Reply to: property investment and tax

[Spartacus]

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Milan, is this your plan B?

[JMorley]

Does make you wonder why you do things honestly sometimes, doesn't it.

[ASB]

They should not, but that does not stop many people. I've seen it done (obviously should the Revenue ask me to testify to this I only said this for effect!).

It's common as you say. A friend who sold his London flat put it down as the sale of his main residence on his tax return. He got picked for an aspect enquiry and it didn't even get mentioned.

[JMorley]

They should not, but that does not stop many people. I've seen it done (obviously should the Revenue ask me to testify to this I only said this for effect!).

[ASB]

I think the most tax efficient way would to have put our main residence in either my name or my wife's name and the second property in the other's. That way you can claim it to be a main residence and not pay tax on any profits on final sale.

Only in limited circumstances. A non seperated couple can't normally get away with 2 main residences between them.

[JMorley]

Simon

I do thank you for your input to this discussion, I may be mistaken but your last post sounds like you have taken offence. None was intended.

Regards

[simondolan]

As for accountants wanting to avoid enquiries because of having to do the work free, I think you will find that most (if not all) accountants would charge for enquiry work or insist/advise you to get insurance to cover their costs - even for those who do the "all inclusive" monthly fee, I think very few would also include tax enquiry/investigation work - they will either be charged separately or your monthly fee will include insurance - whatever way, the accountant will get paid for the extra work!

Exactly - tax advisers and accountants would actually have a vested interest in putting forward contentious claims to the Revenue - it equals more fees when the enquiry comes. What any good accountant will avoid is putting forward claims that we know from experience will fail.

[JMorley]

I think the most tax efficient way would to have put our main residence in either my name or my wife's name and the second property in the other's. That way you can claim it to be a main residence and not pay tax on any profits on final sale. It is of course a tax dodge and I have not pursued this for that reason, although I know of people who have very succesfully.

With respect to paying less tax if I held it in my name rather than the company, I would be taxed at 40% income tax.

As it stands I put 12.5k into the property on purchase, a further 10k on repairs. This would have to have been paid to me in dividend as 22.5k and would have incurred 40% (at least in part). When I sell, while this money would not be taxable a second time, assuming I sell for a reasonable profit of ~25k then unless I am out of contract for a period prior to selling this too will be taxed at 40%. So no real gains for me.

So purchasing through the company has enabled me to use marginal relief on profit not paid as dividend and any other capital at 19% CT. Obviously, at the point of sale I pay dividend and will incur 40% tax. However, I have more cash to put into the property on purchase as I pay less tax at this point. Additionally, loan interest, solicitor's fees etc. go against CT.

[philip@wellwoodhoyle]

But even if you managed to claim the cost as an expense, which I doubt very much would be successful, when you eventually sold it, the entire proceeds would be taxed as income -on a like for like basis. Surely you would prefer capital gains tax treatment for the property in personal ownership as you would pay far less tax on final sale.

As for accountants wanting to avoid enquiries because of having to do the work free, I think you will find that most (if not all) accountants would charge for enquiry work or insist/advise you to get insurance to cover their costs - even for those who do the "all inclusive" monthly fee, I think very few would also include tax enquiry/investigation work - they will either be charged separately or your monthly fee will include insurance - whatever way, the accountant will get paid for the extra work!

[JMorley]

boredsenseless

If you had read my previous posts in detail, you would have noticed that the argument I constructed (in concurence with The Act) does not depreciate the asset, it associates the capital cost as an expense of the trade. This in effect accounts for the fact that property does appreciate rather than depreciate over time. As noted by Simon the point is whether the Revenue would accept the asset as being provided for worker welfare.

I appreciate Simon's posts and thank him for them. My course of action from here is to ask the opinion of the Revenue, the chances are that Simon is indeed correct. Though, as I have said previously, you don't get if you don't ask.

One other point worth noting, and this is not meant as a slight to Simon, however, it is not in the interest of an accountant to sign off accounts that could be queried by the Revenue. For the simple reason that they would then have to deal with the query at their own expense in time. As such, an accountant is very unlikely to advise a course of action that may incur him non-chargeable work.

[boredsenseless]

If the client has had to take the rental property because of the location of the role, and they keep their main home (and don't let it), then we advise them to claim all costs associated to the rental property. Have never had this challenged, and no BIK is declared.

Same applies to buying a property in the Company name near the contract location (again assuming not main house etc) - bills and interest allowed, but the capital cost of the property would never be allowed.

Let's be sensible here - firstly as shown by his answer above Simon does this stuff all day everyday, trying to show you understand it better then him is at best arrogant and at worst stupid as he's trying to help.

Assuming for one second the house was an allowable asset...

How do you measure the useful life of a property? My house was built in 1700 and therefore has already had 300 years of useful life, and I expect it to last the same again, so would you really want to offset the cost at 1/600 a year?

Also the idea of writing down an asset is to account for the fact that over time it becomes less useful and less valuable, both of which do not apply to properties which traditionally become more valuable and remain just as useful.

I think you've made a mistake buying it in the company name, you would have been employed engaging a decent tax planning specialist to determine the best way to extract the cash out of the company to buy it that way.

[simondolan]

rent

If the client has had to take the rental property because of the location of the role, and they keep their main home (and don't let it), then we advise them to claim all costs associated to the rental property. Have never had this challenged, and no BIK is declared.

Same applies to buying a property in the Company name near the contract location (again assuming not main house etc) - bills and interest allowed, but the capital cost of the property would never be allowed.

[ASB]

If you rented a property whilst away on contract, and it was not your main home, then the rental costs would be allowed against profits.

Out of interest Simon what do you generally claim for your clients, I've always claimed the rent bills etc and then taken a small BIK hit for occassional private use (e.g. family coming up instead of me going home). I got this through my inspector with no real problems, however one keeps seeing comments like "can't claim council tax" or "best to only claim 5/7ths".

Are there any hard and fast rules or is it just down to the inspector on the day?

Possibly of interest to the OP. When I bought a house near contract which I used not as a primary residence I claimed:-

Bills
Mortgage interest
Council tax

Again I took a small BIK (5% I think) for personal use.

I don't see why it should be any different for the OP just because the property is owned by his company (but may well be of course).

[simondolan]

I Just that such Acts are very well constructed to accomplish a set objective.

Actually, many Acts are quite poorly constructed.

As a sidepoint, probably of little significance, I did not live in the property, I stayed there in the same way I stayed in a hotel prior to purchasing the property. Nonetheless, this does provide anothe rfront to my argument, namely that the cost of staying in a hotel is an expense that is not taxed, therefore, so should the cost of the property purchased.

Except that the hotel expense is just that - an expense. The property purchase is a capital asset.

Out of interest, had I have rented accomodation would that be classed as subject to CT?

If you rented a property whilst away on contract, and it was not your main home, then the rental costs would be allowed against profits.

[JMorley]

I like your notion about logic and tax rules, although I have to say I think that an Act of Parliament somewhat gazzumps the Revenue's opinion if you have a dispute. Not that I'm saying the Capital Allowances Act will facilitate setting tax aside as I would like. Just that such Acts are very well constructed to accomplish a set objective.

As a sidepoint, probably of little significance, I did not live in the property, I stayed there in the same way I stayed in a hotel prior to purchasing the property. Nonetheless, this does provide anothe rfront to my argument, namely that the cost of staying in a hotel is an expense that is not taxed, therefore, so should the cost of the property purchased.

Out of interest, had I have rented accomodation would that be classed as subject to CT?