property
matters
In the latest edition of ‘Property
Matters’, Moore and Smalley
LLP’s regular publication
for property developers,
construction
companies, and
professional property
advisors, we look at the
rapidly approaching
change to business rates
for empty commercial
properties, and what you
could do to avoid payment
of rates.
Following our report in the
last issue about the
Chancellor’s much-criticised
changes to Capital Gains Tax, in this issue we
are pleased to report that a new
“entrepreneurs’ relief” is to be introduced to
support business owners selling all or part of
their business. We also consider the potential
impact of the credit crunch on your personal
financial position.
As always, we have rounded up the region’s
property news, and finally, we have looked at
current opportunities for developers to make
substantial VAT savings.
March 2008
TIME ALMOST UP FOR EMPTY
COMMERCIAL PROPERTY
From 1st April 2008, owners of empty
commercial property will be forced to pay
business rates on the property. The impact of
this on landlords and owners who are stuck
with empty buildings will be substantial, as
rates are roughly 45% of a property’s annual
rental value. As such, analysts predict that the
tax is likely to net the government £1.85
billion over the next two years.
Under the current regime, empty factories
and warehouses are exempt from business
rates for an indefinite period, whilst all other
empty commercial properties are exempt for
an initial three months, followed by a 50%
charge. However, from April 1st, full rates will
be payable on office and retail buildings that
have laid empty for three months or more,
and on empty industrial buildings after six
months. Agricultural buildings are to remain
exempt from business rates.
The government has stated that the change
is designed to bring empty commercial
property back into use and increase the
competitiveness of the UK property market,
however this has been seen in the industry as
a feeble excuse to justify a tax hike.
exemption period of three months for
offices and retail buildings, and six months
for industrial buildings.
• Don’t finish the building – There is the
possibility that developers could leave new
buildings unfinished, and therefore exempt
from rates, until an occupier is found.
• Demolish the building – if you have a
vacant building on a development site, it
may be commercially attractive to
demolish the building now, even if
construction is unlikely to begin for some
time.
• Support local charities – Charities receive
an 80% discount on business rates (and
can apply to their local authority for a
discount on the remaining 20%) and as
such might be interested in short-term lets
of commercial property.
For advice on reducing the tax and
VAT bills associated with property
development, ownership, or
refurbishment, contact Tony Medcalf
on 01772 821021 or
[email protected]
If you would like to suggest future interesting
topics for us to cover, please telephone Mark
Brennan on 01772 821021, or e-mail
[email protected]
Tony Medcalf
Tax Partner
So how could you possibly avoid paying the
new rates? Several options have been
suggested, including:
• Appeal against rating assessment – if the
property has been empty for several years,
the current assessment of rateable value
may be inaccurate.
• Consider short lets – if a property is let for
just six weeks, it qualifies for a fresh
IN THIS ISSUE
• Don’t rush to make that sale!
• The credit crunch: how will it affect
your financial position?
• Regional property news.
DON’T RUSH TO MAKE THAT SALE!
Telling most business owners to avoid making a sale would seem a
The conditions are that you must have held the shares or assets for at
highly unusual piece of advice to give. However, if the advice concerns
least a year before the sale, and the business must be trading, so
the sale of their business, recent changes in legislation could make this
property letting businesses don’t qualify. Where you sell a company, you
advice extremely sound.
must own at least 5% of the ordinary voting shares, and have either
worked in, or been an officer of, the company or an associated
Following the Chancellor’s Pre-Budget Report scrapping of Capital
company.
Gains Tax (GGT) indexation allowance and taper relief, many business
owners were considering selling their businesses before 5th April 2008
For example, you sell the shares in your company for a gain of
in order to pay 10% CGT rather than the new flat CGT rate of 18%.
£450,000. The entrepreneurs’ relief reduces the gain to five-ninths of
However, following widespread criticism that his changes would hit
this figure (£250,000). The tax due is £45,000 (18% of £250,000),
entrepreneurs and small business owners hardest, the Chancellor has
which is an effective rate of 10% of the full gain of £450,000. You can
introduced a new entrepreneurs’ relief.
further reduce your tax bill by deducting your annual exemption
(£9,200 for 2007/8), and any capital losses from the taxable gain.
