Property Tax Insider Monthly Newsletter

Going back beyond the last few years, most landlords found little tax-based incentive to incorporate their property business; unless profits were very substantial, there was no or negligible tax saving to be made. That is not to say that there were not other good reasons for landlords to seriously consider incorporation. It’s just that, unlike traders, your average annual property income tax bill would likely not be one of them.

Lee Sharpe warns that putting a property portfolio into a company can be a bad idea for some, with the Spring Statement 2022 heralding leaner years ahead.

Andrew Carnegie once said, “The wise young [person] or wage earner of today invests his money in real estate”. He was also quoted as saying, “Ninety per cent of all millionaires become so through owning real estate”. Carnegie died in 1919, but what he said must be true, as property ownership remains one of the best investments a savvy investor can make. 

Meg Saksida outlines some pitfalls to avoid where investment property is jointly owned.

Sarah Bradford explains how landlords can secure tax relief for capital expenditure when they prepare their accounts using the cash basis.

The cash basis is the default basis of accounts preparation for landlords with rental receipts (calculated on the cash basis) of £150,000 a year or less. 

Individuals who are landlords are not normally liable to National Insurance contributions (NICs) on rental profits, unlike self-employed individuals carrying on a trade. 

Mark McLaughlin looks at the potential liability to National Insurance contributions for individual landlords on rental income profits. 

A question often asked by investment property landlords is whether they can transfer the right to rental income to family members, whilst retaining ownership of the property (e.g., a parent wants their adult offspring to receive the rental income from their buy-to-let property, to help them save for their first home).

Mark McLaughlin outlines two income tax anti-avoidance provisions aimed at discouraging the transfer of income such as rents.

Landlords who hold their business in a sole trader (ST) structure are very often tempted by incorporation. There can be so many advantages on top of the lower tax rate, and all are a great lure, but incorporation can also have some downsides. 

Meg Saksida considers the pros and cons of incorporating a rental property business.

For those readers subject to stamp duty land tax (SDLT) in England and Northern Ireland, most will probably be familiar with the regime that introduced the higher rates for additional dwellings (HRAD), typically referred to as ‘the 3% surcharge’. Finance Act 2016 updated FA 2003 with a new Schedule 4ZA. 

Lee Sharpe looks at HMRC’s approach to the 3% ‘extra home’ SDLT charge in England and Northern Ireland and how it has changed over the course of the pandemic.

Expenditure may be capital or revenue in nature. The distinction is important as it will determine how the expense is treated for tax purposes and the relief (if any) which is available. 

Sarah Bradford considers how to differentiate between capital and revenue expenditure, and why it matters.

Buying a dilapidated property to ‘do up’ and let out may make financial sense. However, repairs and renovations are costly, and it is important to ensure that tax relief is obtained where possible. The way in which tax relief is given will depend on the nature of the expenditure.

Sarah Bradford points out when repairs to a dilapidated property may be treated as capital expenditure rather than revenue expenditure.

Prior to 2016, residential landlords had it easy when it came to UK tax. They could offset mortgage interest even if they were higher or additional rate taxpayers. There was also a 10% wear and tear allowance for furnished property (even if no expenses had been incurred), and purchasing properties incurred stamp duty land tax (SDLT) at normal rates. 

Meg Saksida warns of traps to avoid when amassing a property portfolio.

Making tax digital (MTD) represents a major change to how most people will manage their business’ tax and financial affairs. It will not have touched very many property investment businesses yet, but this will change for more landlords broadly within the next couple of years. 

Lee Sharpe points out potential traps for landlords, as making tax digital continues to expand in scope.

Family and owner-managed company director shareholders should be re-evaluating their profit extraction strategies and undertaking remuneration planning where appropriate, in view of the increase of 1.25% in dividend tax rates from 6 April 2022. 

Mark McLaughlin looks at when dividends are ‘paid’ for tax purposes in view of the increase in dividend tax rates from 6 April 2022.