Tax Free Property Investing

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Louise Misiewicz

Tax Consultant

8th April 2014

Posted by Simon Misiewicz on 2nd April 2014

Is it possible to go through life without the pain of tax?

Is there a magic wand to take tax away for good?

The Diagnosis

Tax issues need to be diagnosed in order for a remedy to be implemented.

I feel that this article will get a lot of interest and it will certainly be the benchmark of what Optimise Accountants is founded on. I say this because I recall starting out in property with the wonderful ACCA Accountancy qualification and I thought I would run my properties efficiently (tax wise) and effectively (great ROI).

How wrong was I?

The ACCA qualification meant nothing, other than writing a report in accordance to the structure and layout dictated by some Accounting body. I had no interest in this one iota! The very thing I wanted to do (to make more money and pay less tax), was not to be found in my qualifications.

I had to do more research and by working with Inland Revenue (as it was then and is now called HMRC), I have devised a way that is ethical, legal and profitable. Many of you would have been told this by some gurus and had your fingers burnt (I know how this feels).

What if I was to tell you that everything I am going to share with you was agreed with HMRC and I have referenced every element of my strategy to their website. Would you feel more comfortable?

“Tax does not need to be taxing” as they say. I go further, “Tax does not need to be there at all”.

The Treatment

Applying the right “tax reducing medicine” to your tax illness.

I am going to share 3 key remedies to cure your tax problem:

• Capital Allowances
• Allowable costs
• Deed of trust

Capital Allowances

This is the “biggie” and I want to share with you how I have invested in property and paid no tax on it at all! Is it a miracle?, a scam? No!! Just a discussion with HMRC and some thought.

You can invest in property “Tax Free”. All you need to do is buy a property that can be “let” as it stands (or already tenanted) but improve it before the next tenant moves in. This is extremely useful if you have a tenanted property where the tenant seems to be happy with their “lot”. Once they move out, you need to do your refurb.

There are two types of costs that you need to consider

• Improvement
• Replacement & Repairs

Improvement costs are those that add value to the property and cannot be directly attributed to replacing or repairing existing features of the property.

Replacement and repair costs are things such as replacing a “like for like” kitchen, which then becomes a cost that may be offset against your tax liability.

For more details of capital allowances see referenced items (1), (2,) and (3).

Allowable costs (business not property)

Ensure that you claim all that you can in your business activities. Being aware that you can claim more than just property expenses will ensure that you can reduce your profits and therefore tax.

There are many costs that I incur and offset against my property income. These can vary from mileage claims, stationery, and advertising costs for tenants.

Did you know that you could deduct the cost of hotels, food and networking costs against your business activities? Even courses?

To learn more about allowable costs see referenced item. (4)

Deed of trust

Imagine with me, a male company director who works for Cadburys (and works very long hours). He is called Mike. Mike has a salary of £60,000 and is very busy and is unable to manage his own properties. This can be dreadfully frustrating for him and the agent.

He meets his companion, and after many years of deliberation (because of busy schedules) gets married and then has two kids.

I am going to have a little fun with this and describe to you my fantasy world. (As they say be careful what you wish for).

His wife Maria also works for Cadbury’s but as an executive brand manager and earns £105,000. It is agreed that Mike has earned less money and that he should be a “stay at home husband” and look after the kids. After all (like me) he thinks it is only a “two-hour a day” job looking after little children aged 2 and 3 respectively (I will of course find this out myself soon).

Anyway, he now has an income of £0. The property profit that they own is £9,000 per year. Sadly this is being taxed at 40% therefore £3,600. That sucks in any persons view other than HMRC!

As he is not working for a corporation he decides to look after the property (As well as the “two hour a day” of looking after the kids, cough, cough).

Then, they speak with an accountant and realise that they can use a deed of trust to transfer the property income to Mike, as he is managing them. The tax made on the £9,000 is now tax free!

If you would like to know more about using deed of trusts please start with item referenced. (5)

Applying the treatment

There are many remedies to tax but I felt that these were some of the basic steps that people can take to save tax.

The next steps are to read the items referenced and to then take action today.

Precautionary measures

Preventing tax pains through precautionary methods – Here are a few suggestions.

If you are looking for an accountant or thinking of changing your current accountant because they do not understand property investing then please book an “Initial Free Consultation” on 0115 946 1991 or Click Here To Email

Please ensure that you check out our latest webinars and courses http://www.optimiseaccountants.co.uk/events-appointments/

References:

1. HMRC 2013 Changes to Capital Allowances
2. Claiming 100% Refurbishment Costs Against Your Property Taxable income
3. Wear and Tear Allowance on Furnished Property
4. Allowable Costs For Property Investors
5. Deed Of Trust To Minimise Your Tax

Next steps to set up the right structure for your property investments

If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar:

If you are looking for a new accountant then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.

Book a call to see how we can help you.