Tax PlanningMake Text Bigger
Landlord Tax Planning Consultancy is the core business activity of Property118 Limited.Show Book A Tax Planning Consultation
We offer fixed fee tax planning consultations with a guarantee of total satisfaction or your money back.
Property118 founder, Mark Alexander, has worked in property, finance, tax and law since 1987. His wife is a Chartered Accountant.
Our Admin and Compliance Director is Michael Woodfine. Our legal counsel is Mark Smith, Barrister-At-Law and Head of Chambers at Cotswold Barristers. We use compliance systems provided by Jordans.
Effective landlord tax planning utilises all available tax breaks legislation provides for. Nobody in their right mind wants to pay more tax than they are supposed to pay, but not everybody knows how to go about optimising their tax position or even the existence of many forms of tax relief available to them.
With the correct planning it may well be possible for you to utilise tax legislation to optimally restructure your property rental business, without any requirements to refinance or to pay capital gains tax or stamp duty. We are not referring to loopholes or tax dodges, but perfectly legal structures that your average accountant might never consider bringing to your attention.
There are a number of restructuring options you may wish to consider and some may be more appropriate than others, for example:-
If you are married, the first level of tax planning to consider is a restructure of your income to optimise all available basic rate tax allowances with your spouse and then to purchase any further properties in a company. The tax changes to mortgage interest relief will only affect you if your total taxable income (including mortgage interest) exceeds the basic rate tax band. Restructuring income between spouses is achieved by changing the percentage of beneficial ownership of your rental properties. It only costs £250 + VAT for each property to achieve this and does not necessitate refinancing.
A partnership could enable you to allocate profits disproportionately to ownership and to allocate drawings disproportionately to profits. For example, if your adult children or parents help you in your business and pay less than higher rate tax you could consider making them partners. This can result in significantly lower tax bills as well as being a useful IHT planning tool. Furthermore, it’s a step towards incorporation.
Incorporation can transfer capital gains from your of property and into share in your own property company. Also, companies are not affected by restrictions on finance cost relief. You need to be mindful of CGT, Stamp Duty (LBTT in Scotland) and refinancing costs when considering the transfer of your properties to a company. However, under the right circumstances and with proper planning, all of these costs may be legally avoidable.Show Book A Tax Planning Consultation
IS TAX PLANNING LEGAL?
There is a very big difference between tax evasion, abusive tax avoidance and tax planning.
In 1936 a landmark legal case was heard in the House of Lords (Inland Revenue Commissioners v Duke of Westminster [ 1936 ] AC1 (HL)). The Duke of Westminster won the case. The judge, Lord Tomlin, stated:
“Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”
A lot has changed since then in regards to tax legislation but the same principles apply to this day. Providing you follow the law and do not abuse the tax system, tax planning is perfectly legal. For example, you may choose to save money in a tax-free ISA account as opposed to a taxed savings account. That is neither abuse of the tax system nor is it tax evasion or avoidance. It is simply the smart choice based on the law.
Words of Warning
There have always been, and always will be, inspired amateurs who believe they have found a new way to pay less tax. There are also “schemes” which are touted by slick salesman with glossy marketing materials and corporate entertainment. HMRC are extremely well funded to track down and deal with such matters.
It is increasingly difficult to spot the difference between a “scheme” and genuine tax planning which is completely legitimate. Social media has played its part in this too because misconceptions are common and freely shared. Opinions then become divided and are often stirred as a result of bitter rivalries between competitors.
Make sure advice is double checked by your existing, trusted professional advisers and that implementation is dealt with by an experienced and regulated professional adviser who carries professional indemnity insurance such as a Chartered Accountant, a Solicitor or a Barrister-At-Law.
If the arrangement is particularly complicated, and there is genuine ambiguity in legislation, you may seek non-statutory clearance from HMRC before you proceed. If you are provided with Counsels opinion, which explains more than one possible outcome for the tax planning you are considering, then HMRC will usually be happy to comment on that opinion. If at all possible work with an adviser who offers a total satisfaction money back guarantee. That way, if HMRC refuse clearance based on the advice you have been given, it will have cost you nothing. Once HMRC provide clearance, providing you have been entirely truthful, there can be no come backs. Please note that unless there is ambiguity HMRC will refuse to consider applications for non-statutory clearance or to provide an opinion. HMRC do not provide a ‘rubber stamping’ service.