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Legal and financial aspects to buy to let services

Financial services:
- Economics of Buy to let
- Market appraisal and demand
- Tenant supply
- Financial considerations
- Planning 'Gain' and Development
- Mortgages
- Insurance
- Legal

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.

Timing of Repairs

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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