With interest rates at an historic low, and a raft of tax incentives that encourage investment, there has never been a better time to buy, rather than borrow, business assets.
Leasing has long been considered good business practice – cash is king and leasing frees up cash flow and working capital. Certainly, leasing is important, but in the current climate, owner managers should be considering buying their assets before an attractive window of opportunity to make substantial tax savings closes.
For businesses needing to borrow, with interest rates in touching distance of zero there is currently a great opportunity to negotiate low cost loans to fund purchases. The capital used can then be applied to leverage tax savings from investment incentives such as the Annual Investment Allowance, which provides 100% relief up to £200k. With Corporation Tax set to fall from its current 20% to 17% in 2020, there is a further tax incentive to buy rather than lease, and offset the purchase against tax.
For businesses renting commercial premises, they should now consider buying rather than renting, particularly smaller premises. The Land and Buildings Transaction Tax in Scotland is zero up to the value of £150k on the purchase of commercial premises, and rates relief adds a further incentive for owner occupation.
Other specific reliefs for capital expenditure include BPRA (Business Premises Renovation Allowance), ECAs (Enhanced Capital Allowances for energy saving technologies) and the purchase of zero emission company cars.
If a business owner is looking to sell, it is important that the tax cost on exit is minimised by ensuring the structure of the shareholdings or group will allow for Entrepreneurs’ Relief or the Substantial Shareholdings Exemption to apply.
Low interest rates and compelling tax incentives are in alignment, creating a rare moment in time where buying can be the best way of saving tax, and yet still be investing in your business!