Property investments - a time for review

With the uncertainty in the financial markets over the last few years and the prevailing low interest rates, more investors are turning to property to increase the return on their money.  This has resulted in a broader range of investors including property within their portfolio and more taxpayers being required to calculate their taxable rental profits.

Property businesses broadly fit into two different categories – investment and development – and can be a single property or a larger portfolio.

Investment is a relatively passive way of obtaining returns from a property where the primary return is the annual income yield as represented by the net rents received.  These tend to be long term investments with any capital growth in the market value of the property being an additional bonus.

Development is a more active way of obtaining returns from property where the primary driver is increasing the value of the property through development, and the associated return is obtained on sale. These properties are generally sold after a short period of time in order to crystallise the return.

The tax position depends broadly on what type of business it is, but often property businesses have an element of both investment and development. It is therefore necessary to consider the tax implications of each particular property business to establish whether it is possible to optimise the current tax payable on the income or capital return. It is often possible to optimise the tax position without necessarily incurring the wrath of HMRC. 

We have helped many clients with this particular issue, by considering the following:

·         Establishing the true nature of the business, investment or development or both

·         Considering whether it may be more tax efficient to hold a property within a corporate structure

·         Re-characterising the property as a Furnished Holiday Let and thereby accessing various business related reliefs

·         Any beneficial CGT reliefs available, such as PPR and letting relief if the property has been used as a residence at any point.

·         Widening the ownership structure to include spouses, children and family trusts

·         Advising on property related revenue and capital expenditure

HMRC Scrutiny - In addition, HMRC are now running a Let Property Campaign to encourage landlords to come clean or risk higher penalties.  This is aimed at those who have undeclared historic rental earnings as well as those who may have filed inaccurate tax returns.  They are obtaining information on let properties from third parties. Previous campaigns of this type have been successful for HMRC, so now is the time to come forward for those who are yet to do so.

Do get in contact with us at Page Tax Consulting to see if you can optimise the amount of tax you are currently paying on your property income and to ensure that you are paying the right amount of tax.