Landlords Your Property and Tax

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Information about Landlords Your Property and Tax

Published on July 19, 2009

Author: alison13



Gordon Fox from Francis Clark & Co Presentation on Property Tax, Investments, Capital Gains Tax and more

Your Property and Tax Gordon Fox Tax Partner 01752 301010

Property - Tax Life Cycle Purchase (Stamp Duty Land Tax) Rental (Income Tax) Sale (Capital Gains Tax) Death (Inheritance Tax)

Buying a property • Purchase price • Legal costs • Fixtures & fittings • Stamp duty – £0 to £175,000 = 0% – £175,001 to £250,000 = 1% – £250,001 to £500,000 = 3% – £500,001 and over = 4%

Buying a property – renovation • Improvement = capital = no immediate tax relief – Add to base cost of property (no tax relief until sold) – e.g. extension, self-containment etc. • Tax case law = preparing asset for business use • Repair = allowable deduction from rental income – e.g. redecorating, replacement windows

Renting your property • What is subject to income tax? – Income less expenditure on an ‘accruals’ basis (i.e. matched to the relevant period) • Year end = 5 April • Deposits = not taxable (unless used to cover expenditure)

Income tax allowances £ per year 2009-10 Personal allowance (age under 65) 6,475 Personal allowance (age 65-74) 9,490 Personal allowance (age 75 and over) 9,640 Married couple's allowance (aged 73-75) N/A Married couple's allowance (age 75+) 6,965 Married couple's allowance - minimum 2,670 Income limit for age-related allowances 22,900

Income Tax – rates 2009/10 £ 2,440 If savings - at 10% next 34,960 At 20% or 37,400 37,400+ At 40%

Allowable income tax deductions Rent-a-room relief (£4,250) Legal fees – tenancy agreements, collecting debts Letting/managing agents’ Ground rent or service fees charge (if leasehold) Accountancy fees Relevant motor expenses Advertising Repairs & maintenance Bank & credit card charges Property investment related subscriptions Insurance Loan interest Gardening & cleaning HMO licences Telephone (& Text charges) Use of home as office

Allowable deductions - Interest on Loans • Allowed deduction for interest on loans used to fund letting business • Tax relief can be given on interest on loans up to 100% of the capital value of the property at the time it was brought into the property letting business

Allowable deductions - Interest Example • Buy-to-let property • Cost £100k, mortgage £60k • Several years later property value £130k • PLANNING: Can increase loan up to £100k and obtain tax relief on interest, regardless of what the additional £40k is used for

Allowable deductions - Furnished Properties • No capital allowances available for fixtures or equipment in residential property • If fully furnished, have a choice between: – Wear & tear allowance – 10% of rent (less some deductions) • Renewals basis – No initial deduction – Replacement items allowance

Losses • Any loss arising from property rental by an individual can only be offset against other property profits, or carried forward against future property profits • Furnished holiday lets = exception – Detailed rules – Other tax reliefs – Cease to exist post 5/4/10

Administration • Notify HM Revenue & Customs of commencement of property investment business by 5 October following end of tax year, e.g. in 2008/09 by 5 Oct 2009 • File your Self-Assessment tax return by 31 October (paper) or 31 January (online) year following, e.g. in 2009/10 file by 31 October 2008 or 31 January 2011

Administration • Income tax payable in instalments • 1st instalment equal to 50% of previous tax years liability payable on 31 January during the year • 2nd instalment of same amount payable on 31 July after the year • Balance payable on 31 January after the year (with 1st instalment for new year)

Tax payments – 2009/10 • Year = 6 April 2009 to 5 April 2010 • 1st instalment (50% of 2008/09 tax liability) payable on 31 January 2010 • 2nd instalment (50% of 2008/09 tax liability) payable on 31 July 2010 • Difference between 2009/10 tax liability and above instalments payable on 31 January 2011

Administration • Business payments support service? • Tax ‘enquiry window’ is one year after submitting return • HM Revenue & Customs “name & shame” policy for tax offenders

Selling your property • If ‘trading’ will be subject to Income Tax (40%) on sale and not Capital Gains Tax (18%) • Depends on facts • Indicators of property trading: – Serial purchaser & seller of property – Buying & selling a property in short period – Buying & renovating, then selling – Providing services connected with accommodation

Selling your property • Capital Gains Tax payable on any gain • Proceeds on sale less: – Original cost or March 1982 valuation – Improvement expenditure – keep records! – Legal fees – Estate agents fees – Stamp duty costs

Selling your property – PPR/lettings relief – if lived in property – Annual Exemption - £10,100 per person – Principal Private residence relief • Period of occupation = tax free • Last 36 months of ownership = tax-free • Letting relief = extra tax-free allowance • Tax planning ‘elections’ (‘flipping’ MP’s!) • Then taxed at 18%

Death • Inheritance tax payable on the net value of your Estate • Transfers to (UK domiciled) spouse are exempt • £0 to £325,000 charged at 0% • Transferable ‘nil rate’ allowance • Excess charged at 40%

Inheritance Tax - example • Own home, value £500k • Investment property, net value £250k • Other investments, value £100k • IHT liability of married couple, payable following death of the survivor = £80,000

Disclaimer These presentation notes are for guidance only and professional advice should be sought before acting on any information contained in them. No responsibility can be accepted for loss occasioned to any person as a result of action taken or refrained from as a result of reading these notes.

Your Property and Tax Gordon Fox Tax Partner 01752 301010

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