The 4 main taxes that affect Landlords 💰
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The tax position surrounding owning property can be complex. One of the best ways to enhance your investment is to make sure you pay tax on income or gains as efficiently as possible...
Making small changes could save you money... 💰
First and foremost, you must consider your ownership structure to mitigate your tax liability, the main options are:
🔹 Direct ownership
🔹 Joint venture
🔹 Partnership
🔹 Limited company
The tax position for direct ownership, joint ventures and partnerships is very similar. In each case, profits are taxed at your marginal rate and capital gains charged on sale. The difference with a partnership is that there is the opportunity to utilise the personal allowances and lower rate bands of all partners, who can be other family members.
For more information on the types of ownership, visit Propertymark's article in full here 📩
The following are the main taxes that affect Landlords:
🔸 Income Tax
🔹 Landlords are required to pay income tax on the rent they receive from their rental properties
🔹 Any rental income after most expenses will be charged to Income Tax at the Landlord's marginal rate
🔹 Landlords should aim to ensure that all personal allowances and lower rate bands of tax are used in full
🔹 For more information, visit this article by 'Which' by clicking here 📩
🔸 Interest Relief
🔹 Since April 2020, Landlords are no longer been able to deduct any mortgage expenses from their rental income to reduce their tax bill
🔹 Instead, Landlords now receive a tax-credit, based on 20% of mortgage interest payments
🔹 This is less generous than the previous system for higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments
🔹 The current system was phased in between 2017 and 2020, and resulted in many Landlords selling buy-to-let properties or moving their portfolios to company structures
🔹 For more information and examples of how this works, visit the 'Which' article here 📩
🔸 Capital Gains Tax (CGT)
🔹 CGT is a tax charged if you sell, give away, exchange or otherwise dispose of an asset and make a profit or 'gain'
🔹 It is not the amount of money you receive for the asset but the gain you make that is taxed
🔹 Broadly, to calculate the gain, you compare the sale proceeds (or value of the asset at the time it was disposed of) with the original cost of the asset (or value when it was acquired)
🔹 For more information on Capital Gains Tax, visit the 'Low Incomes Tax Reform Group' article here 📩
🔸 Inheritance Tax (IHT)
🔹 IHT is a tax to His Majesty’s Revenue and Customs (HMRC) paid based on the value of an estate left behind when someone dies
🔹 When you inherit cash, possessions and property it’s referred to as an “estate”. Anything with material value is included in an “estate” and that estate is subject to taxation, depending on its total value
🔹 There are some steps which may help reduce the tax burden
🔹 Inheritance Tax is chargeable at 40% above the current threshold of £325,000 (i.e. if the value of your inheritance is below this figure, you pay zero IHT)
🔹 Although, there are a few exemptions to the rate
🔹 For details on exemptions and for more information, refer to Zoopla's article in full here 📩
Please note: Cavendish Residential are not authorised to give financial advice; the information and opinions provided in these articles are not intended to be financial advice and should not be relied upon when making financial decisions.
For specific questions on the best ownership and tax structure to suit you, please email scott.sneath@cavendishproperty.co.uk - he will put you in touch with a specialist Financial Advisor.
📸 Scott Sneath, Director of Operations and Finance at Cavendish Residential 📸
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📸 Lisa Dahl-Parsisson, Head Valuer and Asset Manager at Cavendish Residential 📸
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