10 top tax busting tips for buy to let landlords

10 top tax busting tips for buy to let landlords
Nov 29 , 2017

Here is a short summary showcasing the top tax busting tips for buy to let landlords.1. Incorporate your businessUK tax residents could hold properties through a UK resident company, where rental income will be taxed at lower corporation tax rates (19%) rather than income tax rates (up to 45%). Rental profits can be retained in a company at these lower tax rates in the hope that personal income tax rates will be cut in the future, at which point profits can be extracted more tax efficiently. Accumulated rental profits could be used for future property purchase.Property values haven’t recovered for all landlords so incorporation of a property portfolio may be achieved at little or no capital gains tax cost. If the disposal proceeds are left outstanding in a loan account, the loan could be gradually repaid tax free from rental profits, in this way avoiding the classic ‘double hit’ of taxation when profits are extracted from a company.2. Early and effective tax planning using trustsEarly inheritance tax planning is vital when a property portfolio is being built and value accrues. The use of a family trust or trusts can be a way of preserving and passing on value to the next generation, as well as mitigating the impact of inheritance tax.3. Hold properties outside of the UKIndividuals who are non resident in the UK could benefit from lower tax rates by holding their property portfolio through a non-UK resident company. This structure opens up the possibility of selling properties out of an offshore company free of UK corporation tax or selling shares in the company free of UK capital gains tax.The UK is one of the cheapest tax locations in the world for professional real estate investors to build and sell a house, and for investing in residential buy-to-let.4. Non-Resident Landlord SchemeRental income for a non-resident is subject to UK income tax at 20%. However, under the Non-Resident Landlord Scheme, clearance can be obtained to avoid the deduction of income tax at source from rental income.5. Sell property sharesA property sale will attract Stamp Duty Land Tax at rates of up to 7% in the UK. Property investors should consider selling shares in the property-owning company, which will only attract the 0.5% flat rate of Stamp Duty.6. Review borrowingsInvestors should ensure loans are structured in a way that will secure UK tax deductions from rental profits to finance costs.This is now even more important since the UK Government announced mortgage interest relief restrictions.7. Managing property as a trade/businessConsider providing additional services to tenants, e.g. renovations/developments as a means of benefiting from Business Property Relief, and being viewed as a trade, which can drastically reduce inheritance tax and capital gains tax liabilities.8. Income splittingIf your spouse does not have an income above £150,000, weigh up the benefits of transferring income-generating assets to them to take advantage of lower income tax rates on rental streams, as well as the spouse’s annual capital gains tax exemption, and any capital losses available.9. Utilise a Limited Partnership for IHT planning and succession.There can be IHT advantages to using a Limited Partnership to ‘spread’ rental profits and capital gains amongst partners, who are likely to be family members, without losing control.10. Pension arrangementsHigher rate taxpayers holding property portfolios personally, or in a company, should consider tax planning opportunities. For example, pension contributions can reduce the marginal rate of income tax on rental profits. The appropriate mix of dividends, salary and management charges can help to manage the tax cost of extracting profit.


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