How much will it cost to solve my tax problem?

by Mark Alexander

9:51 AM, 9th April 2021
About A week ago

How much will it cost to solve my tax problem?

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How much will it cost to solve my tax problem?

My answer to this question is that a solution should save you money, not cost you money! Do you agree?

Let’s look at this by way of an example: Just suppose that Mr & Mrs X discover that a complete overhaul of the ownership structure of their property rental business could save them £35,000 a year.

If the cost of financing and repaying the borrowing to achieve that overhaul is greater than £35,000 a year they shouldn’t do it.

Do you agree?

However, if the cost of financing the overhaul over say 10 years still saves them say £250,000 over the same period, should they do it or not?

I would say, probably, especially if that’s the best solution and the savings are pretty much a certainty.

Would you agree?

Now let’s add another layer of complexity to this.

Just suppose Mr & Mrs X have a reasonable life expectancy of another 20 to 30 years.

What would your property have cost 20 to 30 years ago?

Is it reasonable to predict that their properties could appreciate in value by double, perhaps treble, quadruple or more?

If they do nothing, do you agree that all of this property value growth could be taxed at 40% when the last of them dies?

Do you think they really want to leave that problem for their children on top of grieving their passing?

What if that problem could be solved at the same time whilst achieving the same level of savings?

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Comments

Royston Olner

8:29 AM, 10th April 2021
About A week ago

The first property was bought in 2011 & the rest in 2011 & 2012, I have personally invested both time & money into them all. So the values and rent have increased. I’m still not paying tax, as I have expenses rolling over. But these will be all used up over the next 24 months. I’m paying down some of the borrowing monthly as I want to retire abroad in 2024. I have a young partner & 2 adult children. I will probably inherit circ £350,000 in the future.

Chris Bradley

9:06 AM, 10th April 2021
About A week ago

I'm confused regarding the last comment as you have indicated that expenses have exceeded rent for almost 10years. Have you incorrectly set refurbishment costs off against rent as these would be capital expenses not revenue expenses? Or does the mortgage exceed the rent. I can understand set up expenses maybe lasting 2 years but 10years rings alarm bells

Royston Olner

14:56 PM, 10th April 2021
About A week ago

Reply to the comment left by Chris Bradley at 10/04/2021 - 09:06
The properties were empty for a number of years, so I’ve only just got them all let out. They were all distressed properties, so the refurbishment costs, have been split between income and capital & associated expenses.
I’ve done a lot of the work myself, hence the time taken.

Chris Bradley

15:05 PM, 10th April 2021
About A week ago

Reply to the comment left by Royston Olner at 10/04/2021 - 14:56
I can understand it taking time, I've done two properties up, doing most of the work myself, taken over two years, not much expenses in the full refurb, mainly capital and of course I can't charge for my labour. Glad you got them rented out now

David

15:59 PM, 10th April 2021
About A week ago

I'd want some certainty that the proposed re-structure wasn't dependent on loopholes in tax law that HMRC could change at a moments notice.


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