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Corporate partner
I act for a profitable dairy farming partnership which consists of five partners (the parents and their three sons). The land and farmhouses are owned jointly by all five partners and are farmed under a gratuitous licence.
Profits are approximately £300,000 per annum and I am considering introducing a limited company as a partner to help reduce their income tax liability. Views would be welcome on the following aspects.
- Should I be concerned at the loss of the £100,000 annual investment allowance which, from 6 April 2012, will only be £25,000?
- Is a commercial purpose for the introduction of the limited company required? If so, do readers have any suggestions/examples?
- As profit is allocated to the company a cash balance will arise in the company and it is intended to spend this on further buildings and/or land. Presumably, surplus profits in the company cannot be lent back to the partnership without taking into account TA 1988, s 419 – loans to participators?
- Are there any implications for agricultural property relief?
Readers’ thoughts are welcomed.
Query 17,776 – Tom
Pension conundrum
My client runs a successful company business with profits in the region of £400,000. He pays himself a modest salary and withdraws surplus monies by way of dividend, after due consideration of the need to retain some funds in the business for prudence.
His income in 2010/11 will be approximately £160,000.
He pays (privately) annual personal pension payments (gross) of £9,000. An independent financial adviser recently persuaded the company to pay a single pension premium into a new company pension scheme of £100,000, in the accounts year ended 31 December 2010.
Will this be allowable for corporation tax and how will any tax due under the forestalling provisions be calculated?
Query 17,777 – Mike
Private construction
My client operates his building business through a limited company. During the last accounting year he purchased a plot of land in his own name and has been building a property on it which will be the main private residence for himself and his family.
He has told me that the limited company has purchased materials that have been used on the private house. Should these be charged to his director’s account or would it be more beneficial to simply treat this as a benefit in kind, and what value should be used in either event?
There are a couple of other elements to this scenario for which I would appreciate clarification. The company had ‘scrap’ materials that had been left over from other jobs and which, in the normal course of events, would have been dumped or given away. Some of these were used personally by the director; I presume that there is a benefit, but at what cost?
Finally, he used some of the company equipment, such as the digger and scaffolding. The scaffolding would simply have been left lying around his yard and was only used because it was not being hired out. The digger was used at weekends when, again, it was not being used for business operations. The director says that he topped up the petrol tank as he had been using it privately.
I would appreciate readers’ advice on the tax treatment of these actions.
Query 17,778 – Jack
Rent division
Mr A and Miss B have been living together as a couple for several years, but remain unmarried. They live together in a property owned by Mr A and, since she moved in with him, Miss B’s former private residence is now rented out.
The couple have recently purchased another property in their joint names and also intend to rent this out. Their long-term plan seems to be to build up a property portfolio to supplement their pension income in retirement.
Mr A is in full-time employment and pays tax at the higher rate of 50%, while Miss B is a basic-rate taxpayer who works on a part-time basis. She has time to administer the lettings and deal with any problems that arise.
My question is, even though this property (and presumably any future ones) is held in joint names, can the whole of the income be allocated to her? If this is not possible, could she draw a salary or self-employed earnings from the partnership rental income to reflect the work that she is putting in? This would then reduce Mr A’s income chargeable at higher rates of tax.
Any hints or tips on structuring joint property rentals when the parties are not married would be welcome.
Query 17,779 – Smith
