Property Investment is probably one of the most complicated tax and accounting activities that exists, it can involve:
- Stamp Duty (SDLT)
- Income Tax
- Corporation Tax
- Capital Gains
And some activities also involve Pensions, Capital Allowances, VAT, CIS…. the list goes on and on
The internet is full of experts but often their advice is conflicting and some of the advice is actually wrong!
Experience gained from working with investors is the key to knowledge and continuous training and updating is vital. We have written hundreds of blogs on tax and accounting.
One of the biggest recent changes is Section 24 restricting interest relief
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
Landlords will be able to obtain relief as follows:
- in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
- in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
- in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
- from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
The rules don’t apply to companies
I also think that having actual property and construction experience is beneficial.
Back in 2003, we started investing in property with a group of friends and colleagues.
We started by forming a limited company and our first purchase was 3 shops (eastern Eye, Maximum and LMJ) with 8 HMO’s above, there is a picture below
We then went on to buy 6 shops with flats above on long leaseholds, we did a title split and put 3 of the shops into SIPP Pensions
We then formed another company and purchased a block or 7 HMO’s.
We also bought an Office Block, Industrial Unit and Shops into SIPP and SSAS pensions.
We sold our investment in the companies and focused on commercial property investments in pensions.