Decoded: accounting and ownership for property investors

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5 Oct 2018

Decoded: accounting and ownership for property investors

Author: Grace Watson

It is essential to keep records when running a rental property, as these will be vital when working out your annual tax liability, as well as for capital gains tax when the time comes to sell.

Documents relating to the purchase include:

  • Purchase price and ownership of the property
  • Related purchase costs, eg legal fees, survey fees, legal fees, stamp duty etc
  • Receipts for major improvements, such as extensions or anything which has added value
  • Evidence of you living in the property, if applicable, with dates
  • Any legal information about the property.

In addition, you should keep the following documents to help with your annual accounts:

  • Income (i.e. rent) and outgoings (agent fees, insurance, maintenance costs etc.)
  • Any other income you receive, e.g. a P60
  • Mortgage information
  • Savings information
  • Bank balances
  • Information about stocks and shares, life assurance and pensions
  • Details of any other assets
  • Information about your will, as well as any likely inheritances you may receive.

 

Should I buy as a limited company?

The Section 24 changes have led some people to consider investing in a property via a limited company, instead of as an individual.

This does have some advantages, including:

  1. You could pay a lower rate of tax
  2. Profits can be retained in the company so are not liable for income tax
  3. It could make it easier to pass on property after your death.

However, investing via a limited company is not for everyone, especially if you have a portfolio of properties, as transferring these to a company could result in you paying capital gains tax as it is considered a ‘sale’ from you as an individual, as well as stamp duty on the ‘purchase’ by the limited company.

Company directors have experienced a tax hit, too, as the dividend allowance has been cut from £5,000 in the 2017-18 tax year to £2,000 in the current tax year – plus, you can only receive an income from property if a certain profit level is reached.

If this is something which interests you, it is vital to seek advice from a property tax expert, who can examine your individual circumstances and potentially save you a lot of money.

For more information or advice on sound property investments, contact your local Romans’ lettings branch, or check out our last article, Decoded: taxes payable by landlords and property investors for extra tax-related tips!

 

See more:

- Decoded: How To Keep On Top Of Tax Changes As A Landlord

- Decoded: Taxes Payable By Landlords And Property Investors

 

Sources:

  1. http://www.propertychecklists.co.uk/articles/investing-via-a-limited-company, https://www.which.co.uk/money/tax/income-tax/income-tax-on-savings-and-investments/dividend-tax-ax8p28u7hyqt
  2. http://www.propertychecklists.co.uk/articles/Buy-to-Let-Tax

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