How to Avoid Landlord Taxes

Transcription

1 How to Avoid Landlord Taxes Tax busting tips to help boost your property profits! By Arthur Weller & Amer Siddiq

2 Contents 1. About the Authors Arthur Weller - The Property Tax Specialist Amer Siddiq - The Landlord Acknowledgements Understanding your Tax Liabilities Income Tax Liabilities for Investors/Traders Property Investor Property Traders/Dealers Income Tax Rates Income Tax Calculation Case Studies Income Tax Calculation for Property Investors Income Tax Calculation for Property Developers Owning Properties as a Sole Trader Buying Properties as a Sole Trader When is it Tax Efficient to Buy Property as a Sole Trader? When is it NOT Tax Efficient to Buy Property as a Sole Trader? How Do I Get a Mortgage If I Have No Income? A Note About Selling Properties When Operating as a Sole Trader Income Tax & Property Partnerships What is a Property Partnership? Joint Tenants Tenants in Common When to Consider Buying in a Partnership Partners Must Be TRUSTWORTHY Partnerships Between Husband and Wife Partnerships Between Those Other Than a Husband and Wife How to Declare a Partnership Split to HMRC Moving Properties into Joint Ownership to Avoid Income Tax 29 Page - 3

3 Three Simple Steps to Follow Typical costs incurred when transferring How to Jointly Own a Property 50:50 but Split Rental Income 90:10! What Has To Be Done? How Does This Work In Practice? What Does HMRC Think Of This Arrangement? Property Owners Who Are Married Couples Getting it Right! Offsetting Interest Charges Interest on Mortgages A Note About Interest Only and Repayment Mortgages Interest Only Mortgage Repayment Mortgage Interest on Personal Loans Loan Used for Providing Deposit Loan Used for Refurbishments/Developments Loans Used for Purchasing Products Loans to Continue the Running of Your Business Interest on Overdrafts Interest on Re-Mortgages Purchasing a Property with Cash and Then Re-mortgaging Understanding Paragraph Benefiting from Interest Relief When Buying Off-Plan Benefiting from Interest Relief When Letting Out Your Own Home % Wear and Tear or Renewals? What is the 10% Wear and Tear Allowance? Understanding When the Allowance Can Be Used Understanding the Renewals Basis Method How to Decide Which Method to Use Wholly and Exclusively Understanding the Term Wholly and Exclusively What If Cost is Not Wholly and Exclusively Incurred for Property? Costs of Maintenance and Repairs Typical Maintenance/Repair Costs 54 Page - 4

4 9.5. The Big Misconception About Costs When A Property Is First Let? Allowable Expenses The Test A Cinema A Ship Practical Tip Capital Improvements Replacing Your Fixtures and Fittings What are Fixtures and Fittings? Replacing Fixtures and Fittings Like-For-Like Replacement What If It Is Not Possible to Replace With Like-for-Like? Like-for-Like Replacement But With Capital Improvements Other Ways to Reduce Your Income Tax Bill Rents, Rates, and Insurance Rents Rates Insurance Can I Offset Pre-Trading Expenditure? Carrying Over Rental Losses Travelling Costs Car Usage Public Transport Travelling Costs for Overseas Property General Property Costs Storage Costs Other Common Landlord Expenditures Can I Offset the Cost of a 5,000 Property Seminar? Capital Allowances for Landlords The Two Ways to Calculate your UK Property Rental Income Profits Cash Basis Comments About the Cash Basis Method Earnings Basis Can a Limited Company Improve YOUR Tax Position? The Most Commonly Asked Tax Questions Transferring Properties into a Limited Company 70 Page - 5

5 13.3. Understanding Limited Liability Two Major Tax Benefits of Using a Limited Company Benefits Drawbacks How to Use a Property Management Company to Save Income Tax Will a Property Management Company Save me Tax? Draw Up Formal Contracts Between You and Your Company Beware of Artificial Transactions! Saving on Stamp Duty When Do Property Investors Pay Stamp Duty? Stamp Duty when Buying New Land or Property Stamp Duty when Transferring a Property Stamp Duty Loophole Closed HMRCs Anti-Avoidance Measure Watch Out For Linked Transactions! Splitting Transactions A Higher SDLT Liability A Pitfall to Watch Watch Out for The Stamp Duty Tax Trap When Gifting a Property! Chargeable Considerations Release of Debt - Mortgages Works and Services Transfer of Connected Property Partners and Joint Purchasers Tax-Free Income for Renting Out Part of Your Home What is the Rent-a-Room Relief? Choosing Not to Use the Relief Renting Out in Joint Ownership Generous Tax Breaks for Holiday Lets Qualifying Criteria for a Holiday Let Three Generous Tax Benefits Associated With Holiday Lets Offsetting losses against other income Re-investment of Capital Gains FHL New Rules Proposed Tax Implications When Converting Properties into Flats Scenario 1 92 Page - 6

