Few questions from a newbie :)

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    Few questions from a newbie :)

    Hi there, first post here. Looking forward to getting in the buy to let industry. Being someone who has never delved into property before, I have a few questions regarding taxes so bare with me if I ask any silly questions!

    1: Should I declare tax on my gross profit or net profit (minus bills, mortgage, allowances)?

    2: If I have more than one property would it be best to set up a limited company to take advantage of the lower 19% (correct me if im wrong) tax rate?

    3: Is £10,000 of the profit tax free in an LC?

    4: What are the allowances which I dont have to declare?

    5: Are there any other taxes other than Income tax which I should know about?

    Thats all I can think of right now. Thanks

    #2
    Not silly questions at all!

    1. You would pay tax on net profit, so it would be on rents less allowable expenses such as repairs, insurance, agents letting fees and the interest part of your mortgage payments (not the capital element).

    2. The current tax rate for a company is 20% (on profits up to £300k). To do this through a limited company or not, is a difficult one to answer without more information. It’s not just about the company and what tax rate would apply to it. For example, as owner you would probably want to take out some of the profit and what is the effect of that on your personal tax position by adding dividends/salary to your existing income. Could that put you into a higher tax bracket? Then there’s the possibility that over time the property in the company goes up in value and you want to sell. Company pays tax on the gain but then how do you get the money out without further tax? There are also some non tax things to consider like the cost of having a company and complying with the statutory obligations such as filing accounts with Companies House. Would you need to pay an accountant and what would that cost? Also, are mortgage lenders happy to lend to a new limited buy to let company anyway? I don’t know the answer to that but hopefully someone else will comment. I’m absolutely not trying to put you off a company but don’t do it unless there’s a very good reason to do so and you are aware of the pitfalls.

    3. No, that was scrapped about five years ago. Strangely enough just after thousands of small businesses had incorporated to save tax!

    4. Sorry, I don’t understand the question!

    5. Stamp duty might be payable when you buy a property and there might be capital gains tax when you sell one and make a profit on it. There’s also VAT on some of your running costs but nothing you can do about that as a residential landlord.

    Hope this helps.

    Comment


      #3
      "Bare with me" is the silly question.

      You are required to submit an annual tax return to declare the gross rent and deduct allowable expenses to arrive at a profit figure which treated as part of your income and taxed accordingly. For better understanding , I suggest you download form SA105 and notes from the hmrc website.

      Are you planning to buy a freehold house or leasehold flat to rent out ?

      Comment


        #4
        Thank you Mr Green! Great help, I have bought tax cafes property tax guide so am currently having a read through that.

        Gordon, the house is freehold.
        Thank you both once again

        Comment


          #5
          Hi there.

          A couple more questions if I may.

          1: I take it you have to pay tax on the profit even if it is all reinvested?
          2: If me and my partner are in the company, does the company pay tax? or does each of us pay seperate taxes? Also whats the case in this with sole traders.

          Thanks

          Comment


            #6
            Originally posted by dokkodo View Post
            Hi there.

            A couple more questions if I may.

            1: I take it you have to pay tax on the profit even if it is all reinvested?
            2: If me and my partner are in the company, does the company pay tax? or does each of us pay seperate taxes? Also whats the case in this with sole traders.

            Thanks
            If you buy property under your own name, then you will have to submit a tax return each year to declare the profit from rental inome ( and capital gains profit after the property has been sold.) If you & partner buy the property under joint names , then each submits a tax return to declare half the rental profit and half of the capital gains.

            If the property is bought under a company name, the company has to declare the rental profit in its tax return. If the company is trading in property, it may be entitle to business asset roll over relief and delay its payment tax -

            http://www.hmrc.gov.uk/cgt/businesses/reliefs.htm#2

            Comment


              #7
              Originally posted by Gordon999 View Post
              If the company is trading in property, it may be entitle to business asset roll over relief and delay its payment tax -

              http://www.hmrc.gov.uk/cgt/businesses/reliefs.htm#2
              Not so - except on its own business premises.

              Comment


                #8
                Originally posted by Gordon999 View Post
                If the company is trading in property, it may be entitle to business asset roll over relief and delay its payment tax -
                No, if it's trading in property then the profits are taxed as income not capital gains and so CGT holdover relief wouldn't apply. Rollover relief can be available in relation to the property you trade from i.e. your premises. The obvious example is the shopkeeper who sells his shop, makes a capital gain on it and then reinvests the proceeds in another shop.

                Comment

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