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Case Study 2 – David

 

 

David considers the different tax treatment of property investment compared to property trading.

It looks at how profits and capital gains can be split between spouses/civil partners compared to non married partners. And how letting or selling to a ‘connected person’ could significantly increase the tax payable. But how operating as a limited company or living in the property as your home could be a real tax saver.

 

The key points are:

 

•David is a self employed joiner who purchases a residential property with a view to renovating it and selling it on. What are the tax implications?

 

•If instead of selling, he rents it out, will this alter the tax treatment?

 

•This is a property trader versus property investor scenario. Ultimately, the tax treatment on the disposal of the property will be determined by David’s intention at the outset. This may mean that David will pay income tax & NIC as a trader rather than the more favourable capital gains tax (CGT) as an investor

 

•Operating via the medium of a limited company could save tax

 

•The tax implications of letting and/or selling to a ‘connected’ party

 

•The huge CGT benefits arising from having a property as a principle private residence & letting relief that flows from such occupation

 

 

 

To read or download the full case study please click on the icon below:

 

Case Study 1 – Michelle

 

 

Michelle considers an individual who purchases a BTL, does it up and starts to let it out. She fails to notify HMRC because she believes there is no tax payable.

In the longer term, the restriction in the finance interest deduction commencing in April 2017 is considered. Even though, under the current rules, Michelle would only ever be a basic rate taxpayer, this rule change will not only result in her becoming a 40% taxpayer, it will also, impact on her entitlement to claim child benefit. What action can be taken to mitigate this?  

 

The key points are:

 

•When purchasing BTL in 2012/13 Michelle is a non taxpayer

 

•Will the initial refurbishment costs be allowable?

 

•Renewals (‘replacement of furniture allowance’) from 06/04/16

 

•After the 1st tax year of renting, she calculates that she made a loss so she does not notify HMRC of her BTL source of income because she does not think that there will be any tax to pay

 

•Deadlines for reporting & penalties for failing to do so

 

•Paying Self-Assessment liabilities including payments on account

 

•Michelle becomes aware of the changes in the deduction of interest from residential rental income announced in the Summer Budget of 2015. However, as she remains a 20% taxpayer, the changes will not impact on her, or will they?

 

•The finance interest restriction could even impact on entitlement to child benefit

 

•SDLT (including the 3% additional charge from 01/04/2016) could be due on ‘gifting’ a BTL to her spouse if there is ‘consideration’

 

•CGT on such a gift will be avoided due to the inter-spouse exemption

 

•The tax benefits of owning BTLs with a spouse

 

 

To read or download the full case study please click on the icon below:

 

Case Study 5 – Roger

 

Roger looks at the tax cost of incorporation of a property investment business to determine whether a company really is the best option going forward.

 

The key points are:

 

•NIC is due on trading income

 

•Property investment is not a trade

 

•As property investment it is not a trade, no NIC is due

 

•NIC is one of the main drivers behind operating a business through a limited company

 

•One of the other main drivers for using a company is when profits push a sole trader above the standard 20% tax bracket

 

•With companies only liable to tax at 20% (and lower from April 2017), regardless of how large profits are and individuals liable to 40% tax above just £42,385 (2015/16) rising to £50,000 by 2020/21, there are significant tax savings to be made by operating as a company, once profits exceed the 20% personal tax threshold

 

•Such savings only apply if the profits are retained in the company

 

•The added administration & non tax cost of operating as a company also needs to be considered

 

•Incorporation may be the Holy Grail from an income tax perspective but it comes at a CGT/SDLT cost unless there are specific exemptions

 

•In the long term, the additional CGT costs from operating as a company mean that landlords should not automatically assume that incorporation is the 100% certainty that some commentators are suggesting

 

 

 

To read or download the full case study please click on the icon below:

 

Case Study 4 – John

 

John provides in depth detail of how the changes to residential letting from April 2016 WILL have a detrimental impact on landlords. What can be done to mitigate the extra tax that will become due?

 

The key points are:

 

•The impact of the loss of the wear & tear allowance from 06/04/16

 

•The impact of the restriction for finance interest from 06/04/17 for non corporate residential landlords

 

How incorporation WILL significantly save tax in future

 

 

 

To read or download the full case study please click on the icon below:

 

Case Study 3 – Pauline

 

Pauline considers the tax implications where more than one home is owned and how separation/divorce will impact on the CGT relief attached to home ownership.

It also looks at the tax implications of developing a piece of land connected to the home. Ultimately, how tax can be avoided entirely on such a development.

 

The key points are:

 

•CGT Only or main residence (OMR) exemption lies at the heart of this tax planning exercise. This is sometimes called Principle Private Residence Relief (PPRR)

 

•The effect of divorce on OMR/PPRR

 

•The CGT/income tax implications of developing/selling a piece of land connected with the OMR

 

•How to avoid CGT/income tax by establishing the new build as the new OMR and disposing of the ex-OMR

 

 

 

To read or download the full case study please click on the icon below:

 

What our clients said about us:

"Kevin has worked as my accountant for the last 10 years. He has great knowledge of property taxation matters and is able to discuss tax in a way that non-tax folk such as myself can understand (and without it getting too dull also!). I would gladly recommend his services and have done many times over the years".

 

RR, Huddersfield.

 

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"As an American living and working in Britain, Kevin's advice has been invaluable. His understanding of the tax issues on both sides of the Atlantic was comprehensive and accurate; His advice was practical and bespoke to my particular circumstances. I would not hesitate to recommend his services"

 

E E R (US citizen living in Britain)

 

 

 

 

I have a holiday let in Cornwall which I purchased 5 years ago. This is when I came across Property Tax Advisers. I was researching the pros and cons of holiday lets when I stumbled across the significant tax benefits flowing from capital allowances. I spoke with Kevin McDaid, who explained how it all worked and, ultimately, he undertook a survey, identifying the relevant capital allowances. On the back of this, a reasonable sized letting loss was created.

I used to have my tax return prepared by a large firm of accountants because I have quite a large and diversified investment portfolio (including foreign assets). However, I transferred over to Kevin at the time of the holiday let valuation 5 years ago as he has plenty of experience of dealing with such clients. I have no regrets in doing so. We have a good relationship and he is readily available to answer any tax related queries I may have, whether it is property related or something to do with my pension or other investments. He allows me to understand many tax issues that I really did not comprehend previously.

I would gladly recommend his services.

 

Dr C, London

 

Getting in touch is easy for your property tax advice and UK property tax planning:

 

•  Email: enquiries@propertytaxadvisers.co.uk

 

•  Email: kevmcd@cta.org.uk

 

•  Tel: 01274 214979

 

•  Mob. 07939 222437