Property Tax – Where do we start?

Posted by / August 27, 2014 -

Property has long been considered a good investment in the long term and we are going to pass on some property tax secrets to you. Over the next few weeks we will write about property, the do’s and don’ts and how to ensure that you are aware of the many pitfalls.

Our first blog looks at the different ways of owning property.

Probably the most common way to own a property is as a Sole Investor where the property has been bought as an investment rather than a main residence.  A sole Investor is someone who buys a property in their own name. The investor is taxed on the amount of letting income received less allowable expenses incurred as well as any capital gain that may materialise on sale.  Inheritance tax may also be payable on the value of any property held at the date of death.

Joint Investors or ownership is where two or more people own a property that is let. The individuals are taxed on their share of the profits or gains made. Individuals who purchase property jointly with the intent to let it for a period of time are Joint Investors. If the intention is to sell the property after restoration then it is likely that they will be in a “trading partnership” and each will be taxed as an self employed “property dealer“.

The distinction between owners who let property jointly and a partnership is that there needs to be a degree of organisation with a view to making a profit. For this reason a partnership agreement is recommended.

From a tax planning perspective the correct advice can enable a reduction in the total tax liability as the letting profit is split and each owners share of profit is taxed at their marginal rate. This is useful if one owner has a lower tax rate than the other for example.

 

The third way of owning a property that we will look at is via a company. There are different types of company but the one most commonly used for property tax planning is a private company limited by shares. Shareholders are the owners of the company and it is administered by directors who may also be shareholders.

There are some non tax reasons for using a company structure as follows:-

  • a limited company is a separate legal entity from the shareholders
  • the profits and losses belong to the company
  • the company can continue seamlessly regardless of the directors situation in the vent of death, bankruptcy or resignation
  • the shareholder have limited liability
  • the company may find it easier to access finance

The tax position is that a company with profits up to £300,000 per year will pay 20% corporate tax although they do not have a personal allowance. This may be advantageous in a case where the shareholders are higher rate personal tax payers and as such would pay higher taxes than they would if the property is held inside a company.

 

This article is the first in a series looking at property taxes. We hope it has been useful but would encourage you to contact us directly to discuss your tax position. We are based in Chippenham but are happy to visit you at a time convenient to you. Call us on Chippenham 01249 247160 or email

 

 

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