7 Steps to Cutting your Property Tax Bills
- Tax Planning is Important – you need to think ahead with property purchases.
- Develop a tax efficient investment strategy
- Plan for the future benefits to your family
- Use a good accountant
Did you know that if everybody who purchased an investment property three years ago sold it today, then there would be an £1000 million plus capital gains tax liability in the UK?
Here are 7 legitimate steps to help you start cutting your bills…
1). Buy a property in the most tax-efficient manner!
Consider buying property jointly with your partner to potentially use both your Capital Gains and Income tax allowances. Even better, renting out your existing property might help you to benefit from a whole raft of capital gains allowances!
2). Choose a property investment strategy that saves you tax!
If you buy property to ‘renovate and sell’, then you will be taxed differently than if you only ‘buy and let’ property.
For instance, if you buy and sell property, your gains may be taxed as Income rather then Capital Gains. This means that you need to establish how and which taxes (Income Tax and/ or Capital Gains Tax) will be applied to your property investments.
Once you know how tax will be assessed on your investments, then – and only then – can you establish a tax minimising strategy.
3). Offset ALL costs against income!
Offset as many costs against your rental income as possible, to genuinely reduce your bill! Many people are not aware of the numerous costs that can be offset against your property income.
For instance maintenance insurance policies on white goods, gas boilers and plumbing cover, which insure your property against any leaks or problems, can all be offset against rental income.
4). Plan for the future and benefit your family!
In 2020 the average house is predicted to cost £330,643. This will create an Inheritance Tax bill of £32,257.20 for the property alone, if allowances continue to stand still. It also means that the inheritor may be forced to sell the family home in order to pay the tax!
Many people are using trusts and gifting options to reduce their potential liabilities to this tax.
5). Get a good accountant and cut his costs too!
Poor tax planning and accounts management means bigger accountancy bills – sooner or later! By learning about Property Tax early on in your investment career, you can not only reduce your tax bill, but also by presenting better accounts, you will cut your accountancy bill too.
What is more, the better informed you are about tax – the better questions you can put to your accountant, and the better answers you’ll receive.
6). Don’t forget to tell the taxman!
Make sure you tell the taxman that you are receiving income from property! If you don’t tell him now, then when he catches up with you, you probably won’t be able to afford to pay him, after he fines you!
7). Investigate tax sooner rather than later!
Lastly, many tax benefits require the investor to plan for tax ahead of investing. Hence, the sooner you tackle the issue of Property Tax, the more you’ll be able to cut your tax bills and liabilities.