If you choose to make a property investment, there are various taxes that you will have to pay. This could include stamp duty, capital gains tax (CGT), pre-owned asset tax (POAT), tax on rental income, council tax and inheritance tax (IHT).
But there are ways you can pay less tax, with forethought and careful planning. Property investment expert Catherine Dawson, and author of Property Investment For Your Children, reveals her tax-saving property investment tips.
Tax-Saving Tip #1: Buy a property investment that does not attract stamp duty
Stamp duty rates for 2008/09 are provided in the table below. If you buy a property below these stamp duty thresholds, there will be no stamp duty to pay. Also, the government, in response to the rapid slow down of the housing market, announced that it was raising the stamp duty exemption limit to properties up to £175,000 until 3 September, 2009. If you buy a property investment during this period, you will not have to pay stamp duty on any property below this price.
Residential Land in Disadvantaged Areas
All Other Residential Land in UK
All Other non-Residential Land in the UK
|zero||£0 – £150,000||£0 – £125,000||£0 – £150,000|
|1%||Over £150,000 – £250,000||Over £125,000 – £250,000||Over £150,000 – £250,000|
|3%||Over £250,000 – £500,000||Over £250,000 – £500,000||Over £250,000 – £500,000|
|4%||Over £500,000||Over £500,000||Over £500,000|
Tax-Saving Tip #2: Reduce your council tax bill
If you have bought a property investment and it is empty because it is not yet fit for habitation, you may not have to pay council tax on the property. Rules and regulations vary, so contact your local authority for information specific to your locality.
If you let your property investment, your tenants are responsible for paying the council tax. But students will not have to pay the tax, provided that the house is solely occupied by students. This is important if you are thinking about buying a property investment for your child while they are studying, as, if you decide to let other rooms in the house to working people, your child may have to contribute towards the council tax bill.
Tax-Saving Tip #3: Buy a property investment in your child’s name
If your child is 18 or over, the most efficient way to pay less tax is to buy a property investment in your child’s name. You can do this by obtaining a guarantor or first-start mortgage as these enable your child to become the sole owner of the property investment.
This option means that your child would not have to pay capital gains tax when they dispose of the property as it is their main residence. Also, because the property investment is not in your name, it will not be added to your estate for inheritance tax purposes on your death.
Tax-Saving Tip #4: Pay less tax using the Rent a Room scheme
If you buy a property investment in your child’s name and they decide to let rooms in their home, they could claim Rent-a-Room Relief ,which means that the first £4,250 of rent is exempt from income tax. This relief is available to individuals who let furnished rooms in their only or main home. Your child will not need to declare their income, or keep records of their expenses while their rental income remains under £4,250 because the Rent a Room Relief is provided automatically.
Tax-Saving Tip #5: Make use of all tax exemptions and allowances
You can pay less tax by making sure that you use all the tax exemptions and allowances that are available to you, and by taking advantage of individual allowances that are available to husbands and wives and civil partners. For example, when working out your capital gains tax bill every individual receives a capital gains tax annual allowance, currently £9,600 (2008/09 figures). You and your spouse or civil partner can both take advantage of this, which means that you can reduce the amount of any gain subject to tax by £19,200.
Tax-Saving Tip #6: Plan carefully, be organised and keep all paperwork
When you are trying to pay less tax by reducing your tax bill. it is imperative that you keep all paperwork that relates to the buying, selling and improvement of your property investment. This is because you can claim reductions and relief based on these costs, which include legal fees, stamp duty and capital costs, but you will have to prove that you made this expenditure. If you have to fill in a tax return, you will find this easier and quicker to do if you have all the dates and figures easily to hand. Through keeping accurate and well-organised records you will be able to make a claim for overpayment or prove your income and expenditure if cases of dispute should arise.
- Get more tax-saving tips and property investment opportunities with Catherine’s book Property Investment For Your Children
- Get over 100 tax-saving tips instantly, straight to your PC, by downloading 101 Ways to Pay Less Tax today
Published on: June 2, 2008