Property and UK Tax (Part 1)
In my next few blog posts, I’m going to be thinking about taxes. I imagine this is probably not your favourite subject, but tax does play a vital role in property investing so please don’t navigate away just yet.
At some point in your property journey you’ll be paying tax – maybe even a lot of tax if everything goes well – so let’s start thinking about tax and how to best structure your affairs.
As property investors, we want to make sure that we only pay what we need to pay and that we don’t end up paying more than we should. By the way, arranging your tax affairs so that you only pay what you should pay is completely legal. (It’s only when you start trying to arrange your tax affairs so that you avoid paying what you should be paying that things start to get a bit messy).
What we tend to overlook in property investing is that if we want to set things up to be tax efficient, then we really need to do this from the start. I’m not saying this is the case with you, but I do often come across property investors who charge full-steam ahead without giving a thought as to what it is that they’re trying to achieve in the future.
Many investors give little thought to how buying property fits with their current financial circumstances and they often give little importance to how they’re going to exit their property business in the future. And whilst they may plan never to exit their business, they don’t know what’s going to happen some years down the road.
Not only that, but many fail to actually think about what they might be aspiring to achieve in a few years’ time, and the consequences of this from a tax point of view can be very problematic. Jumping straight in without structuring your tax affairs in the right way can make it very, very difficult further down the line if you decide to restructure your property business later.
One of the big headaches for a lot of existing investors at the moment following changes to Section 24, is whether they should transfer properties which are currently in their own name into a limited company. They will be asking themselves, will I have to pay Stamp Duty and will I have to pay Capital Gains, because there are important tax consequences that have come about with these changes.
So, what’s the answer – what’s the ideal way to structure your affairs for property investing?
Over the past 20 years of being an investor, the one thing I’ve noticed is that there probably isn’t an ideal way to structure your property business from a tax point of view. Whilst you may be disappointed to hear that in my opinion, it’s impossible to make things perfect, there are things you can do which can make it better – as well as things that you should do to make it better. And this is what we are going to start thinking about.
We’re always going to have to pay some kind of tax, which is okay as we all want the facilities and the services provided by the Government, but it’s probably going to be the case that we’re always going to pay more than we really want.
So, over the next couple of weeks we’ll be thinking about property and the tax system, and will look at how to arrange and structure your tax affairs so that it’s right for you and your property business.
In the meantime, I’d like to remind you that I’m not an accountant or an IFA; I can’t give tax or financial advice but I can give an opinion based on my 20+ years’ experience.
If you want to read up on tax, I suggest taking a look at some of the articles written by Carl Bailey from Taxcafe.co.uk. Or, if you’re part of the Progressive Community, there’s Iain Wallis – a savvy property investor and great accountant. Both have books on Amazon; so take a look, read up yourself and next week we’ll start off by looking at the most tax efficient way for flipping and trading property.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to: www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop.