Property Letting Accounts
In recent years, the stock market has had its ups and downs. Add to this the serious loss of public confidence in pension funds as a means of saving for the future and it is not surprising that investors have looked elsewhere. The UK property market, whilst cyclical, has proved over the long-term to be a very successful investment. This has resulted in a massive expansion in the buy to let sector.
Buy to let involves investing in property with the expectation of capital growth with the rental income from tenants covering the mortgage costs and any outgoings. However, the gross return from buy to let properties – ie the rent received less costs such as letting fees, maintenance, service charges and insurance – is no longer as attractive as it once was but with the low interest rates the profit has returned but how long this will last is uncertain. Investors need toTake a view on the likelihood of capital appreciation exceeding inflation and what the interest rates are likely to be over the next 10 years.
We at KRA will prepare your letting accounts for inclusion on your self assessment tax return and you will also vbe able to use the letting accounts in obtaining additional finance.
Factors to consider
– think of your investment as medium to long term investment
– Research the local market or buy in a market you know
– do your sums carefully and consultant an accountant an independent view
– consider decorating to a high standard to attract good tenants quickly.
– purchase anything with serious maintenance problems unless you’re a builder
– cut corners with tenancy agreements and other legal documentation.
Investing in a buy to let property is not the same as buying your own home. You may wish to get an agent to advise you of the local market for rented property and you should look at the following things
-Two bedroom flats in inner city areas are easier to let
-Three or four bedroom houses are easier to let near schools or transport links properties close to schools or transport links?
An agent will also be able to advise you of the standard of decoration and furnishings which are expected to get a quick let.
Buy to let may make sense if you have children at college or university. It is important that the arrangement is structured correctly. The student should purchase the property (with the parent acting as guarantor on the mortgage) or the parent can purchase the property as Trustee and the student is the beneficiary thus creating a trust which is taxed different and is covered by a separate article at www………………. There are several advantages to this arrangement.
This is a cost effective way of providing your child with somewhere decent to live. Rental income on letting spare rooms to other students should be sufficient to cover the mortgage repayments from a cash flow perspective especially with the low interest rates at the moment. As long as the property is the child’s only property it should be exempt from CGT on its eventual sale as it will be regarded as their main residence. The amount of rental income chargeable to income tax is reduced by a deduction known as ‘rent a room relief’. This is £4,250 each year. In this situation no expenses are tax deductible. Alternatively expenses can be deducted from income under normal letting rules where this is more beneficial
Letting property can be very time consuming and inconvenient. Tenants will expect a quick solution if the central heating breaks down over the bank holiday weekend! Also do you want to advertise the property yourself and show around prospective tenants? An agent will be able to deal with all of this for you. You can decide to use an agent to find the tenant and then you mange the maintenance of the property to save costs.
This important document will ensure that the legal position is clear.
When buying to let, taxation aspects must be considered.
Tax on rental income
Income tax will be payable on the rents received after deducting allowable expenses. Allowable expenses include mortgage interest, repairs, agent’s letting fees and an allowance for furnishings. The relative low cost of instructing an accountant such as Keith Rogers Accountants compared with the Tax saving and the peace of mind make it very worthwhile.
Tax on sale
Capital gains tax (CGT) will be payable on the eventual sale of the property. The tax will be charged on the disposal proceeds less the original cost of the property, certain legal costs and any capital improvements made to the property. This gain maybe further reduced by any annual exemption available and is then subject to a rate of CGT of 18%. For disposals on or after 23 June 2010 the gain will be treated as your top slice of income and could therefore be taxed at either 18% or 28% or a combination of the two rates. CGT is payable on 31 January after the end of the tax year in which the gain is made.
Furnished holiday lettings
The favourable tax regime for furnished holiday letting accommodation is available for 2010/11 and earlier years. A consultation process will commence this summer and any possible changes may apply from 2011/12. Please do contact us for the latest position.
Whilst some generalisations can be made about buy to let properties it is always necessary to tailor any advice to your personal situation therefore if you are need advice regarding lettings income then please call Keith Rogers Accountants on +44 (0) 20 3145 0995 so we can arrange a No obligation FREE initial meeting at one of our offices. If you are interested in instructing us we will offer you a FIXED FEE service with no hourly charges or hidden costs. You have unlimited telephone support during our opening hours to assist you in making the correct strategic decisions. If you wish to view the other services that Keith Rogers Accountants offer then please visit our website KRA-Uk.com