Introduction to tax for landlords
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Welcome to Andrews Introduction to Tax for Landlords Sponsored by Andrews Mortgage Services
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Transcript of Introduction to tax for landlords
Welcome to Andrews Introduction to
Tax for Landlords
Sponsored by Andrews Mortgage Services
About Andrews
Established in 1946 85 estate agency and lettings branches throughout
the South of England
Not just sales and lettings: Mortgage Services Landmark Surveyors Homemover Conveyancing Andrews Property Services Leasehold Management Land and New Homes
Last year, we helped more than 7,000 landlords let their properties
1,000 tenants on average register with us each week
30% shorter void period than the UK average
Multi-award winning
Members of ARLA and TPO
Andrews Letting & Management
An Introduction to TaxKaren Press
Chartered Tax Adviser
About Bishop Fleming
• Full service firm of Chartered Accountants
• Full range of services for businesses and individuals
• The widest spread of offices throughout the South West with 7 offices
• 24 Partners & 300 Staff
• Employing some of the region’s top experts
An Introduction to Tax
• An introduction to Tax Compliance
• Allowable Rental Expenses
• Overview of tax rates
• Tax Planning
Tax Compliance – the basics
• Rental income is taxable!
• Register for Self Assessment by 5th October
• Tax return submission deadlines:
– 31st October (paper)
– 31st January (online)
• Tax due date 31st January
• Losses should be declared
Tax Compliance - Penalties
• Late tax return filing penalties
• Late tax payment penalties & interest charges
Time Penalty
> 1 day £100
> 3 months £10 per day, up to a maximum of £900
> 6 months £300 or 5% of tax outstanding if greater
> 12 months £300 or 5% of tax outstanding if greater
Time Penalty
> 30 days 5% of tax owed
> 6 months 5% of tax owed
> 12 months 5% of tax owed
Interest on outstanding balances, currently 3 %
Tax Compliance - Penalties
• Record Keeping
o Retain income and expenditure records for 6 years
• HM Revenue & Customs Enquiries
o Up to 30% tax based penalty for careless errors on Tax Returns
HMRC Residential Property Campaign
• Residential Property Landlords who have not fully disclosed income including:
o Single/multiple lets
o Specialist student/workforce lets
o Furnished Holiday Lettings
• HMRC campaign offers best possible terms
HMRC Residential Property Campaign
• Two part process
o Notification
oWithin 3 months, Self Assess the tax, interest and penalty (using online calculator) and pay!
• Expect HMRC to use information held to target those that should have come forward
Allowable expenditure
against income
Agent & management
fees
Mortgage interest
Repairs and maintenance
MileageLegal &
professional fees
Wear & Tear allowance
Property enhancementsX
Renewals Basis
• 6 April 2013 removal of ‘renewals allowance’ for landlords of unfurnished properties.
• No longer a deduction for free standing cookers, other ‘white goods’, carpets and curtains.
• Exceptions where expenditure is a repair to the property itself, ie cost of replacing integrated white goods.
Tax BandsIncome Tax
Capital Gains Tax
£31,785 £150,000
20% 40% 45%
18% 28%
Notes:• Tax free personal allowance £10,600• Personal allowance is reduced over £100,000• CGT Annual exemption £11,100• Gift Aid and pension contributions extend bands
£31,785
Tax Planning
Equalise income
with spouse
Non resident
landlords
Maximise mortgage interest
deductionsCapital
Gains Tax Planning
Inheritance Tax
Planning
Claiming Capital
Allowances
Loan Interest Planning
Main home Rental Property Total
Value £500k £250k £750k
Mortgage (£150k) (£100k) (£250k)
Capital £350k £150k £500k
Interest at 3% £4.5k £3k £7.5k
@ 20% £600 pa@ 40% £1,200 pa
Mortgage Interest:
Loan Interest Planning
• Renting properties is treated as a business for tax purposes
• If you have borrowed to invest capital into a business, then the interest payable is a tax deductible expense
• In most cases, the initial cash investment was funded by an additional mortgage on the main home
Loan Interest Planning
• There is a restriction on the maximum amount of which relief can be claimed –this is equal to the initial purchase cost of the properties
• Can restructure and look to claim the interest on the mortgage on the main home
Loan Interest Planning
Main home Rental Property Total
Value £500k £250k £750k
Mortgage £0 (£250k) (£250k)
Capital £500k £0 £500k
Interest at 3% £0 £7.5k £7.5k
@ 20% £1,500 pa@ 40% £3,000 pa
Mortgage Interest:
Equalise Income
• If you have a spouse or civil partner and own a property jointly, it doesn’t have to be on a 50/50 basis.
