Extracting development profits as capital and at lower rates of tax
At SMH Chartered Accountants, we understand that property developers and investors are often looking for ways to maximise their returns on investment, and minimising the amount of tax they pay is one way to achieve that. One of the ways we help our clients to achieve this is by advising them on the tax implications of extracting development profits as capital, rather than as income, and at lower rates of tax.
Extracting development profits as capital and at lower rates of tax
When a property developer sells a property for a profit, that profit is generally subject to income tax. However, if the developer can demonstrate that they held the property as an investment rather than as trading stock, and that the sale was therefore a capital transaction, they may be able to pay capital gains tax (CGT) on the profits instead. The current rates for CGT are generally lower than income tax rates, making this an attractive option for many property developers.
There are several factors that need to be taken into account when considering whether or not a sale is a capital transaction, including the length of time the property was held for, the nature of the developer’s business, and the intentions of the developer when they acquired the property. Our team of experienced tax advisors can help clients to navigate these complex rules and make the most tax-efficient decisions when it comes to extracting development profits.
Another way that property developers can reduce their tax bills is by taking advantage of the Substantial Shareholding Exemption (SSE). This is a tax relief that allows companies to sell shares in other companies without paying any CGT on the profits. To be eligible for the SSE, the selling company must have owned at least 10% of the shares in the company being sold for a continuous period of at least 12 months.
How can SMH Group Help?
Our team of tax experts can provide advice on whether the SSE is applicable to your business and guide you through the process of making a claim. We can also advise on other tax-efficient strategies for property developers, such as using a company trading vehicle to hold property assets. We are committed to helping our clients to minimise their tax liabilities and maximise their returns on investment. If you are a property developer or investor and would like to find out more about how we can help you with your property taxation needs, contact the SMH Chartered Accountants team on info@smh.group or 0114 266 4432
