3. 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%
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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
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5. 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)
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6. Income tax allowances
£ per year 2009-10
Personal allowance (age under 65) 6,475
Personal allowance (age 65-74) 9,490
Personal allowance (age 75 and over) 9,640
Married couple's allowance (aged 73-75) N/A
Married couple's allowance (age 75+) 6,965
Married couple's allowance - minimum 2,670
Income limit for age-related allowances 22,900
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7. Income Tax – rates 2009/10
£
2,440 If savings - at 10%
next 34,960
At 20%
or 37,400
37,400+ At 40%
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8. Allowable income tax deductions
Rent-a-room relief (£4,250) Legal fees – tenancy
agreements, collecting debts
Letting/managing agents’ Ground rent or service
fees 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
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9. 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
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10. 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
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11. 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
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12. 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
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13. 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
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14. 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)
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15. 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
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16. Administration
• Business payments support service?
• Tax ‘enquiry window’ is one year after
submitting return
• HM Revenue & Customs “name &
shame” policy for tax offenders
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17. 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
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18. 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
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19. 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%
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20. 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%
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21. 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
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22. 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.
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