Taking a slice of the rent - Census Financial Planning

The tax rules applying to the income and growth generated by buy-to-let properties can be complicated, though the Chancellor of the Exchequer has introduced some proposals that aim to simplify the regime.
 
 
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* Tax
* Income
* Rental
* Buy To Let

Industry:
* Accounting

Location:
* Belfast - Northern Ireland - UK

July 2, 2012 - PRLog -- At present, buy-to-let investors are liable to pay income tax on the rental income they receive. This is charged at your marginal rate of tax in the year that the rental income is received.

However, there is action you can take to mitigate this. Most importantly, you can offset interest payments on your mortgage against any tax liability on rental income, a valuable allowance that can encourage landlords to borrow significant amounts against their buy-to-let properties. You can also offset many of the costs involved in day-to-day maintenance, such as painting and decorating, depreciation of furniture, cleaning charges, the cost of ground rent, service charges, and any insurance cover for buildings, white goods, gas boilers and plumbing. Advertising fees and any fees from your accountant or letting agency can also be deducted. Carefully kept records are essential, however, to make sure you can back up any offset claims.

When the time comes for you to sell a buy-to-let property, capital gains tax (CGT) is payable on any profit you make over and above your annual tax-free allowance (£10,600  for the tax year 2012/13). In addition to the original purchase price, the costs of acquisition and disposal (for example, estate agents' and lawyers' fees) and any money invested to improve the value of the property can be deducted  from your profits to reduce the taxable gain. Under current CGT rules, the remaining profit is then taxable at a flat rate of 18% or 28% depending on your income.

If you wish – or are able – to move into your buy-to-let property, you can then designate it your "principal residence", which means the last three years  of price gains will become exempt from CGT. Moreover, if the property has ever been your main residence in the past, the gain for those years is also automatically exempt. However, do remember that you will lose the benefit of rental income from tenants if you take up permanent residence there.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Paul Dixon FPFS
Chartered Financial Planner
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