6 18.2. Scenario Scenario Scenario Practical Tip Understanding Capital Gains Tax (CGT) When You Are Liable to Pay CGT Why Exchanging Contracts Can Defer Your Tax Bill Recent History and Changes to the CGT Rate How Your CGT Bill is Calculated Avoid CGT by Using Private Residence Relief What is Private Residence Relief? Full residence relief Partial residence relief How Long in a Property Before It Can Be Classed as My PPR? The EASIEST Way to Legitimately Avoid CGT Understanding the 36-Month Rule How to Use the 36-Month Rule to Your Advantage Wiping Out CGT by Using Private Letting Relief Increasing Property Value and Avoiding Tax No CGT on the First 12 Months of Ownership Using the Rule to Grow a Portfolio Without Paying CGT Indexation and Taper Relief Properties Purchased Before Indexation Relief Non-business Taper Relief Bonus Year of Taper Relief Nominating Residence to Avoid CGT Having More Than One Family Home Nominating Your Residence to HMRC Flipping Marvellous The Election 115 Page - 7

7 25.2. Flipping in Practice Which Property Should Be Flipped? What Happens if No Election is Made? What Happens if the Election Date is Missed? Serial Property Sellers Other Ways to Reduce Your CGT Bill Using Your Annual CGT Allowance Capital Losses Buying and Selling Costs Selling at the Right Time Can Save You Tax! Never Sell a Property Means No Tax? The CGT Trap Relief for Interest Paid Rental Income Inheritance Tax When Not to Sell Beware of Simple Strategies! Using Property Partnerships to Cut Your CGT bill Making Use of Multiple CGT Allowances Save Tax by Transferring to Your Husband/Wife or Civil Partner Transferring to Lower-Rate Taxpayer Transferring if Partner Has Registered Losses Transferring Strategies for Non-spouse and Non-civil Partnerships Transferring in Stages Transferring at Arm s Length Advanced Strategies for Avoiding CGT How to Claim an Additional Three Years of PPR Claiming PPR When Working Overseas Claiming PPR When Re-locating in the UK CGT Implications of Providing Property to Dependent Relatives 131 Page - 8

8 30. Selling the Gardens or Grounds of Your Home The Permitted Area Location of Garden Timing of Sale of Garden Use for Other Purposes Buildings on Land Splitting Land or Property Splitting Properties Types of Joint Ownership Do They Have To Be Business Assets? Equilibrium Principal Private Residence (Your Home) Spouse and Civil Partners Stamp Duty Land Tax (SDLT) A Practical TIP Understanding Inheritance Tax What is Inheritance Tax? One VERY Important Point to Note! FOUR Simple Ways to Reduce Inheritance Tax Don t Forget Your Capital Gains Liability How to Avoid Inheritance Tax on Your Family Home Lifetime Planning First Death Planning Other IHT Exemptions Completely Exempt Annual Exemptions NIL Rate Band for Surviving Spouse Using Trusts to Minimise Inheritance Tax for Family Members Onshore Versus Offshore Discretionary Versus Fixed Interest Example 1: Discretionary Trust 144 Page - 9

9 Example 2: Fixed Interest Trust Bare Trust Protective Trust Disabled Trust Taxation Tax Liability for Commercial Property Owners % Capital Allowances for Flats Over Shops Qualifying Properties Essential Tax Advice for International Property Investors About Daniel Feingold UK People Investing Outside the UK Tax Advice for Ex-Pats Tax considerations for people investing in the UK Summary The Importance of Good Property Records Keeping Receipts Specifically What Costs are Allowable in a CGT calculation? Purchase Price or 31 March Valuation Figure Which to Use? What Does HMRC Say? What Happens if You do not Have the Documents...? Manage Your Taxes Using Award Winning Software Finding an Accountant Accountants Qualifications General Advisor or Tax Specialist? How to Choose Your Adviser Will I Need a Tax Adviser or an Accountant? What Qualifications? How Much Experience do they Have? How Much Will it Cost? Professional Bodies What About Indemnity Cover? How do I Contact My Tax Adviser / Accountant? Keep up to Date with Tax Legislation Changes What if I Have an Emergency? Does the Adviser Sell off the Shelf Packages? 170 Page - 10

10 39. The Importance of Tax Planning Knowing When to Consider Planning Buying Repairs and Refurbishment Selling Life Changes Politics End and Start of Tax Year The Real Benefits of Tax Planning Paying Less Tax Clear Entrance and Exit Strategies Staying Focused Improving Cash Flow Avoiding Common Tax Traps Asking HMRC for Tax Advice Making Use of HMRC Services The Drawback A Practical Tip The Golden Tax Rules Education Education Education Prevention is Better Than Cure Appendix A Indexation Factors for Calculating Indexation Relief 181 Page - 11