Rental Income
Tax
 
“tax planning for landlords”
Rental income is normally
classed as Schedule A income on your tax return and will be taxed with any
other income you have. Again careful property tax planning can help
significantly reduce schedule A tax liabilities and we can help you make
important tax decisions which will reduce tax liabilities (eg: opting for
the 10% wear & tear allowance or the renewals basis, diverting income
towards a lower tax bracket spouse by transferring beneficial ownership
etc).
In certain circumstances, it may be beneficial for a property investor to
operate through a limited company. One problem however will getting your
properties into the company as you will be deemed to have made a disposal at
market value and will be liable to pay any CGT arising.
"Should i operate through a limited company?"
If you are a higher rate
tax payer earning rental income of £25,000 say. Your tax liability will be
liable £10,000 (leaving you with £15,000 after tax). If however this was
earnt and left within a company, the tax paid would only be £2,850 (first
£10,000 profits are tax free and then 19% on the remainder) leaving you with
£22,150. This is a saving of £7,150 P/A. A company could potentially save
you tax every year which then could be used to invest in more properties.
The key point here however is that this is a long term venture and may not
be suitable if you are thinking short term.
The decision to operate
through a limited company requires careful
consideration and many factors need to be considered.
There are other various
advantages
and
disadvantages which we would be happy to discus.
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Property Investment Tax Planning
With the recent boom in the UK of the property market,
timely property tax planning in this area has become
vital and is something everyone needs to consider. We
are a firm of seasoned tax professionals within the
property sector and we are regulated by the Institute of
Chartered Accountants in England & Wales. Inappropriate property
tax planning can prove to be very costly and difficult
for a professional tax advisor to reverse at a later
date. It is very important that check the credentials of
your tax advisor and ensure that you are dealing with
professionals who hold recognized qualifications (These
are usually: ACA, FCA, CTA, FTII, ATII).
The following taxes need to be considered for home
owners and property investors:
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Capital Gains
Tax
(CGT)
 (CGT)
THE BASICS
In simple terms, CGT is the tax which is paid on any
profit made when a property is sold. If you live in a
property and it is your main home then you will normally
be exempt from Capital gains property tax under the
principal private residence rules (PPR), however periods
of long absence and business use can invalidate this and
Capital gains property tax may be due. This relief is
not available on the sale of any other properties you
own (for example investment properties which are rented
out) and CGT will in most cases be due on the full gain
(if you are a higher rate tax payer this is at a rate of
40%!!).
There are ways to reduce, or even legitimately eliminate
Capital gains property tax. There are various tax
planning tools such as the use of relief's, annual
exemptions, transfer of beneficial ownerships etc, which
if applied at the correct time and circumstances can
wipe out your gain.
Since 2003, it has become mandatory for the solicitor
who deals with your conveyencing to complete a Stamp
Duty Land Tax return on the sale of all UK properties
and send this direct to HM Revenue & Customs. This will
contain details of the buyer and seller, and HMRC will
be able to ascertain if any Capital gains property tax
was due on the sale..
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Inheritance
Tax
(IHT)
 Inheritance
Tax Planning
This is also known as “Death Tax”. It is the tax which
is due on the transfer of assets which are contained in
the deceased estate and chargeable lifetime transfers
(eg: Gifts into a Discretionary Trust). For the tax year
2004/05, the first £263,000 of the estate is exempt.
There after IHT is charged at 40%. Again given the
property boom in the UK, this will affect many
individuals.
Once again early Inheritance tax planning can help
reduce or eliminate this tax. You may have heard that if
assets are given away over seven years before death then
no IHT is due. If only it were that simple! At times
different taxes will interact with each other and
Inheritance tax planning can trigger taxes in other
areas (which is why it is important that you deal with a
qualified professionals with knowledge of all taxes). It
should noted that a transfer of property to anyone other
than a spouse will be a deemed disposal at market value
for CGT purposes (see above). So although you may have
sorted out your IHT problem, there may be a huge CGT
implication which will catch up with you in future
years.
Sigma offers a number of Inheritance tax planning
strategies which include, tax efficient Wills and
Trusts, lifetime gifts and finally, in some cases
planning post-death (this last option is risky however
and it is better to plan while you are still alive).
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