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A 3% surcharge on stamp duty when some buy-to-let properties and second homes are bought will be levied from April 2016.
This means it will add £5,520 of tax to be paid when buying the average £184,000 buy-to-let property. The new charge would have hit 160,000 buyers if it had applied last year.
George Osborne said the new surcharge would raise £1bn extra for the Treasury by 2021.
But, commercial property investors, with more than 15 properties, are expected to be exempt from the new charges.
Stamp Duty on Selling Shares is 0.5% so why aren’t more investors buying property into companies and then selling the shares in the company!
See my blogs, click to read
HMRC launched the ‘Let Property Campaign‘ on the 10th December 2013.
If you’re a landlord who has undisclosed income you must tell HMRC about any unpaid tax now. You will then have 3 months to calculate and pay what you owe.
The Let Property Campaign is an opportunity open to all residential property landlords with undisclosed taxes. This includes:
- those that have multiple properties
- landlords with single rentals
- specialist landlords with student or workforce rentals
- holiday lettings
- anyone renting out a room in their main home for more than £4,250 per year, or £2,125 if the property was let jointly, but has not told HMRC about this income
- those who live abroad or intend to live abroad for more than 6 months and rent out a property in the UK as you may still be liable to UK taxes
According to the Telegraph….
Fewer than 500,000 taxpayers are registered with HMRC as owning properties other than their home. And yet other sources put the number of Britain’s growing army of landlords at between 1.2million and 1.4million.
Why the discrepancy? No one can say for sure, but the taxman has his answer: not enough people are declaring – and paying tax on – their property incomes and gains.
HMRC will identify those who they believe should have made a disclosure by:
- comparing the information already in their possession with customers’ UK tax histories
- continuing to use their powers to obtain further detailed information about payments made to and from landlords
Where additional taxes are due HMRC will usually charge higher penalties than those available under the Let Property Campaign. The penalties could be up to 100% of the unpaid liabilities, or up to 200% for offshore related income.
If you owe tax, you must tell HMRC of your intention to make a disclosure. You need to do this as soon as you become aware that you owe tax on your letting income.
At this stage, you only need to tell HMRC that you will be making a disclosure.
You do not need to provide any details of the undisclosed income or the tax you believe you owe.
If you own a Buy to Let property as an individual rather than in a limited company it is worth maximising your borrowings against the Buy to Let because the interest will be a tax deductible expense.
It doesn’t matter how you borrow:
- Mortgage on the Buy to Let
- Personal Loan
- Re-mortgage of your main residence to invest in your Buy to Let
The rules allowing this are covered in http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm
So, for example, if you had a Buy to Let property with low borrowings against it and a mortgage on your main private residence, you could increase your borrowings on the Buy to Let and pay off your private residence mortgage.
But you need to be aware that the maximum you can borrow on the Buy to Let is the market value when it was first let.
Here is an example from Tax Cafe – How to save property tax
Property investors are often unsure whether their interest is deductible. This depends on how the money is used. Use it to buy investment property and the interest is tax deductible. Use it for personal reasons and the interest is not deductible.
There is an exception to this rule: you can generally remortgage an investment property up to its original purchase price and the interest will be tax deductible, whatever you use the money for. For example, let’s say you bought a buy-to-let for £100,000 and the current mortgage is £60,000. You can borrow up to another £40,000 (if the bank will let you!) and all the interest will be tax deductible, no matter how you use it.
You will need to keep detailed records of the borrowing and interest for your tax returns.
Alternatively you might focus on paying off your main residence mortgage first to leave the borrowings high on the Buy to Let.
House prices are rising as confirmed by the Land Registry in their report 29 April 2013, the annual change is 0.9%, rent is increasing again after a drop in 2009 according to the English Housing Survey, in 2011 it went up 3% to a mean rent after housing benefit of £132 per week. So let’s see who the tenants are (English Housing Survey 2011):
|social and private renting households receiving Housing Benefit|
|age of household reference person|
|16 to 24||6.3||11.9||7.8|
|25 to 34||12.6||26.9||16.5|
|35 to 44||18.1||24.0||19.7|
|45 to 54||16.3||15.8||16.2|
|55 to 64||14.1||9.0||12.7|
|65 to 74||15.8||7.8||13.6|
|75 and over||16.7||4.4||13.4|
|marital status of household reference person|
|six or more||3.0||3.4||3.1|
|couple, no dependent child(ren)||11.5||8.0||10.5|
|couple with dependent child(ren)||10.1||19.2||12.5|
|lone parent with dependent child(ren)||20.9||35.1||24.7|
|other multi-person household||7.1||6.0||6.8|
|length of residence|
|less than 1 year||8.4||27.7||13.6|
|1 year, under 3 years||15.4||32.5||20.0|
|3 years, under 5 years||13.2||15.5||13.8|
|5 years, under 10 years||20.7||12.3||18.4|
|10 years, under 20 years||22.2||8.0||18.4|
|20 years or more||20.1||*||15.7|
|economic activity of|
|household reference person|
|full time work||2.7||13.1||5.5|
|part time work||9.5||18.1||11.9|
|full time education||*||*||1.5|
|£ per week|
|mean gross weekly income|
|of household reference person||206||237||215|
Yields are looking good, its possible to achieve 8% to 10%, take a look at the examples on http://investors.assetz.co.uk/property-listing.htm
Lending rates are low with Bank of England base rate stuck at 0.5%.
So we should see Buy to Let coming back into fashion with investors, with that in mind here are my top tips to minimise your tax:
1. Claim allowable expenses
- Mortgage or Loan Interest (but not capital)
- Repairs and maintenance (but not improvements)
- Travel costs to and from your properties for lettings or meetings
- Advertising costs
- Agents fees
- Buildings and contents insurance
- Ground Rent
- Accountants Fees
- Rent insurance (if you claim the income will need to be declared)
- Legal fees relating to eviction
2. If the property is furnished claim for Wear & Tear, you can claim 10% of the rent each year
3. Claim for repair and advertising expenses incurred in getting the property ready for renting
4. Consider how the property is owned for example your partner may pay less tax or if you own it 50/50 you could use their capital gains tax exemption on sale of the property
5. Consider whether owning the property within a limited company might be better, Corporation Tax is 20% for small companies in the UK which can make dividends more tax efficient than personal income.
6. Make sure any borrowings you have are on the Buy to Let so that you can claim tax relief on the interest
7. Claim the Energy Saving allowance for energy saving work and save £1,500