Check out how four north London investors were tripped up by not understanding the tax regulations, and learn how to avoid the same pitfalls.
Owning property can be a sound investment. But there are tax implications. Advice from the best property accountants in London will help you avoid property pitfalls.
For many people, property is where they invest their savings. Whether it’s a single investment property, or a whole portfolio, bricks and mortar can be an attractive option for returns and growth.
But, like so much in life, owning property has tax implications. Investing in real estate doesn’t have to be onerous from a tax point of view, but without the right advice, there are certainly some pitfalls to be aware of.
John came to us when he found that out the hard way. John and his wife Jean are in their 80s, and having bought a small flat in Finchley in the 1970s, had added to it over the decades and built up a portfolio of properties across north London, worth several million pounds.
John was trying to manage the properties himself – assuming that because he was retired, he had the time, and as a former business manager he had the skills, and therefore it was a ‘waste of money’ to pay a managing agent.
But he’d fallen into some of the property traps – he didn’t always collect rent on time, and had some issues with tenants not paying. He had a high level of liability, with multiple mortgages. He simply didn’t have the commercial knowledge and skills to profitably run a property portfolio. Things were further complicated because his children had asked him to take out mortgages for their own use, a request John obliged.
John knew that he had to pay tax on the income from the properties, but believed he was making a bigger profit than was actually the case. He’d also not kept himself informed about changes in tax regulations – for example, from 2020 landlords can no longer deduct mortgage interest from their rental income, but instead get tax relief on their interest payments. But the relief is only at the 20% basic tax rate, and John is a higher rate tax payer.
John did have an accountant, but she hadn’t been providing him with good advice, and consequently, John was not providing the right information in his returns and had fallen quite seriously behind in submitting them. John realised he needed a specialist property accountant in north London, and approached us for help.
But by then, he owed HMRC a lot of money and had penalties going back five years. We were able to save him over £20,000.
Firstly, we looked more deeply into his portfolio and discovered that he wasn’t actually making a profit, which significantly reduced his tax liability, and secondly, we talked to HMRC on his behalf and negotiated down his penalty payments. John, needless to say, was very pleased with the result.
As property accountants for north London, we’re experts in helping local people who have invested in property and need help with understanding (and complying with) the tax implications. Carl works in IT, and invests his savings in property. Carl was initially not aware that he even had to file a tax return about his properties, because, as he put it to us ‘I’m not making any money from them’. Carl was under the impression that because the rent he received was the same amount that he paid out for his mortgage, it meant that the property was ‘neutral’, and no tax was due.
Carl believed that the total mortgage payment could be ‘offset’ against his rent. But in fact, it’s only the interest (not the repayment component of the mortgage) that is taken into account when calculating the tax reduction. As specialist London property accountants, we were able to advise Carl and get him compliant with regulations.
Susie had two properties in Barnet, one of which she rented out. She completed her tax returns, and gave full details of her salary, but failed to declare the rental income. She took the view that ‘Nobody will know’. But HMRC does often know, especially as in Susie’s case, if the property is rented through the local housing authority. Susie found herself with 10 years of penalties – and again turned to us as London property accountants, for help in negotiating a payment plan.
Most of the people we work with have their properties here in North London, but we also help people with overseas investments. Hitesh lives in the UK, but has property overseas in Germany, where he pays tax on it. He’d been ‘advised’ that didn’t need to declare the German property to HMRC, but it was the wrong advice. The fact is that if you are resident in the UK, you have to declare to HMRC any sources of income, anywhere in the world. We helped Hitesh with the coordination between the German and UK tax systems.
Property can be a great investment, generating income and capital growth. But if you’re a residential landlord – whether you have one property, or 10 or 20 – it’s worth speaking to specialist property accountants in north London to make sure your tax affairs are as solid as your bricks and mortar.
Contact Green & Peter TODAY for a chat about the tax implications of renting a property. 020 8446 8100