the time with employee ownership and external investors becoming increasingly popular. The right structure for your business will be dependent on a number of factors including size of the business, restrictions placed by your professional body, attitude to risk, the stage the business is at in its life cycle and the number, age and income requirements of the owners. Whilst tax shouldn’t be the main driver in any business decision the tax implications are extensive and a crucial part of any decision making process. We work with our clients to develop a bespoke solution for every business which avoids inflexible structures and succession challenges whilst maximising tax saving opportunities.

How is my firm performing compared to others?

It’s natural to want to know how your firm is performing compared to your competitors. The use of hybrid structures or operating vehicles which do not have to publish their results can make it difficult to get an accurate picture of how your competitors are doing. PEM, as part of the Kreston network, participates in an annual benchmarking exercise giving you the ability to assess your firm’s performance against similar size firms both nationally and locally. The benchmarking survey provides comparatives for lots of criteria including fees (both by Partner and by fee earner), salary and admin costs and Profit per Equity Partner.

Do I need an accountants report under the SRA Accounts Rules 2018?

We are still waiting to hear the exact date when the new Accounts Rules will become effective. Originally intended to go live in April 2019 it seems likely these will be postponed until the summer. When the new rules go live a firm will be required to obtain an accountants report for that accounting period if the firm has at any time during the accounting period, held or received client money, or operated a joint account or a client’s own account as signatory. The accountant’s report must be completed within six months of the end of the accounting period and if it is qualified to show a failure to comply with the accounting rules it must be submitted to the SRA. There are a couple of exemptions from obtaining an accountants report if firstly, all of the client money held or received during the accounting period was Legal Aid monies or secondly, the total of all client accounts held or operated by the firm did not excess an average of £10,000 or a maximum of £250,000 during the accounting period in question. If you have any queries about whether you require an accountants report we would be happy to discuss your requirements.

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