As experts in property tax we often get asked by clients who are landlords and property developers how to save tax - especially so as the cost of letting a property rises year on year.
With our experience and special insider knowledge that HMRC in 2014 - 2015 is especially looking at checking landlords who are not declaring the correct rental income and correct capital gains on second homes. This is something that is becoming more important as people realise it is harder and harder to hide their untaxed property incomes. Landlords or their accountants are required to fill the the land and property section on their self assessment tax return showing all the rental business income they have made and as many want to make sure they pay the least amount of tax possible. We have have created a simple list to help guide you. Here are Tax Affinity Accountants top tips to save property tax. 1. Claim for all your property related expenses. Its important to make sure you claim for all your expenses when submitting your tax return. These should include: • Travel costs incurred when travelling back-and-to the investment property • Estate Agent or private advertisement costs • Mobile or landline telephone calls made (or text messages sent) in connection with the rental property • Payments for safety certificates eg Gas Safety • Bank charges (i.e. overdraft, interest on mortgage) • Professional fees e.g. Architect, Solicitor, Accountant etc • Monthly payments to property investment related products and services eg Insurances etc 2. Dividing your rental income between partners. A top tip is to consider putting your buy-to-let property into joint named ownership. Then the total income can be divided into each person's income and multiplying the personal allowance claimable on the income. 3. Claim all empty period expenses. Often there are periods between lettings that the buy-to-let property is empty and the owner has to pay for council tax or utlity bills. These should be noted and claimed. 4. Claiming the home office allowance. £4 per week (ie £208 per year) can be claimed for the use of your home to manage and run your rental property income. This amount can be claimed without evidence and more can be claimed if it can be justified. 5. Interest and finance costs. Most properties are on mortgages and the interest part of any mortgage is claimable as an expense. So if you have an interest only mortgage then the whole amount is claimable per month paid. Often landlords also forget to claim for money borrowed from friends or family or taken on a credit card or personal loan for the buy-to-let property and the interest on these can also be claimed. The principal can only be claimed when selling the property against capital gains tax. 6. Dont forget to carrying forward loss from previous year Most of the time a new buy-to-let property will not breakeven in its first year and so many landlords have significant rental losses for that year. Then when they start to make income from the property most forget about this loss which can be offset against the current years income. This could even mean no tax to pay in the current year if the losses are great enough. This requires detailed technical knowledge and so any lanldord in this situation should contact an experienced accountant such as Tax Affinity Accoutants. 7. Capital gains avoidance If landlords who are planning to sell their property, need to plan months or even a year ahead to increase their options of minimising capital gains tax which will arise on the sale of the property. This is usually best done getting expert advice from an accountant experienced in tax and property such as Tax Affinity Accountants. What top property developers and landlords know that mostly the fees paid to a good accountant are far less in comparison than the tax he/she will save you. 8. Wear and tear allowance Letting your property as furnished as opposed to unfurnished can allow you to claim up to 10% of the gross income as a valid expense for the upkeep and repair of furtniture in the tax year. 9. Make Sure to avoid HMRC interest and penalties Sound obvious but far to often, we see penalties and interest charges for late filing of tax returns and missed deadlines for documents to HMRC. The deadline for a paper return to HMRC is 31st Oct and online 31st Jan each year. Please also not that landlords will not be able to submit their return electronically if there are any capital gains elements on the return. ie the sale of any property. An experienced accountant needs to be contacted for this purpose which if knowledgable enough could ensure all capital expenditure is claimed to reduce the capital gains liability as low as possible. By Andrew at Tax Affinity Accountants. Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered to be property tax experts helping and supporting ladlords across the UK. They regularly help new landlords and property developers and provide valuable ongoing support. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends.
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How do you save money on Capital Gains Tax? For an Accountant this is a question which is asked regularly. But as you can always find a way to save money. Below I give you a basic insight into how CGT (Capital Gains Tax) works, some tips, exceptions and how to avoid it completely:
How does it work? CGT is run through the tax year (6th April one year to 5th of April the following year). It is worked out on the total of your taxable profit from any capital assets that you hold. For instance, property, bonds and shares on the stock exchange. Furthermore, it is when the amount exceeds the purchase price of a property, bond and shares/stock. The amount that is exempt (tax free) annually is £10,900 for 2013 to 2014 (which increases to £11,000 for 2014 to 2015). At present there are two different types of CGT. The basic rate taxpayers pay is 18%, although the higher rate tax payers pay is 28% and if the capital gains goes over your threshold you will pay the higher tax. Tips to save money Below are some tips to keep the CGT Low as possible:
Exceptions Any profit made on selling your home is tax exempt, unless you did one of the options below:
You can also get away with not paying tax if you make a profit on selling a car, ISA’s, Peps, UK government gifts, savings certificate, premium bonds, personal belongings that are worth £6,000 or less when you come around to selling them. Furthermore there is a 10% tax rate with the entrepreneur’s allowance, which is aimed to help people that are selling their businesses they have built up. It has a lifetime limit of £5m. Avoid it completely If you want to avoid paying the higher threshold of 28% there are some suggestions below:
You can defer your CGT by reinvesting it into the Enterprise Investment Scheme (EIS). You would have a limit of £200,000. Furthermore, any profit made will be exempt if you meet the qualifying standards. Finally, while tax avoidance is legal, tax evasion is illegal. So do not be tempted to sell assets without declaring any profit to HMRC. Defrauding the tax man can land you with a large fine or even a prison sentence. But the advice and support of an experienced tax accountant and some sound forward tax planning can save you thousands of pounds. By Tahir Malik at Tax Affinity Accountants Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered in the Finance Industry to be the experts in all types of Tax including Capital Gains Tax. Helping and supporting businesses and individuals throughout the UK, they regularly help people with their CGT tax issues. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Saving Inheritance tax
