A UK law firm has warned business owners in the hospitality industry to secure themselves against losing hundreds of thousands of pounds in tax.
Thomas Guise Solicitors is raising awareness among hospitality business owners about how they could be missing out on Entrepreneurs’ Relief (ER) if they sell their business.
Currently if a business is sold, Capital Gains Tax of 28% is paid on any increase in the value of assets, but ER can make a huge saving by reducing tax down to 10%.
However, business owners are not eligible to claim ER on the increase in the value of the property, if the property and trading company are held under separate ownership and rent is being paid.
To overcome this problem, Thomas Guise is offering advice on how it may be claimed on both. Company director, Wayne Thomas, said: “Entrepreneurs understand all too well that a hefty tax bill upon the sale of a business can significantly hamper reinvestment or retirement plans, but there are measures that may reduce the amount of tax they pay.”
The barrier to claiming ER occurs where the trading company pays rent to the property owner, because they are held separately.
A solution is to reduce the rent payable to the property owner to nil, but this is not always possible, as rental payments may be needed to support a mortgage.
An alternative solution is to transfer the property to the trading company. However this would trigger a payment of Stamp Duty Land Tax (SDLT) on the full value of the property.
Thomas said that it advises on ways in which the business can be restructured so that SDLT is no longer payable. The solution varies depending on whether the property is owned by an individual, a partnership, or a limited company.
“Fundamentally, it is simply good tax planning that allows business owners to claim Entrepreneur’s Relief. However, no two businesses are the same and each needs to be reviewed individually,” he added.