Property investing has its obvious benefits, but there comes a time when the excitement of buying and renting out your properties dies down and your attention needs to turn to administration matters and in particular, tax and the HMRC rules and regulations.
There are two important aspects to this: the business of keeping appropriate records and completing annual accounts for your annual self-assessment tax returns, and in case the tax man comes knocking on your door to take a look at those records, but also, just as important, is the tax planning aspect of your property investment business. Without adequate knowledge which allows you to do some sensible tax planning, you are likely to pay a lot more in tax than you need to.
As Steve Sims points out in the guide, there is nothing wrong with ordering your affairs in such a way as to minimise tax, quoting Lord Clyde’s famous ruling in the Ayrshire Pullman Motor Services v Inland Revenue :
“No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue”
Trying to master the intricacies of our highly complex and constantly changing tax system using the information provided by the HMRC is a nightmare for the average layman – it’s virtually impossible to get any real benefit from the attempt without years of experience.
But a guide like this is a different matter: I have found the writing is clear and concise and set out in short easily digestible chunks which really helps understanding. Starting off from basic principles, which I found really interesting, the guide progresses through the practicalities of what landlords need to know, and perhaps more important, what they need to do now, to ensure they have the right documentary evidence they will need for the future.
I found myself learning things I never knew about taxation, things of real value to property investors, within the first 30 minutes of picking up the book. Perhaps the one thing that struck me most is the importance of The Property Register and the establishing of the purpose of your property business; investment or trading, right from the start. This can make a big difference to the tax you pay when you sell, but without the correct documentation from the start you won’t stand a chance.
The books starts, as I said, with the basic principles of taxation as they apply to property, and in particular the different types of property businesses. Next comes the practicalities: book keeping, property accounts, expenses, capital and revenue, profit and loss, tax returns and a useful tax return check list.
Capital gains tax has a chapter all of its own being the important topic it is for property, and finally a chapter on various specialist tax topics such as stamp duty, non-resident tax, company tax, property deals and some useful flow charts.
With lots of worked examples, brief case references, and useful links to other information sources throughout I found the guide easy to read and understand without overcomplicating what is a highly complex subject.
If you want to make sure you tackle your property accounts in a way that will enable you to reduce the amount of tax you pay long-term, then I recommend this book for your bookshelf.
Author, Steve Sims is a tax consultant, a freelance journalist and an experienced landlord himself. Steve runs training courses on property tax for the Residential Landlords Association. His upcoming training events include: