|
 What the 2010 Budget means for Property Investors
The Budget announced yesterday had quite a few surprises for property investors - mostly good surprises! The property investors choice of accountant Stephen Fay ACA explains the key points...
Capital Gains Tax
· Higher rate tax payers to pay 28% from 23 June 2010
· Basic-rate taxpayers continue to pay 18%
This was the main tax concern for property investors, and the new regime is really quite reasonable, given the potential for CGT rates to be fully equalised with income tax rates (meaning 40% or even 50%!)
There is still the potential to pass properties to a spouse & have the basic-rate spouse sell the asset & pay just 18%. Lots of other CGT-planning possibilities are still well worthwhile ...
Income Tax
· Personal allowance increased to £7,475 from April 2011
This will save £200 for basic-rate taxpayers, and will be welcomed by investors that have used up any tax losses from previous years. Investors can also take out extra funds from their company & get extra corporation tax relief on the salary cost.
Furnished Holiday Lettings (FHL)
· Proposed abolition of the favourable tax regime cancelled
· Consultation in summer 2010 to review appropriate treatment of FHL from April 2011
This was a welcome reprieve for holiday let owners, and in particular owners with European holiday homes - losses can continue to be offset against other income - generating big tax rebates.
Corporation tax rates
· Small companies rate to be cut to 20% from April 2011
Most property investors that use companies are 'small' (profits under £300k per year), and so this is a welcome reduction. Combined with the higher income tax allowances, and the higher CGT rate for Higher Rate taxpayers (28% CGT vs 20% small company corporation tax), this makes investing via companies more attractive.
Capital Allowances
· Annual Investment Allowance to be cut from £100k to £25k from April 2012
Not many investors make much use of the AIA, but those with HMOs and Multi-Let properties that can make PMA CA claims need to get those in during this tax year to benefit from the high £100k allowance.
VAT
· VAT to rise to 20% from January 2011
As property rental is outside the scope of VAT, investors' costs will actually rise, as they are unable to recover VAT on costs. Will mean larger Estate & Letting Agent bills! (And accountants, come to think of it!).
National insurance
· The planned NI rate rises will go ahead
· New businesses outside London and the South East exempt from NI for first 10 employees (worth up to £50,000)
Property investors don't pay NI, but those who set-up new BTS or property development businesses could make use of this.
Housing benefit / LHA
· Lower rates payable, and a cap depending on property size from April 2011
This will obviously reduce the income for those investors that focus on LHA tenants. Investors will need to weigh up how private tenant rents compare to LHA rents in their area.
Summary
Overall, this wasn't too bad a budget for property investors. CGT was the main concern, and although the top-rate was increased, there are still plenty of ways to mitigate CGT exposure. Investors using companies, and those with holiday lets, are winners in the budget. Most people will suffer with the VAT increase ... but we property investors will, of course, adapt & prosper!
For more details contact Stephen Fay ACA for specialist advice on all aspects of property tax:
Tel: 01253 350 123
Email:
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Web: fyldetaxaccountants.co.uk |