Myth-busting – Electrical Safety installations Act 202011:19 AM, 3rd August 2020
About 3 days ago 54
Shocked Chancellor George Osborne has ordered a closer scrutiny of buy to let tax reliefs after finding out that some of Britain’s richest landlords pay little or no income tax.
The Chancellor was shown redacted copies of tax returns with all personal data removed, and naively realised that instead of paying around a third of their income in tax, many were handing the tax man just 10% or less.
These were 20 of the highest earners in the UK – and their tax saving strategy was completely legal and led to ‘lost’ tax revenue of £145 million a year.
Osborne has promised to take further action to make the richer pay more.
The legal loopholes exploited by these high net worth individuals included standard landlord tax saving strategies of offsetting trading losses from previous tax years and charging business loan interest to their buy to let properties.
Both are standard property tax avoidance steps – and are completely legal.
For landlords who are not harnessing these strategies, here’s how to do it:
His loss can be carried forward to use against future profits. For example:
A landlord spends £10,000 readying a home to let. In the first year he has rent of just £3,000 and other expenses, like letting agent costs, insurance, gas certificates etc of £2,000. The rental profit is £1,000.
Deduct the profit from the £10,000 loss and carry forward the £9,000 balance to set off against the next rental profit, and so on until the whole amount is spent.
Claiming loan interest – Many landlords do not realise they can claim any loan interest spent for their letting business against rents as well as buy to let mortgage interest.
For example, a landlord spending £2,500 on a personal credit card on fitting a new bathroom as a direct replacement for an old bathroom can claim the interest against the letting business.
Landlords can also refinance a buy to let business to repay any cash ‘lent’ to a letting business as a deposit to buy a rental property – and then set off the interest against rent.
This borrowing could also a letting business overdraft repaying the landlord’s investment.
“I was shocked to see that some of the wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right,” said the Chancellor.
“The general principle is that people should pay income tax and that includes people with the highest incomes.”
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