Financial considerations
Financial issues can be quite complex and are a subject all of their
own. Numerous businesses provide services specifically targeted at the
areas below. However it is useful to have an initial knowledge base
prior to contacting such providers. Buy2LetExpert is not an accountant
but does have considerable practical experience of finance within both
the buy to let and development finance arenas.
Personal Tax Allowances
A personally owned buy to let property attracts a large number tax
allowances that should be utilised to the full. A few allowable tax
deductions are:
- Mortgage Interest (not capital)
- 10% (of rent) wear and tear allowance.
- Accountancy fees
- Agency fees
- Marketing fees
- Repairs but not capital improvements
There are many more examples but all should be claimed and a decent
accountant should be well aware of all the allowances. Buy2LetExpert
also has much experience so
contact us for an initial consultation.
There is much discussion within this web site as to the type of
repairs that might be executed and the importance of their execution. It
may also be important from a tax point of view to time these repairs so
that they are not focussed all in one tax year. Such decisions depend on
a variety of factors as well any other income a particular client might
have.
Repairs versus Capital Improvement
The Inland Revenue allows for repairs to be offset for tax purposes
but not capital improvement. So, repairing or even replacing a rotten
window (like for like) is a repair and can be claimed. Replacing single
glazed windows with double glazed is probably a capital improvement.
Some works might be a combination of both! For example repairing a used
bathroom but incorporating a new shower area might be deemed to have an
element of capital improvement. Apportioning the repair across both
repair and capital improvement might be prudent to be sure of avoiding
revenue scrutiny. The area is not black and white but Buy2LetExpert can
advise on such matters important for the completion of the tax return in
the most 'efficient' manner.
While capital improvement costs cannot be offset against income they can
be offset against capital gains, thereby reducing capital gains tax
should the property be sold at a later date for a profit.
Limited Company versus Sole Trader
This is currently a very dynamic and topical area following rises in
capital gains tax on the sale of second homes in the U.K. Conversely
corporation tax rates are falling and are set to continue to do so in
the coming years.
The case for a buy to let investor remaining non incorporated has
becomes less compelling following these changes. On the other hand personal tax allowances remain generous and
are not available to the corporate investor. The decision on whether to
incorporate depends on a number of additional factors other than the
relationship between corporation tax rates and capital gains tax rates.
Decisions will depend on individual circumstances as well as a variety
of other factors such as finance sources. It can, for example, be more
expensive and more difficult to obtain mortgage finance for a limited
company versus finding financing for an individual. A longer term
investor not wishing to sell may still be best advised to remain non
incorporated and claim the still generous tax allowances while saving
the accountancy and related fees associated with the production of
accounts for a limited company.
The area is complex and there are many variables so probably the best
advice would be to first consult Buy2LetExpert to help evaluate the
issues prior to engaging the services of a qualified accountant familiar
with the business and circumstances in question.
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