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Any Answers Answered: Is it worth incorporating?


TAXtv’s Giles Mooney and Tim Good answer two Spring Budget-related questions from the pages of Any Answers, focusing on the pros and cons of incorporating and the scrapping of the furnished holiday lettings regime. 

12th Apr 2024
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To view the full questions and AccountingWEB readers’ answers click on the links below. To watch the video, click the play icon in the box above.

Sole trader to limited company

The first question comes from AccountingWEB reader Gone Sailing. Following Jeremy Hunt’s Spring Budget, the reader wants to know if it’s really worth incorporating anymore. 

The reader said the combination of class 4 national insurance at 6%, no class 2 national insurance and dividend tax free allowance dropping to £500 is a “game changer”. But Giles Mooney questioned whether it was ever worth incorporating. 

Tim Good agreed that the changes that have taken place in recent years - such as the national insurance contribution changes, dividend tax allowance change and small profit rate for corporation tax -  makes it far less likely a case that you would incorporate for tax purposes. He also added: “We should not allow the tax tail to wag the commercial dog.”

He referenced the response from David Ex on the Any Answers thread who said: “I’d be nervous about changing a business structure purely for tax purposes (a) unless the benefits were significant and (b) in the months before a new government will almost certainly be elected.”

The pair also discuss the advantages for a business owner if they retain profits in the business and the added complexities for Scottish taxpayers. 

Worth transferring FHL to a limited co for CGT?

The second question relates to the news from the Spring Budget that furnished holiday lettings will be abolished from April 2025.

The AccountingWEB member has a client with a small property purchased in 2009 which has been trading as a furnished holiday let since that date. 

The property is currently valued at £130k, purchase price £95k. Client intends to keep renting the property as a holiday let for a few more years, after which she may move into it or sell it. Currently CGT would be charged on the gain at 10%, but following the budget that would become 24%. There is no mortgage. 

The AccountingWEB member wants to know if their client should transfer the ownership to a limited company, thus crystallising the CGT at 10% on the gain to date and resetting the base cost for future disposal.

Good explained that the out of the blue abolition of FHL was driven by the Airbnb problems that coastal towns have been suffering. 

However, he also discussed how there is a collateral benefit for HMRC because “the abolition makes the MTD ITSA requirements simpler because instead of having to do a separate quarterly update for ordinary lettings and a separate one for FHLs, all the property lettings in the UK will be in a single quarterly update.” 

Good and Mooney go on to discuss some of the issues at hand for the AccountingWEB member’s client, including looming anti-forestalling legislation and the implications if you incorporate an FHL now.

For the latest episode of TAXtv visit PTP Interactive.​ TAXtv is a monthly tax update programme available as an annual subscription (11 issues plus budget editions) to view online, download from the internet or watch on DVD.

Replies (1)

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By Paul Crowley
17th Apr 2024 00:58

Much appreciated
Will be subscribing to tax TV. watched the free episode, just my cup of .tea

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