Property Development & Investment
There are a number of types of income that fall under the generic area of property. These include:-
- Rental income on buy-to-let properties (income tax).
- Gains on buying and developing one or two properties (capital gains tax potentially),
- Developing or improving properties as a long-term business (a trade taxed at income tax and NIC rates)
- Furnished holiday lets. This is a business with some features that are more advantageous than residential buy-to-let investments. These include capital allowances and income being pensionable.
We can assist with your accounting and tax requirements at very competitive prices. Please contact us for a quotation.
Our approach would be to ensure that all relevant costs are identified and recorded so that taxable income and capital gains are minimised. We find people often are unsure of what is a capital expense and what is a cost for relief in the taxable profit. Consequently, tax is overpaid. Given the withdrawal of the 10% wear and tear allowance, the emphasis on getting costs recorded is vital.
The Current State of Play in Property Investment
The world of seeking property profits in the form of income or capital gains has changed dramatically over the last few years, to the point that one has to conclude the government and HMRC are intent on crowding out the small investor in residential buy-to-let portfolios as far as they can.
This has been done by the imposition of an additional 3% stamp duty on second or more homes and the restriction of tax relief for mortgage interest to 20%. This latter item has made many portfolios with high loan to value ratios unprofitable or even loss making for high rate tax payers.
Equally regulations on lenders to property investors have required some very pessimistic views on the viability of such investments with a subsequent requirement for much higher deposits than seen in the past with 25% being quite common. It has to be said that businesses that qualify as professional investors can avoid much of this.
Potential Solutions
What can be done to ensure that investments in rentable property can be worthwhile?
There are a number of ideas on how to make the best of property income. These can include the following:
- Change the income split between husband and wife via a declaration of Trust to limit high rate tax of one person.
- Transfer of property to a limited company (quite popular but problems with Stamp Duty)
- Dispose of some properties to reduce mortgage debt and interest on remaining properties
- Incorporation of an existing sole trade business (questions arise on the nature of a business plus stamp duty issues).
- Use of a partnership as a route to a limited company. Potentially very useful but needs time to work.
- Setting up your own lettings agency.
- There are possibilities to mitigate Inheritance Tax with trusts.
There is no one solution to the new taxes. There are downsides to most of the above and much depends upon personal circumstances.
If you feel you need help with making your property portfolio profitable again, please get in touch.