Be tax smart with your redundant building development ideas

At an early stage of your planning, it is best to prepare budgets and cash flow forecasts to consider if diversification is viable and to understand if you need to obtain finance.

Once this is established, it will be important to consider an appropriate business structure that includes consideration of the existing structure, sole trader, a new partnership, LLP or limited company.

You should consider the best business structure with your business and tax advisor to ensure that it is efficient from an income tax, VAT, and capital taxes perspective.

The development of buildings for either purpose can provide opportunities for tax planning. If these are not reviewed early, additional tax costs and complications may be experienced in the future.

As part of any tax planning and before the development starts, it will be appropriate to understand: who currently owns the property and in what proportions; who is going to finance the development; who the family may wish to own this in the future; the income to be generated.

The seven key taxes that apply to this type of project should be reviewed. These are VAT, income tax, corporation tax, capital gains tax, inheritance tax, and stamp duty land tax.

There are many aspects to consider for tax planning, which all depend on individual circumstance, some examples follow:

 Value Added Tax - What VAT will be incurred on the development costs and can this be recovered and do you wish to recover this VAT, if VAT may then be chargeable on the income in the future?

 Income Tax - If there are profits generated from this new enterprise, which may suffer higher rates of income tax, there may be benefits to utilise a limited company to benefit from the lower corporation tax rates, rather than suffer the higher income tax rates.

 Capital gains tax - The changing of property ownership, after the property is no longer in the use of a trade or qualifying for Agricultural Property Relief may give rise to a chargeable capital gain and a CGT liability.

 Inheritance tax - The conversion of farm buildings into residential property or commercial buildings may lead to a change in the IHT position of the property owner whereby those assets may currently qualify for IHT reliefs, but those reliefs may be lost when the buildings are converted.

 Stamp duty land tax - The changing of the ownership of property which is subject to a charge for borrowings or the transfer of property into a company, may give rise to an SDLT charge, without careful planning.

As always, it is best to plan at an early stage with your business and tax advisors to maximise tax reliefs and avoid any surprises.

Roy Jackson is a Partner in Whittingham Riddell chartered accountants' Agricultural team.