Maintaining property Instead of paying tax...

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    Maintaining property Instead of paying tax...

    Hi folks.

    If I work out that this tax year I will have to pay for example £1000 tax on a rental...is it more beneficial to spend 1000 on Maintaining it like having a bit of painting done or a gardener? So effectively I'd be spending the same
    money but it would be benefiting me and the tenants instead??

    hope this makes sense!

    #2
    Actually the annual rental profit say £5000 ( e.g 12 months rent say £6000 minus allowable expenses say £1000 for letting agent and insurance ) is charged at 20% or 40% rate depending on your job income = £1000 or £2000 tax bill.

    So if you were to spend all £5000 rental profit on maintenance work e.g . internal re-decoration and replace the rotten window frames , you would have no £1000 tax bill to pay but you also lose the £3000 or £4000 after profit and the Tax office also loses £1000 in tax revenue.

    So you would get the benefit of £5000 worth of maintenance work for only £4000 or £3000 actual cost to you.

    Comment


      #3
      So I guess I'm right then. Instead of spending 5000 tho I would only spend 1000 then i wouldn't be 4000 out of pocket!

      Comment


        #4
        if you spend 1000 on maintenance, purely to avoid tax, then yes you could save but you also lose the benefit of the money to yourself to spend on whatever you want to improve your own quality of life, surely that's the basic principle of being in business, to improve the quality of your personal life and not to see how much tax you can avoid paying?

        Comment


          #5
          Originally posted by MisterB View Post
          if you spend 1000 on maintenance, purely to avoid tax, then yes you could save but you also lose the benefit of the money to yourself to spend on whatever you want to improve your own quality of life, surely that's the basic principle of being in business, to improve the quality of your personal life and not to see how much tax you can avoid paying?
          Exactly! The phrase "tail wagging the dog" springs to mind. OP, if you want to save tax that badly I recommend that you halve the rent you charge your tenants. That's guaranteed to dramatically reduce your tax liability!

          Comment


            #6
            It's not really trying to avoid paying the tax. It's more if I have to pay that tax anyway I might as well spend it on the rental. Seems a no brainer to me. Why give the govt more. I give them enough in my normal job!

            Comment


              #7
              Unless your tax rate is 100%, you would have to spend the entire income (less any other allowable expenses) on maintenance to avoid paying tax.

              Which is reasonable sensible from a tax point of view, but does make the actual investment a bit pointless.
              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

              Comment


                #8
                Ok. Let me ask another way. My rental gets me 10000 per year. Tax is 20% which makes 2000 so I have to pay 2000 quid. If I have 2000 allowable expenses do i still pay 2000?

                Comment


                  #9
                  If you had 2000 allowable expenses you would have still made 8000 profit and will pay 1600 tax (at a guess).

                  Comment


                    #10
                    or in your normal job, you get offered a pay rise, but you don't take it because you would have to pay tax on it. so you would rather not have the additional pay?

                    if you invest in your property by 1000 and the property value rise, when you come to sell you will pay additional tax (CGT) on the amount the property has risen in value since purchase. how much would you expect the property to rise in value for an investment of 1000 per year over ten, twenty years because that profit is taxable. or would you be happy to see no increase in value as your sole intent is to avoid paying tax? so over twenty years, you have avoided paying tax on £20000 but you have also 'lost' the opportunity to enjoy the £16000 you could have put in your back pocket.

                    if I was looking for ways to become more tax efficient, I would be loading up my (or partners) pension scheme with as much (pre tax contributions) that I could rather than new wallpaper on a rented property.

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