Introduction to Property Tax
Our clients here at The Peloton work incredibly hard to make their businesses a success. Few, however, want to continue working for the indefinite future. As a result, we frequently have conversations with clients about their retirement plans.
One plan our clients frequently have is to buy property with the aim either to rent it out or sell it at a profit. While this works for many, there are lots of tax considerations worth thinking about. We have included a few of these below.
Top 10 Property Tax Considerations
1. Trader vs. Investor – You buy a property. Are you planning to quickly convert the attic into a second bedroom, do up the bathroom, give it a fresh lick of paint and flip it for a massive profit? If so HMRC will likely view you as a trader – someone who buys with a main aim of selling at a profit. Alternatively, if your plan is to rent it out for the foreseeable future, you are likely to be an investor.
By contrast, companies can still claim relief in full for interest.
4. Regular Rental vs. Furnished Holiday Let – Special rules apply if one is renting, “Furnished Holiday Lets (FHLs).” As the name suggests, these are furnished properties let out on a short term basis (for full conditions see HMRC’s guidance note). There are significant tax benefits to being an FHL, including the ability to claim Capital Allowances and CGT relief such as Business Asset Disposal Relief. Profits from FHLs also count as pensionable income, potentially increasing the amount you can pay into a pension each year.
Of course, this rationale depends a lot on individual circumstances. For the basic rate taxpayer, who would have 80% to reinvent, incorporating just to up this to 81% makes little sense.
Financial independence is a fantastic objective. If you have a plan to get there but are worried about the potential tax pitfalls, please don’t hesitate to get in touch with us. For additional information regarding incorporation more generally, check out our article – Should I Incorporate?