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Derbyshire Tax Services Ltd

Tax consultants & accountants for Derby, Derbyshire & the East Midlands
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Buy to Let and property investment
Over the last few years investing in property has been very popular, fuelled by ever-increasing property prices and the numerous television programmes on property investment and development. However what these programmes never shed light on are the tax implications and the need to seek professional tax advice at the outset.
Property investment or development?

These phrases can mean different things to different people but it is important from a tax perspective that you understand exactly which category your activities fall into.
Two main questions you need to ask yourselves to begin with are:

1. Are we acquiring the property to improve and/or develop and sell on for profit?
2. Are we acquiring the property to retain and let out to tenants?

The answer to each question will then have a bearing on how your future profit/income will be taxed.

If the answer is yes to 1 above, then the profit will be taxed as income and maybe liable at the higher rate depending on the level of your other income.

If the answer is yes to 2 above, the rental income will be taxed as income at either basic or higher rates depending on the level of your other income. When you eventually come to sell the property, any profit made between the sale proceeds and the original acquisition costs will be liable to capital gains tax (CGT). Any such gain will be taxed at 18/28 per cent after allowing for any available CGT annual exemption (per each joint owner).
How should we own the property (or properties)?

If you are to acquire properties, then these can be either owned personally (or jointly), via a limited company or via a limited liability partnership.

The simplest and most flexible option is to own them personally, but there are tax and commercial reasons why you may want to own the properties in a limited company or a limited liability partnership. You should seek advice on what will be the most suitable structure for your circumstances before embarking on your acquisition(s).

Where couples are buying property together, it is vital that they seek tax advice before the purchase takes place, to understand that the tax treatment is different in some aspects for unmarried couples rather than couples who are legally married or in a civil partnership.
What should we do next?

Make sure you seek advice before entering into a purchase to ensure that you choose the most tax-efficient structure, appropriate to your circumstances and future intentions. Contact us to find out more.

You will also need to consider setting up adequate record keeping systems to cover set-up costs, rents received and your ongoing running expenditure; notify HM Revenue & Customs (HMRC) that you have started a property business and be aware that you will need to file Self-Assessment Tax Returns in future declaring the rental income received.