News this month:
With the submission of late tax returns well behind us now, we still have a couple of late returns as clients were dealing with property maintenance matters ahead of filing returns. It is important to understand penalties do not stop at 31 January 2013. Old rules changed two years ago. Many will expect a £100 fine in 3 months late of filing and will get £900, it does of course worsen beyond this. DO not get caught out. The format for my new regular piece here is a modern take to a Q&A section. I would welcome your questions, here is a selection of my life on property tax matters.
Views from my inbox:
Q1. A friend of mine recalls his accountant mentioned you can reduce tax by buying a business, can this apply to a property business like mine? Garry Milton Keynes? A1. Garry, yes, it is possible to set up a property trading business or even turn what you have into one. Rather than drawing high levels of profits from the business, if you were to keep the money in the company you can benefit. The amount of tax you then pay after the company has paid 20% of tax (profits will be below £300,000) is just 10% of the value of the business. So if you build £200,000 the amount you pay is £20,000. This tax relief has conditions, you must have a personal company, held for 12 months, held at least 5% of the voting shares, be employed by the company. The company formally closed down by a professional independent of your holding such as a Chartered Accountant.
Q2. We had a property inspection carried out in 2011 on the capital allowances. In the last return HMRC checked out the claim and found errors on this. What is the correct position – are they valid? Anon. We have seen a number of these issues. They will vary depending on your situation. It is true, many of these areas assessed are not deemed common parts as fall inside a definition of residential areas not common parts. The claim is still open to challenge and the evidence of the individuals and their contracts has been used by our firm to question HMRC’s position.
Q3. Very pleased to see this now part of this newsletter. My problem is for first time in years we have seen profits on the rents. Apart from mortgage interest, insurance, service charges, management fees, what can we claim to reduce the taxable profits on our rental business. Matt, Southsea, Hampshire. There are a stack of potential deductions to make beyond those which are clearly directly related to the rental income itself and all will need careful planning. In some ways they will be invalid and another completely valid. Your accountant should provide you with a comprehensive list of what is required. List includes overseas travel, mileage to inspect properties, training courses – all careful planning is needed. Should anyone want a list, please contact us.
Q4. I am keen to avoid paying IHT on my property portfolio, what advise can you give? Sarah, Basingstoke. Hi Sarah, there are many ways or few depending if you can change. First of all, the change in the portfolio to deal with a property which deals with trading businesses opposed to investments will have 100% relief, so no tax is payable. The main portfolio in it’s current form is not suited for relief on IHT. We do offer a few schemes to switch to assets which will be available, well worth saving 40% on what you hold including trusts.
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