Property Tax Planning
What do you need to consider with Property Ownership?
There have been many changes to the taxation (Stamp Duty Land Tax, Capital Gains Tax, Income Tax, Corporation Tax) of property ownership, as the Government tries to discourage the ownership for both individuals and businesses.
Obtaining professional property tax advice before buying or selling a property to ensure you mitigate your taxation liability can save you thousands of pounds. One exercise we carried out for an individual showed by selling a property 1 day later could result in an additional £20k of taxation. Timing is often therefore vitally important.
How to Purchase Property considering Taxation
Many individuals have started to purchase buy-to-let properties within a company and are therefore seeking property tax advice. The move away from personal ownership was mainly due to the mortgage interest restriction which started to be phased in from the 17/18 tax year and was fully in effect for 20/21. Should you buy a property as an individual or in a company? The answer is “it depends on your circumstances”. Our property specialist tax accountants are here to help.
There are many pro and cons of holding properties individually and in companies. With a ‘no one size fits all approach’, our specialist Bedford tax advisors can assist you with making an informed decision. You should always seek professional tax advice before purchasing a buy-to-let, as with the 3% stamp duty surcharge it can be expensive and prohibitive to change the ownership afterwards. It is also important to seek professional tax advice in advance of selling your property.
There are also many tax reliefs available (Stamp Duty Land Tax, Capital Gains Tax, Income Tax, Incorporation) when purchasing and disposing a property. These can be utilised to help mitigate any potential tax charge, so the sooner you seek specialist property tax advice the potential greater tax saving could be had.
How to save Property Tax
We at Rawlinson Pryde & Partners are able to either undertake a property portfolio review or offer property tax advice before you make a property purchase or disposal. We have already advised several of our clients resulting in them saving much more taxation than our fees in year 1.
If you are looking to purchase a property you should weigh up the pros and cons of owning personally or via a company.
If you own a property with a married partner or civil partner, we can assist you with changing the ownership to reduce your tax charge.
If you are selling a property you may wish to consider the timing of this to make use of your annual exemptions and tax bandings.
Techniques to reduce Property Taxation
Depending on your circumstances there are ways to carry out some property tax planning, whether prior to buying a buy-to-let or after buying. We would always recommend you get advice in advance of arranging finance and buying a buy-to-let as after obtaining finance it can be restrictive and costly to undo.
Techniques to reduce property taxation can include:
- Transferring between spouses
- Utilising the Property Allowance
- Partial Exemption VAT rules
- Forming a Partnership or Limited Liability Partnership (LLP)
- Using a Limited Company (article here) and this could include incorporating an existing business using the Ramsay case
There are benefits and drawbacks to each opportunity but with our Chartered Tax Advisers we will be able to assist you with coming up with property tax planning advice. It is imperative to obtain property tax planning advice in advance of a transaction click here to contact us.
Stamp Duty Land Tax
When purchasing, transferring (even between two spouses) or selling a property in to a Limited Company there is often Stamp Duty Land Tax due.
It is important to understand what potential liabilities there will be on the transaction. Our Stamp Duty Land Tax page has more information and helpful links.
When to Report & Expense you can Claim
For allowable rental expenses that can be claimed please visit our blog: Rental Expenses for Buy-to-Let Properties
Individuals need to report and pay their UK rental profits on their Self-Assessment Tax Returns by 31 January following the end of a tax year 5 April.
UK Residents who dispose of a property, which falls into the scope of Capital Gains Tax need to disclose this on their tax return and make the payment by 31 January. When selling a property you may need to report and pay the Capital Gains Tax within 60 days of completion. More information can be found on our blog Capital Gains Tax on a Residential Property.
Non-Residents who dispose of any UK land and property are required to report this to HMRC within 60 days of completion.
Failure to report in time triggers penalties. We can ensure you remain compliant within the time frame.
Property Developers and Property Investors
Some of our largest clients are in property development or are property investors who have a large portfolio of properties. We do not just look after the larger clients, we have many smaller clients or those who are just starting out.
We are able to assist you with ensuring you structure your business affairs to consider your potential exit, tax (Corporation Tax, Capital Gains Tax, Income Tax, Stamp Duty Land Tax) and VAT implications.
Buy-to-Let (BTL), Rent-a-Room and Airbnb
Buy-to-Let, Rent-a-Room and Airbnb may all appear to be the same activity – providing a form of accommodation. However, each are different can have very differing tax treatment. We will be writing an article in due course covering the differences – link to appear here.
VAT – BTL and Rent-a-room are exempt, whereas Airbnb is a vatable supply.
Income tax – All activities are taxable, although there are some special rules. If a trade is deemed to exist they could be subject to National Insurance.
Examples of how we saved Clients Income Tax
Mr and Mrs C owned a property, in the following proportion respectively 66.67% to 33.33%. Mr C was a higher rate taxpayer and Mrs C was a basic rate taxpayer. We identified by changing the ownership to 50:50 they would save tax as a family of approx. £915 in year 1. The tax saving more than outweighed our fees to carry out the work, with future savings to come.
Mr and Mrs D were planning on buying a property. Mr D was likely to go over the £100k threshold and his wife was in the basic rates. He didn’t know whether to buy via a company or individually. We explained both ownership methods and they decided to do it not in a company to which we then explained how they should own the property utilising the £1k property allowance.
Examples of how we saved Clients Capital Gains Tax
Mr and Mrs A have been non-Resident for many years. They wished to move back to the UK and buy somewhere else. From our advice we saved them £17k of Capital Gains Tax and prevented them from suffering the extra 3% stamp duty surcharge as they owned other properties.
Ms B was concerned about the potential new rules with PPR and Lettings Relief, we showed her getting her timing wrong by 1 day would cost her £13,300 in tax! We also informed her that if she wanted to retain the property for income then it would take a little under 2 years to recover any potential increase in tax.