As another tax filing deadline, albeit extended due to strike action, passes it’s time to look forward to the end of the tax year.
Whilst those at HMRC will look forward to a new set of coloured pens, elastic bands, treasury tags and acess to the stationary cupboard for the accountants of this world this is the time to help their clients save tax by making use of allowances available or maybe advising them on action to take to reduce income or even create losses.
Here’s a few tax tips to ponder and take action upon before the end of the tax year:
Those property investors who do not trade through a limited company have no choice as to when to make up your accounts. Letting income will always be that arising in each tax year to the 5th April.
In looking to save tax in any business approaching a year end, you would look to defer income and maybe bring forward expenditure.
Now with rental income it’s pretty hard to defer income as I would expect you receive your rental each month so not much planning opportunity there then so what about expendtiture. Well now we’re talking.
If you’ve some major repairs on the horizon, maybe a complete repaint and remember we are talking repairs here not capital expenditure, get in place a contract for the work to be undertaken. If you’ve contracted to have the work done then these costs can be brought into your letting accounts which a) may reduce the level of profit and save tax or b) turn a profit into a loss and again save tax.
Remember that loses can only be offset against other property income or carried forward in perpetuity to offset against profits. As an aside tax losses are personal and so a) can not be transferred to anyone and b) go with you to the grave.
Capital Gains Tax
You may have in your portfolio a property that is sitting on a nice capital gain. Now may be a chance to offload that at a slightly below market price for a quick sale and a tax free gain. Each individual can currently make capital gains tax free of £10,600. So a property held jointly could show a gain in excess of £21,200 and if sold before 5th April 2012 not create a tax liability. I say in excess because you pay capital taxes on the net sale proceeds less the cost of acquisition.
As with income tax and capital gains tax there is an exemption for inheritance tax. The annual exemption is currently £3,000 and thus the first £3,000 of any transfer of value will be exempt from Inheritance Tax. If the exemption is not used then this can be carried forward. So assuming no gifts were made last year, Mum and Dad could gift £6,000 to their children completely tax free. As an impoverished trainee accountant it was a relief I often brought to my parents attention, though this simple tax planning strategy always fell on deaf ears!
Further information on this topic can be obtained from Iain@iainwallis.com