• Can transfer % of ownership with no capital gains tax implications.
• Can own property in appropriate % to maximise lower rate tax band
PPR Relief
• No tax on increases in value of main home due to Principle Private Residence (PPR) Relief.
• Any property which has genuinely been occupied as a taxpayers main residence can benefit from PPR relief covering:
– Actual period of occupation as main residence
– Final 18 months of ownership (previously 36 months)
• PPR relief element = Qualifying Periods
Total Ownership Period
• In addition to PPR Relief, any property which is has been occupied as a main residence and then let out prior to sale will also qualify for Lettings Relief.
• Lettings Relief provides a further exemption. The lower of:
o Gain in Let period
o PPR relief amount claimed
o £40,000
Lettings Relief
• Each individual has a capital gains annual exemption, this is £11,100 for the current tax year.
• If you own a rental property in your sole name then consider transferring a % of the property if you have a spouse or civil partner.
• Capital gains tax saving of up to £3,108 if you are a higher rate tax payer
Capital Gains Tax Planning
A quick guide togearing your investments
Andrews Mortgage Services
Gearing your investments
1 property – financed with cash
Purchase price £200,000
Rental income £12,000 pa
4 properties – financed with a 75% LTV mortgage
• Purchase price £200,000 x 4 = £800,000 (for 4 properties)
• Deposit £50,000 x 4 = £200,000
• Mortgage £150,000 x 4 = £600,000
• Rental income £12,000 pa x 4 = £48,000
• Mortgage payments £6,750 pa x 4 = £27,000
• Net income £5,250 pa x 4 =
Total net income £21,000 pa
If property prices increase by 10%...
Capital growth on 1 property = £20,000
Capital growth on 4 properties = £80,000
Advantages⁻ Increase opportunity for capital growth and
rental income ⁻ Deductible expenses for income tax purposes
Disadvantages⁻ More property and tenant management
required⁻ Less equity in each property⁻ Tax implications – the higher rental income and
capital gains, the higher the tax amount
Accessing the best BTL deals
Typically need a 25% deposit
Cheaper rates only start with a 40% deposit
Property needs to be in 'letable' condition
On average rental needs to cover mortgage payment by 125% at rate of 5%
Look out for a high arrangement fees
Andrews Mortgage Services
Independent mortgage advice
Access to 'whole of market'
Specialist BTL knowledge
Exclusive rates
Advice you on protecting your portfolio
Saves you time and money
Award-winning
How to get the best properties
Get Market Ready
Ready
Willing
Able
What next?
Register with Andrews Investor Club⁻ Portfolio assessment
⁻ Advice on how to maximise and expand it
⁻ Facilitate the purchase of future investment
⁻ Market for sale property in your portfolio
⁻ Designated independent Mortgage Advisor
⁻ Monthly market update with top properties to invest in and list of mortgage best buys
Speak to an independent mortgage advisor about gearing
Speak to Bishop Fleming about Tax
For further details contact
Tax information
Karen PressChartered Tax Adviser
01225 486333
Sales, lettings & mortgages information
Speak to an advisor tonight, or
contact your local Andrews branch
andrewsonline.co.uk
Any questions?
