Stamp Duty as an expense when buying property through Ltd Co
Discussion
Hello All.
In consideration of the below scenario, a quick (I hope) question that I cannot find a definitive answer to on the web...
Want to buy through limited company, an HMO for ~ £400K.
Annual income from the same is expected to be £40K.
Stamp duty, would, under Ltd Co OR, second home ownership rules (additional 3% rate across all bands...) be £22K.
I know that from the annual £40K income it is possible to deduct mortgage interest ~£10K, insurances, marketing fees etc. BUT my question is this:
If the £22K SDLT was incurred (and paid to HMRC) at the instant the purchase completed, would it, in effect, be an expense of "that" tax year, and thus deductible against profit for Corporation Tax calculation purposes; OR,
would it not be deductible against profit for any given year, and instead be considered only in assessment of CGT on the eventual sale of the property?
I have seen mention of the latter being the case, but wondered whether there was in essence, a possibility to consider the SDLT paid to be a deductible expense for annual tax payable from profit purposes..
The reason I am asking is that it will, as I am sure you learned people can appreciate, effectively wipe out the entire first years' income if the former option is not, in fact an option....
Thanks in advance - Nick
In consideration of the below scenario, a quick (I hope) question that I cannot find a definitive answer to on the web...
Want to buy through limited company, an HMO for ~ £400K.
Annual income from the same is expected to be £40K.
Stamp duty, would, under Ltd Co OR, second home ownership rules (additional 3% rate across all bands...) be £22K.
I know that from the annual £40K income it is possible to deduct mortgage interest ~£10K, insurances, marketing fees etc. BUT my question is this:
If the £22K SDLT was incurred (and paid to HMRC) at the instant the purchase completed, would it, in effect, be an expense of "that" tax year, and thus deductible against profit for Corporation Tax calculation purposes; OR,
would it not be deductible against profit for any given year, and instead be considered only in assessment of CGT on the eventual sale of the property?
I have seen mention of the latter being the case, but wondered whether there was in essence, a possibility to consider the SDLT paid to be a deductible expense for annual tax payable from profit purposes..
The reason I am asking is that it will, as I am sure you learned people can appreciate, effectively wipe out the entire first years' income if the former option is not, in fact an option....
Thanks in advance - Nick
Edited by NicoG on Tuesday 17th April 13:20
Eric Mc said:
What's the question?
Sorry Eric, I was trying to set the scene as it were...If the £22K SDLT was incurred (and paid to HMRC) at the instant the purchase completed, would it, in effect, be an expense of "that" tax year, and thus deductible against profit for Corporation Tax calculation purposes FOR THAT YEAR ; OR,
would it not be deductible against profit for any given year, and instead be considered only in assessment of CGT on the eventual sale of the property?
NicoG said:
Sorry Eric, I was trying to set the scene as it were...
If the £22K SDLT was incurred (and paid to HMRC) at the instant the purchase completed, would it, in effect, be an expense of "that" tax year, and thus deductible against profit for Corporation Tax calculation purposes FOR THAT YEAR ; OR,
would it not be deductible against profit for any given year, and instead be considered only in assessment of CGT on the eventual sale of the property?
No.If the £22K SDLT was incurred (and paid to HMRC) at the instant the purchase completed, would it, in effect, be an expense of "that" tax year, and thus deductible against profit for Corporation Tax calculation purposes FOR THAT YEAR ; OR,
would it not be deductible against profit for any given year, and instead be considered only in assessment of CGT on the eventual sale of the property?
When an individual or a company buys land and property, the cost of that land and property is normally treated as a "Capital Acquisition".
If the property has been bought through a limited company, that cost will be allocated to the company's Balance Sheet as an addition to Fixed Assets.
The cost of the land and property INCLUDES all the associated legal fees, charges AND STAMP DUTY.
So, the Stamp Duty will not find its way into the Profit and Loss account as an "expense".
You will get tax relief EVENTUALLY for the Stamp Duty at the point in time the property is sold or disposed of - at which point any profits/gains on disposal will be subject to Capital Gains Tax.
Obviously, as the Stamp Duty was incorporated into the original cost of the property at the date of purchase, that cost, inclusive of the Stamp Duty, is what is deducted from the proceeds on disposal to arrive at the taxable Capital Gain.
NicoG said:
Thanks once again Eric, so as feared, not much (if any) profit in the first year!
Do Ltd companies get an exemption from £X,000 on sale like private individuals?
What exemption are you taking about?Do Ltd companies get an exemption from £X,000 on sale like private individuals?
Are you referring to the Capital Gains Tax Allowance, which is £11,300 for 2017/18?
If you are, the answer is No - because this allowance is for individuals (and estates), not limited companies.
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