Taxation – Capital Gains on Commercial Properties
A tax is referred to a financial load laid upon owners of property or individuals to support a government. It is not a charitable donation or payment but a contribution enforced pursuant to the law of a given country. It is a payment enforced by a government whether in the name of toll, excise, subsidy, custom, supply or aid.
In the United Kingdom it involves contribution to different levels of government i.e. the central government through the HM Revenue and Customs (value added tax, fuel duty and corporate tax)and to a local government (grants, business rates, council tax such s on-street parking fee) at minimum.
Income tax is the biggest revenue earner to nay government. Others include national insurance corporations, corporate tax and value added tax.
A tax year (fiscal year)varies from country, in the UK for instance runs from 6th April in one year to 5th April in the next year for income tax purposes, East Africa countries of Tanzania, Uganda and Kenya it runs from around 15th June of one year to 15th June of the next year. A financial year is majorly used for corporate purposes
Taxation has the following effects:
- Revenue i.e. collects money to spend on enforcement of law and order, protection of property, operation of the government, infrastructure development, public service provision and welfare, pay off the debts a country accumulates and its interests.
- Re-distribution which means wealth transfer from the richer parts to the poorer sections of the society. A key characteristic of a system of taxation is how it relates the percentage of tax to the income or consumption of an individual or corporate. The distribution effect can be described by such term as; progressive tax (effective rate of tax rises as income of an individual increase), regressive tax (rate of effective tax decreases as amount taxed rises), proportional tax where the tax effective is constant as taxable income increase and lump sum tax where the tax burden is fixed even if the taxed entity do not change in the scenario.
- Re-pricing where taxes are administered to address externalities such as tobacco taxation to discourage smoking.
- A taxation consequential effect is that of representation. This is where citizens of a country demands accountability from their policy implementers after paying their taxes
Taxes on income which include;
- Income tax also called pay-as-you-earn in case it is a personal tax.
- Social security contributions.
- Corporate tax refers to a net worth or any other taxable income in a corporation. A corporation’s tax base differs from that of individuals.
- Tax on payroll or the work force.
- Capital gains taxes are a profit on sale of a capital asset and include personal assets. Rates of taxes that are preferential or are partially levied are sometimes offered on gains on capital.
An important aspect of capital gains is:
Gaining Capital Allowances From Commercial Properties
Also known as Commercial Property Tax Claims (CPTC) is where the HRMC allows you to balance off part of the overheads you incurred in purchasing or refurbishing a property against income that one has. It is a constitutional right to claim the allowances to all UK tax payers.
Reliefs on Capital allowance were unclaimed in the past and were part of the value of procurement but were unidentified in the buying process.
It leads your tax reduction, wealth increase and long-term aims and objective accomplishment both at corporate level and personal level.
Plant and Machinery
Allowances on capital relating to plant and machinery are a costly and underutilized type of relief on tax. According to HMRC (Her Majesty’s Revenue Commission) 90% of commercial assets in the UK have available unclaimed allowances. It is available to all buyers of building or refurbishing business property and he/she is incurring expenditure on capital. They can be claimed as potential deductible rateable profits or as part of a wide variety of fittings and fixtures which are a portion of a building. Many equity owners and their financial analysts will often claim allowances on capital on mobile fixtures and fittings or on machinery and plant that are identifiable and quantifiable. These people understand that building do not attract claims on them since they are immobile but they miss out on an important t area between the movable and immobile e.g. kitchens, toilets, air conditioning, heating systems, electrical which often get destroyed when moving the walls and even the computers of a company.
HMRC have submitted discussion for proposed key changes to claims on capital allowance for fixed machinery and plant. It will affect all commercial property equities and investors on the property. The key proposals on the bill include;
- Buyer and seller are supposed to agree on the transfer value of capital allowance and inform the HRMC of all sales between 1-2 years of property sale.
- Avoid utility of s198 tax elections of one pound and need transfers at written down value of tax.
- Necessitate all businesses to put together expenditure on fixtures in a short time after buying a property.
- Oblige businesses to collect fixtures for all past spending.
Taxes on property include; Property, Inheritance, Expatriation, Transfer, Wealth, Sales and Value added taxes.
A tax system of a country is usually a reflection of its societal values and those of their leaders. A taxation system creation depends how a government wants to distribute its tax burden. Economists, i.e. neo-classical economists claim that taxation creates distortion of the market and results in inefficiency in an economy.
The negative effects of taxation are; loss of economic welfare, high cost of compliance, reduced production, deadweight costs of taxation, perverse incentives.