It’s Tuesday!
Let’s talk Tax.
Read this week’s short Tax snippet for doctors & dentists, to help you save money and get more organised with your tax affairs. It’s just to give you a flavour – take 5 minutes with your morning coffee to have a read.
Property tax planning for landlords
Property tax planning is a complex area, so it is important to seek advice with major decisions.
If you own just one, or maybe two rental properties, it is likely that you account for your rental income under self-assessment. Here you will claim the maximum expenses to reduce your profits, before income tax is applied.
Corporate landlords
The other option is to own property through a limited company, the most common set-up being a private limited company, where you become the director and shareholder.
There are both advantages and disadvantages of owning property within a limited company.
Advantages
One key tax advantage of using a limited company is that the rate of corporation tax (20%) is lower than the higher rates of income tax (40% and 45%).
Therefore if your personal allowance and basic rate tax band are fully utilised with your professional income (i.e. dental or medical), and, your rental property is earning a profit, then a limited company could save you tax. It is important to note that further tax charges may apply on withdrawals, so careful consideration is required if the property profits are needed to top-up personal income.
Another key advantage of using a limited company, after April 2017, is that mortgage interest continues to be an allowable and tax deductible expense. Interest paid on loans by individual property investors will only be tax-deductible at 20% from 2020, with a staged approach.
Disadvantages
The disadvantages are typically linked to the sale of the property, as unless losses are incurred, it is usually beneficial for the property to be held by an individual, or jointly. More exemptions are available to individuals, so Capital Gains Tax tends to be lower.
Tax planning is essential – from purchase to sale
Tax planning is essential. It is important to have a specialist accountant and tax adviser to help you make important decisions from purchase through to sale.