Inheritance tax can be a tricky issue to deal with for most people but it is generally considered a “voluntary tax” as good tax planning can greatly reduce your inheritance tax liability or erase it completely. Assets exceeding the current inheritance tax threshold of £325,000 (for tax year 13/14) are taxed at 40%. That’s basically half of your excess assets going straight to the government and not to your loved ones. This is why inheritance tax can be extremely costly for those who have not done sufficient planning. Fortunately, there are many exemptions and allowances to utilise which would significantly reduce the amount of inheritance tax you have to pay. Here are a few things to consider that can help you save some inheritance tax:- Make a Will Making a will allows you to know that your estate is divided exactly as you want it to be when you die. In the absence of a will, people that you wish to benefit from your estate such as an unmarried partner may not be entitled to any share in the event of intestacy. What is a gift? A gift is something of value given unconditionally to someone without any reservations. The biggest asset that most people are in possession of is their house. However, giving away your house yet trying to live in it may allow HMRC to invalidate the gift as genuine and apply tax on it. Give away sooner Majority of gifts you make are classified as “potentially exempt transfers”. If you survive more than seven years after making the gift, no inheritance tax is due on that gift. The amount of tax can be reduced depending on how long you lived after making the gift due to taper relief. Gifts made less than three years before death have no reduction in tax. If the gift was made three to four years before death then tax is reduced by 20%. This increases by 20% for every extra year the donor lives up to seven years where the whole amount is exempt. Therefore it can help relief some financial burden on your death estate if you make gifts sooner rather than later. Allowances to take advantage of You can give away gifts worth up to £3,000 in total per person every tax year and these gifts will be exempt from inheritance tax when you pass away. Any unused part of this annual allowance can be carried forward to the following year, but if you don’t use it in that year, the carried-over exemption expires. You can also give up to £5,000 to your children when they marry as a wedding gift. Grandparents can give up to £2,500 and others up to £1,000. Regular Gifting Regular gifting can dramatically reduce your inheritance tax bill as long as they meet the following criteria: they must be from your income, they must be regular and they must not decrease the standard of living of the donor. Be generous on birthdays Gifts under £250 to any recipient per tax year are exempt from inheritance tax. This means that it might be worth giving your boy a big birthday present even if he’s been naughty as it helps reduce the tax bill. Gifts to charities and political parties are tax-free It’s good to know that any donations you make to charities or political parties are inheritance tax free at least. Getting Tax Advice While it is generally more economical for you to do things by yourself, if you have sizeable assets then seeking professional tax advice is well worth your money. You may end up paying a few hundred pounds to potentially save over hundreds of thousands of pounds. I’m no bargain hunter but that sounds like a good deal to me. By Wilson Law at Tax Affinity Accountants Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered in the Finance Industry to be the experts in all types of Tax including Inhertance Tax. Helping and supporting business and individual throughout the UK, they regularly help people with their Inhertance tax issues. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Properties have always been a relatively safe and sound option for investment. As a landlord, renting out your property can offer an alternative source of income in the form of rent and potentially give a good return on the initial investment through capital appreciation. However, if you’re looking for huge returns over a few days then property investment is unlikely to be your preferred choice. Nonetheless properties have historically been a low risk investment and have provided modest returns over the long term. Here are a few things to consider if you wish to maximise your rental income:
Deducting Allowable Expenses You can reduce the amount of rental income that is taxable by taking advantage deducting allowable expenses. There more common expenses you can deduct are:
The costs should be wholly and exclusively incurred as a result of renting out the property. If a part of the expense meets this condition then that part can be deducted from income. Cost comparisons Saving costs can only have a positive effect as expenses are the only thing eating into your rental income. Try reviewing your costs on an occasional basis (once a quarter) and you may witness bargains that could help you save a lot of money. Service providers tend to offer sizeable discounts to new customers but only have stagnant prices for existing customers. Getting quotes from different companies that offer the same service can sometimes amaze you at how wide the price range can be. Just be sure you don’t jeopardise the quality of services just to save a few pennies. Annual Investment Allowance Expenses of a capital nature are not deductible. You cannot deduct from income the cost of the property you are renting out, expenditure that adds to or improves the property or the cost of renovating a property from a state that cannot be rented out. However, capital spending can be deducted using the Annual Investment Allowance. From 1st January 2013 (until 1st January 2015), you can deduct up to £250,000 a year for many types of capital spending using the Annual Investment Allowance, such as commercial vehicles, business furniture, computers, machinery and tools. It would be beneficial to take advantage of the temporary rise in the Annual Investment Allowance as it is likely to revert back to around the limit of 2012/13 (£25,000) after January 2015. Landlord’s Energy Savings Allowance (LESA) Until April 2015, an allowance of up to £1,500 per let residential property can be claimed for the cost of loft, wall and floor insulation, draft proofing and hot water system insulation. The LESA was introduced to encourage landlords to improve the energy efficiency of let residential properties. These expenditures are usually not deductible from taxable income and are not eligible for capital allowances. Wear and Tear Allowance or Renewals Allowance For fully furnished properties, a wear and tear allowance can be claimed for furnishings such as beds, carpets and appliances. The allowance is 10% of the net rental income (gross rent minus utility bills, service charges and council tax) you receive from these properties. With the renewals allowance, you can claim expenses of any furniture as you replace them. Any money you make from the disposal of the asset must be deducted and the cost of any improvements (e.g. an upgrade from a washing machine to a washer-dryer) Note that you can only claim either the Wear and Tear Allowance or the Renewals Allowance but not both. By Wilson Law at Tax Affinity. Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. |
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