July Question and Answer Section
Newsletter issue - July 2010
Q. My company has bought a classic motorcycle as an investment. Can it claim a tax deduction for the cost? If the motorcycle is kept at my home, but not used at all, will I suffer a tax charge?
A. If your company buys a motorcycle for use in its trade, including providing the motorcycle to the director, it can claim a tax deduction for the cost. If the motorcycle is purchased as an investment and not used in the trade, the company cannot claim a tax deduction for the cost.
If the motorcycle is kept at your home it is available for your use. The benefit in kind tax charge applies if the motorcycle is made available to you, not whether you actually ride it. The same tax charge would apply whether the motorcycle was a 'work of art' or a functioning motorcycle, as it remains a company owned asset which is made available to you for your private use.
Q. I'm looking to buy the property my company trades from. Should I buy it in my own name or should my company buy it? I have the reserves for either.
A. If you hold the property personally and let it to the company you will be able to extract funds from your company as NIC-free rents. However, when you sell the property, the gain may well be taxed at a higher rate in your hands (up to 28%) than in the company (possibly 20%). You will only get entrepreneurs' relief on the property if it is sold in association with your withdrawal from the business that involves a disposal of some, but not necessarily all, of the company shares. The entrepreneurs' relief on the gain is reduced where rent for the property has been paid by the company.
If the company holds property this removes the possibility of NIC-free rents. When the company sells the property it will get indexation relief on the value and the net gain may be taxed at a lower tax rate. However, the proceeds will be trapped within the company. Both you and the company could roll-over a gain arising on the sale of the property in the future, if it has been used for the purpose of the trade carried out by your personal company. As you can see there is a lot to consider and expert advice in your own situation is important!
Q. What happened to the Furnished Holiday Lettings rules in the Budget?
A. The tax rules and exemptions for furnished holiday lettings (FHL) remain in place and unchanged at least until 5 April 2011 (1 April 2011 for companies). However, the Government has said that it will consult on changes to the FHL rules to be introduced from 6 April 2011.Those changes are likely to include a restriction on how losses from FHL can be set off, and a tightening of the conditions which will allow the tax reliefs for FHL to be claimed.