How your property strategy and aspirations can impact on your tax bill

At some point in your property journey, you’re going to be paying tax – perhaps even a lot of tax if everything goes to plan – so over the next few weeks we’re going to be thinking about taxes.

Whilst probably not your favourite subject, tax does play a vital role in property investing. So, don’t switch off but instead, let’s start to think about how to best structure your affairs.

No one likes to pay tax but we all like to enjoy the services and the facilities that are provided to us by the Government. Nevertheless, it’s probably going to be the case that we’re always going to pay more than we really want.

As property investors, we want to make sure that we only pay what we need to pay and we certainly don’t want to end up paying more than we should. At this stage, I must point out that arranging your tax affairs so that you only pay what you should pay is completely legal. It’s only when you start trying to arrange your tax affairs so that you avoid paying what you should be paying that things start to get a little messy.

What’s often overlooked in property investing is that if we want to set things up to be tax efficient, then this really needs to be done from the start. I’m not saying this is the case with you, but I do often come across property investors who dive straight in without giving a thought as to what it is that are trying to achieve in the future.

Many new or “would be” investors disregard how buying property fits with their current financial circumstances and quite often, they fail to consider how they’re going to exit their property business in the future if they do intend (or want, or even need) to do so. Not only that, but they often fail to think about what it is that they are aspiring to achieve in a few years’ time, and the consequences of this from a tax point of view can be very problematic.

Whilst jumping straight in can be very commendable – because this means you are taking action and taking action is always a good thing – but jumping straight in without structuring your tax affairs in the right way can make it very, very difficult further down the line if you decide to restructure your business later on.

At the moment, one of the big concerns for many investors is whether they should transfer properties which are at present in their own name into a limited company following changes to Section 24. They will be questioning, will I have to pay Stamp Duty and will I have to pay Capital Gains, because there are important tax consequences that have come about with the latest amendments to S24.

Of course, this is something that could not have been foreseen 2-3 years back when it came into effect – and certainly, ten years back it was not something we could have prepared ourselves for.

Unfortunately, it’s just not possible to prepare for every eventuality.

So, what is the best way to structure your affairs for property investments?

Having been in the business for over 20 years now, I can tell you that sadly, there probably isn’t an ideal way to structure your property business from a tax point of view. Having said it, there are things that you can do to make it better – as well as things that you should do to make it better – and this is what we’re going to start to look at over the coming weeks.

In the meantime, it’s important that I remind that I’m not an accountant or an IFA. I cannot offer you tax or financial advice but I can give an opinion based on over two decades of experience.

Next week we’ll begin by looking at the most tax efficient way for flipping and trading property.

Here’s to successful property investing

Peter Jones B.Sc FRICS

By the way, I’ve rewritten and updated my best selling eBook, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to ThePropertyTeacher.co.uk