Shelter’s Income and expenditure figures highlighted13:57 PM, 4th February 2019
About 2 weeks ago 35
My wife and I jointly own a portfolio of 42 properties.
We recently sought advice on incorporation from an independent tax adviser who, interestingly, referred us to Property118 and suggested we look into BICT to avoid refinancing. I have to admit to being instantly hooked.
Our reasons for considering incorporation are:-
Our tax adviser is confident that we would qualify for incorporation relief to offset 100% of our capital gains by exchanging equity in our business for shares in the NewCo.
Having looked into BICT it is now also clear that we can avoid the costs of having to refinance.
The problem is SDLT.
Our tax adviser has shown me the legislation which would have resulted in no SDLT being payable if HMRC had recognised us as a partnership.
Furthermore, I understand this would have been a simple task for our accountants to have done by obtaining a Unique Tax Reference number for the business, submitting annual partnership returns and transferring the allocated profits to our self-assessment returns.
The outcome is that if we incorporate now we will incur an eye watering six figure SDLT bill.
If we obtain a partnership UTR now we have been advised to wait three years prior to incorporation so as not to fall foul of anti avoidance legislation. This would cost us an extra £93,750 in tax purely as a result of the restrictions on finance cost relief. This is not to mention the lost opportunities associated with trading some of our properties, succession planning,
Our accountant is clearly ‘on the back foot’ and has written to HMRC to own up to his mistake. He is hopeful that HMRC will forgive him, possibly issue a small fine and backdate their acknowledgement of the partnership. I hope he’s right but I am not convinced.
To our way of thinking, our accountant has been negligent.
My question therefore is; would my wife and I be likely to get anywhere by claiming our losses against his Professional Indemnity insurance?
The second part of my question is, assuming we have a case; should we incorporate and crystallise our losses in the form of SDLT now (which is our preferred option), or should we try to quantify our losses both ways and make a claim on that basis? Presumably the other side would argue either way?
Just to be clear, we are going to give our accountant an opportunity to redeem himself, However, if HMRC decide to be awkward then I don’t see that we have much choice other than to move to another accountancy firm and to launch a claim to recover our losses.
I look forward to reading all responses, particularly from lawyers.
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