landlords your property and tax

www.francisclark.co.uk

Your Property and Tax

Gordon Fox

Tax Partner

01752 301010

[email protected]


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


Income Tax – rates 2009/10

£2,440 If savings - at 10%

next 34,960 or 37,400

At 20%

37,400+ At 40%


Allowable income tax deductionsRent-a-room relief (£4,250) Legal fees – tenancy

agreements, collecting debts

Letting/managing agents’ fees

Ground rent or service 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

[email protected]

landlords your property and tax

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