Making More Out of Your Buy-to-Let Kelly Goodchild Tax Supervisor Streets Chartered Accountants The Bentley Hotel Friday 1 st November 2013

Streets Chartered Accountants Top 40 UK accountancy practice 11 offices including Lincoln, Grantham, Peterborough and Hull 27 Partners and Directors Dedicated tax practice Property tax specialists

Development, investment, a home for your business, buy to let and renewables Our specialist property advice and service includes: VAT – including the option to tax Capital Gains Stamp Duty Land Tax – SDLT Capital allowances Estate planning and inheritance tax Self Assessment and Corporation Tax returns Streets Chartered Accountants – Property Tax Specialists

Tax issues for Landlords Income Tax issues Allowable expenses and loans Wear and tear / renewables Furnished Holiday Lets Non Resident Landlords Capital Gains Tax issues Private residence relief Family gifts

Income Tax Issues Common Types of allowable expenditure include:- Mortgage Interest Repairs Letting Agent Fees Insurance Ground Rent and Council Tax Water Rates Cleaning and gardening Accountancy fees

Income Tax issues Mortgage Interest Allowable as long as wholly and exclusively for the rental business Costs of obtaining loan finance also allowable Consider drawing down on capital

Income Tax issues Mortgage Interest - Example Mr A has a property that he purchased for £100,000 He has an outstanding mortgage of £80,000 He is offered a job in Holland and moves there to live and work He decides to rent out his UK property whilst in Holland and when he starts to do this his property is worth £375,000 He renegotiates his mortgage on his loan, converts to a buy to let mortgage, and borrows a further £125,000

Income Tax issues Mortgage Interest - Example Opening balance sheet of his rental business is:- Mortgage £80,000Property at market value£375,000 Capital account£295,000 Balance sheet after increasing mortgage is :- Mortgage £205,000Property at market value£375,000 Capital account£170,000 The loan interest on the whole mortgage is allowable, and the additional £125,000 can be spent on a flat in Holland! Consider taken out a further mortgage up to £170,000 to fund a worldwide cruise! And get tax relief!

Income Tax issues Repairs Repairs allowed, but not capital improvements If improvement is because of new materials – repair Major expenditure – apportion between capital and revenue Expenditure after acquisition – allowable? Capital allowances are generally not available Replacement of fixtures should be allowable

Income Tax Issues Repairs Furnished Properties From 2013/14 tax year the renewals basis is withdrawn Applies to letting of furnished property Must now claim 10% wear and tear allowance Covers items a tenant would normally provide in unfurnished accommodation e.g. TVs, beds, curtains, white goods etc Can still claim for renewals of fixtures e.g. boilers, baths, toilets etc

Joint Ownership Married couples and civil partners – 50:50 subject to election to reflect actual ownership Consider transfer of 1% to lower earning spouse Unmarried joint owners – subject to tax on percentage of property owned Consider an agreement to split profits in a different ratio

Furnished Holiday Lettings Applies to properties in the UK and the European Economic Area Advantageous from a tax point of view e.g. qualify for CGT reliefs From April 2011 no longer ability to offset losses against other income Qualification rules are tightening from April 2012 Consider selling whilst properties still qualify

Non-Resident Landlords If you move abroad and rent house out – still liable to UK income tax / complete a tax return Agent automatically deducts tax at source – 20% Opt out, completion on NRL1 form

Capital Gains Tax Gains on disposals of properties are subject to CGT (18%/28%) Possible qualification for Private Residence Relief and Lettings Relief Rules apply equally to family gifts

Private Residence and lettings relief Consider whether it is possible to occupy a property as main residence before sale Do it properly –No minimum period – quality not quantity –Actually occupy –Redirect post –Updating voting register –Tell the Revenue –Plausible reason

Private Residence and Lettings Relief Mr B, a higher rate taxpayer, acquired a property in 2002 for £200,000 Property sold in 2012 for £650,000 Tax on gain after annual exemption of £123,032 If occupy for 1 year prior to sale the tax is reduced to £74,032

Family Gifts Gifts between family members (other than spouses) are subject to CGT Sale proceeds are equivalent to the market value of the property at the date of gift Route through trust Dont forget about SDLT Dont lose out on private residence relief if buying property for children IHT – Gift 90% to child – retain rents - PET

Making More Out of Your Buy-to-Let Kelly Goodchild Tax Supervisor Streets Chartered Accountants