When it comes to making investments, property can be a great option. With the prospect of large returns, under the right circumstances, properties can be a great way of increasing your monthly income.
Whether you are investing in property as a buy-to-let landlord or acquiring a holiday home rental, you must be aware of the tax implications that could affect your profits.
If you do not ensure compliance, you could face fines from HMRC.
For many, buy-to-let properties can be a good way to earn extra income. It doesn’t matter if you own a single property or a portfolio, as the tax will be applied the same.
The main taxes that apply to buy-to-lets are:
There are several ways you can minimise the impact of tax on your buy-to-let property investments. An accountant can help you take advantage of these.
Some options are:
As well as the above, one option to consider is incorporating a property portfolio into a limited company.
Owning your portfolio through a company, rather than personally, can offer significant tax reliefs – including the ability to claim a 100 per cent relief on mortgage interest payments.
Rather than paying Income Tax or CGT on your profits and gains, you will also be charged Corporation Tax instead. This is typically a lower rate, meaning you get to retain more of your profits.
There are obstacles to doing this, however, that may outweigh the benefits:
If you are looking for an alternative to buy-to-let property, then investing in a holiday rental is a good option.
Unlike buy-to-lets, holiday rentals can be treated as business assets, so long as they are:
However, the tax implications are almost identical to buy-to-lets. If you own a holiday rental, the taxes that could apply to you are:
Despite these similarities, holiday rentals are entitled to other forms of relief. This can help you to reduce your tax bill and maximise your share of the profits.
Some of the reliefs include:
Whilst these are appealing, you must ensure that you qualify. If you try to use benefits you are not eligible for, you could face investigations from HM Revenue & Customs.
For best practice, it is best to embark on tax planning for your property investment with a qualified accountant.
If you would like further advice on tax compliance for your investment properties, get in touch with our team today!