The relief will apply when you sell part or all of your business, or shares
in your own company, after 5th April 2008, subject to a gains cap of £1
If you are considering selling your business, or growing
million (any gains in excess of this cap will be taxed at 18%). The capital
through acquisitions, contact a member of our corporate
gain will be reduced to five-ninths of the full gain, making the effective
finance team. For business tax advice tailored to the specific
CGT rate 10%. This is effectively a restoration of the taper relief position,
needs of your business, contact Tony Medcalf on 01772
so long as certain conditions are met.
821021 or [email protected].
LEADING PROPERTY FIGURES ‘BUILD FOR THE GUILD’
This week (Thursday 6th March) saw the latest Downtown Preston in
Business Property Forum, entitled ‘Build for the Guild’. Presenting
their vision of Preston in 2012 were Steve Jackson of newreg.com
and representatives from leading property development company
Faisaltex.
substantial debate. The regular Property Forum gives property
In other news, Grosvenor are shortly due to present their plans for
the Tithebarn development which will undoubtedly provoke
and the regular Preston Property Forum, go to
property
matters
developers and investors their chance to have a say in the future of
Lancashire’s third city.
For more information on Downtown Preston in Business
www.downtownpreston.com
THE CREDIT CRUNCH: HOW WILL IT
AFFECT YOUR FINANCIAL POSITION?
Analysts economic predictions for 2008 have been particularly gloomy,
due to the cloud cast over the economy by the global credit crunch. This
has been compounded recently by falls in the value of global stock
markets, which has caused panic amongst investors.
Council of Mortgage Lenders (CML) reported that December 2007 saw
a 25% drop in gross lending, which represents the lowest monthly figure
since May 2005.
Finally, the financial uncertainty and lack of available credit to invest will
What does all of this mean to your personal financial position? Partner
and head of financial planning, Graham Gordon has answered some
of the most frequently asked questions regarding the credit crunch:
What is the credit crunch and why has it happened?
A credit crunch is what happens when banks start hoarding cash,
leading to a shortage of available credit for businesses and individuals
to invest. The crunch started in the US sub-prime mortgage sector, in
which banks and other financial institutions provide loans to people on
low incomes or with a poor credit history.
continue to hit a number of businesses in the short to medium-term,
with Morgan Stanley warning that the FTSE 100 index of the UKs largest
companies could plunge 20% in 2008.
The fear is that the crisis could suffer from a snowball effect as tightening
credit, increasing pressure on consumer expenditure and falling
property prices could lead to even more loan defaults and home
repossessions during the year.
How can I minimise the effects of the credit crunch on my
finances?
The rising interest rates of recent years have led to record levels of loan
defaults and home repossessions in the sub-prime mortgage sector.
This has sparked fears amongst lenders that they are over-exposed to
bad debts, leading to the recent hoarding of cash.
The crisis really hit home in the UK with the demise of Northern Rock,
who have only been saved from total collapse by the Government. As a
consequence, all banks have become less willing to lend to one
another, leading to a reduction in business sales and purchases.
The economic uncertainty has also recently taken hold in the global
stock markets, where the falling value of the Dow Jones has in turn
impacted upon Asian and European markets, including the FTSE100. In
response, the Fed has cut interest rates to 3.5% (in the largest single rate
cut for 25 years) but this has fuelled fears that other central banks will
follow suit, and the falling interest rates will lead to a growth in inflation
over the course of the year.
The key to managing your finances through any short-term crisis is by
having a financial plan that provides a balance between short-term and
long-term objectives.
For example, many investors are considering selling their shares, or
delaying upcoming investments, in the wake of the recent falls in the
value of the stock market. However, data from Fidelity, the UKs largest
fund manager, shows that had you had funds invested in the FTSE over
the whole of the fifteen years between 1992 and 2007, you would have
received an impressive annualised return of 9.84%. On the other hand,
if you had withdrawn your funds during that time and missed out on
just the 40 best days for the market, your annualised return over the 15
years would be just 1.06%.
Therefore, the key to getting good financial returns from the stock
market is being involved for long-term, rather than short-term, gains.
What are the likely effects of the credit crunch in the UK?
Although the economic crisis is centred in the US, we are all part of the
same global economy and as such there have already been, and will
continue to be, effects on the UK economy.
The shortage of available credit has already hit a number of high street
retailers, who have been reporting Christmas figures that were well
below their expectations. Property prices will also take a hit due to the
falling number of mortgages being approved by the banks, and a
reduction in house sales as consumer confidence drops. Indeed, the
In conclusion, in such periods of short-term uncertainty, the need for
independent financial advice that considers the widest possible range of
options and takes into account both your short and long-term financial
goals, is greater than ever. Don't let yourself become panicked by the
media into making hasty decisions, which you may live to regret.
For more advice on putting together a balanced financial
plan tailored to your needs and personal goals, contact
Graham Gordon on 01772 821021.
www.mooreandsmalley.co.uk
REGIONAL DEVELOPMENTS
The North West Development Agency
has approved a £1.5m grant towards EA
Technology’s new centre for energy-related
start-ups in Capenhurst. Wigan Council has
struck a deal with Chinamex, and
Commercial Group Properties, which will
see the town transformed into a £125m textile
manufacturing hub. The ambitious
development is expected to create more than
1,000 new jobs, plus 3,000 in spin-off
industries. An £85.3m upgrade of the
Blackpool and Fleetwood tram system
has been given the go-ahead after the
Government said it would give £60.3m to the
scheme. Defence giant BAE Systems has
started work on a new £100m aerospace
business park at its site in Samlesbury, near
Preston. The first stage of the project is the
construction of two four-storey office blocks to
house 1,400 people in the firm’s project
teams. The Stobart Group is in talks with
Tesco over building a 750,000 sq ft
warehouse at its 3MG multi-modal gateway
site in Widnes. Tesco and Manchester
developer Property Alliance Group have
submitted a joint application for a 6.5-acre
scheme anchored by an 88,000 sq ft
supermarket in Accrington’s Eagle Street.
The £32m proposal would be the biggest
single investment in Accrington in the last five
years and could create 450 new jobs.
DERELICT PROPERTIES: COULD YOU MAKE
VAT SAVINGS?
From 1st January 2008, HMRC will allow a
reduced rate of VAT of just 5% on
reconstruction work and materials supplied
at the same time by a contractor, if a
residential property has been empty for a
minimum of two years. This 12.5% saving
previously only applied to properties that
were unoccupied for more than three years.
Under the ‘urban regeneration scheme’
there are other opportunities to take
advantage of this reduced rate, including:
• The conversion of non-residential buildings
into a home for the first time (e.g. barn
conversion).
• Where a developer changes the number
of ‘single household dwellings’ within a
property (e.g. converting a townhouse into
a number of flats).
While these rules appear relatively
straightforward, any tax and VAT savings
should only be sought with the support of an
experienced specialist advisor.
We would urge property developers
to seek advice on the VAT position of
their projects, to satisfy HMRC, and to
identify potential savings. For more
advice on VAT, contact Stephen
Adams on 01772 821021 or
[email protected]
THE TEAM
Tony Medcalf
James Treadwell
Stephen Adams
Graham Gordon
Rob Kenmare
Tax Partner
[email protected]
Audit Partner
[email protected]
VAT / Employment Associate
[email protected]
Financial Planning Partner
[email protected]
Corporate Finance Partner
[email protected]
Richard House, 9 Winckley Square, Preston, Lancashire PR1 3HP Tel: 01772 821021 Fax: 01772 259441
Fylde House, Skyways Commercial Campus, Amy Johnson Way, Blackpool, Lancashire FY4 2RP Tel: 01253 404404 Fax: 01772 259441
Donnington Business Centre, The Old Vicarage, Market Place, Castle Donnington, Derbyshire DE74 2JB Tel: 01332 856347 Fax: 01772 259441
Moore and Smalley LLP is a limited liability partnership registered in England and Wales: No. OC313896. Registered office: Richard House, 9 Winckley Square, Preston, Lancashire PR1 3HP.
The term “partner” indicates a member of Moore and Smalley LLP who is not in partnership for the purposes of the Partnership Act 1890. A list of members is available from our registered office.
Registered by the Institute of Chartered Accountants in England and Wales to carry out company audit work. Authorised and regulated by the Financial Services Authority.
property
matters
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