Welcome to Indigo Square Investors Client Area…
Thank you for registering with Indigo Square. Now that you have provided your requirements, your advisor will scour the market for the best buy-to-let investment opportunities. This part of the site also provides you with some key information that will help you in developing your portfolio…
You will have become a buy-to-let landlord for a variety of reasons with plans to be an investor for quick returns or as part of your pension planning. Whatever the reason you should seek appropriate tax and legal advice. Indigo Square will already have provided you details of tax and financial planning partners. The information provided here is a guide to investors and even if you are a sophisticated investor you should obtain advice from a registered financial advisor before proceeding.
Getting Started on Tax
When you first start letting a property it can be a very busy time. Although you have found and registered with Indigo Square you may still have to carry out work on the property. All of this are important jobs but you need to remember to let HMRC know that you have started to let a property (even if you do not expect to make a profit). There are two ways to do this depending on the level of your expected rental income and rental profit (rental income minus allowable expenses) for the year.
If your rental income (before deducting allowable expenses) is less than £10,000 and your rental profit (after deducting allowable expenses) is less than £2,500 you will need to call the HMRC self assessment helpline to report it.
If your rental profit (rental income minus allowable expenses) is more than £2,500 and/or your rental income (before deducting allowable expenses) is more than £10,000 then you will need to register for Self Assessment.
Notify HMRC as soon as possible (but before 5 October following the tax year) to avoid any penalties. Remember that your rental business starts as soon as you are paid rent by the tenant or the lease begins, whichever happens first. This may seem formal but it is easy to do.
What Can You Claim For?*
There are two types of expenditure a business may have:
- Business expenditure
- Capital expenditure
You can deduct the full amount of your allowable rental expenditure from your rental income to work out your taxable profits. However, some expenditure is not allowable for tax purposes and some is only partly allowable. Your own personal expenses, any money you pay to yourself (personal drawings), personal clothes or personal goods are not allowable. If you buy something that is mostly used for your business, but you also use it personally, you cannot claim for all of it.
You must be able to separate the money you have spent for business and private purposes, and only the business part is allowable. You must keep records to support this.
Capital Gains Tax
Most property is liable to Capital Gains Tax. You must work out the gain or loss if you sell or dispose of it.
Types of property liable to Capital Gains Tax include:
- A second home
- A property that you’ve rented out
- Business premises, such as a shop or a farm
- Land, such as agricultural land
However, if you sell your main home – even though the asset is liable to Capital Gains Tax – you may qualify for Private Residence Relief. This may mean there’s no tax to pay. The action that you take will depend on the type of property you sell or dispose.
Your Own Home – Private Residence Relief
When you sell or dispose of your home you will usually be entitled to Private Residence Relief. You don’t need to claim this. It means that when you sell your only or main home, you usually won’t have to pay any Capital Gains Tax. Further information can be found on HMRC Helpsheet 283 ‘Private Residence Relief’.
Buy-to-let, Second Homes, Business Premises and Land
If you sell or dispose of a property that does not qualify for full Private Residence Relief you must work out the gain or loss. For example, if you sell a buy-to-let property, agricultural land, farm buildings or business premises, these are liable for Capital Gains Tax. There may be some additional Capital Gains Tax reliefs you can use if your property has been used for business purposes.
Land And Buildings Transactions Tax (LBTT)
There have been a number of changes to property purchase taxation in the recent past. Specifically the Scottish government introduced LBTT to be a more progressive property transaction tax than Stamp Duty had been. The permutations of potential liabilities and relief available under this new form of transaction tax require a case by case review. Indigo Square would recommend that all investors become familiar with the law or seek advice from a solicitor.