News
INVESTING IN PROPERTYDespite talk of property prices being over inflated, many of us still consider both commercial and residential property to be a good, safe, long term bet. Many of us prefer to invest in bricks and mortar because it’s something tangible that we can see and understand.
But what’s the best way of going about it?
The taxation of properties and rents is one of the most complex areas of tax law. There are lots of pitfalls for the unwary, particularly in the area of VAT. But there are still some lucrative tax breaks available for those who structure their affairs efficiently.
For example business owners who purchase rather than rent their business premises often buy the property through their company. This isn’t always the best approach. If you buy a commercial property personally and then rent it back to your company then you can get a relief called business taper relief against the capital gain when you come to sell the property. This reduces your maximum tax bill from 40% to 10%.
If you own and spend time in more than one residential property, there are elections you can make to determine which property is your main residence. This doesn’t have to be the house you live in most. Getting these elections right can save thousands in tax when you come to sell.
Buying and letting a property is now more popular than ever, although most property owners are unaware of the substantial tax advantages, including avoiding inheritance tax, that are often available to them if their property can be used as a holiday let, rather than being let to a single tenant. Income tax and capital gains tax savings can also be made by ensuring you hold the property in the right name or names.
And although the government backtracked on proposals that would have made investing in domestic property through pension schemes attractive, there are still some highly tax efficient opportunities for investing in commercial properties through pension schemes.
It’s also critically important to think carefully about how to finance your property investments. Investors seem to get this wrong as often as they get it right, so don’t rely on your bank or building society to do this for you. With the right type of loans and repaying the right loans first most borrowers can legitimately end up getting tax relief on their borrowing costs long after the debt has been repaid.
