Top 10 Tax Saving Tips When Buying & Developing Property
The tax regulations surrounding property development are sometimes complex and depend on whether you are buying as an owner-occupier, a commercial landlord or simply purchasing land with a view to developing it later on. That said, the UK tax regime does allow for some significant savings if you – or your accountant – know how to leverage them to their fullest potential. Read on to find out more about the tax savings you could be making when investing in property.
1. Buy Beneath the Stamp Duty Threshold
Stamp duty has been around for centuries but, in the UK, it is referred to as a stamp duty land tax (SDLT), a kind of transfer tax that only impacts buyers purchasing properties valued over £250,000. If you are buying your home, then sticking to properties under this value will mean avoiding the tax. For second homes, valuations under a quarter of a million are only subject to an SDLT rate of 3%.
2. Check Out Capital Gains Allowances
Some property owners are subject to capital gains tax when they sell. If this applies in your case, then you should bear in mind that there is an allowance for property-related capital gains tax. For the tax year 2023-24 this allowance is set at £6,000 but you have to know about it to be able to benefit from it.
3. Rental Income Allowances
The UK government allows some of the income landlords generate from the property portfolio to be kept tax-free. Buying property to let usually means having to submit an annual self-assessment return to HMRC so it is worth knowing that £1,000 of your rental income will not be subject to tax when making your declarations.
4. Obtain a Stamp Duty Land Tax Refund
People who have bought a second home in the UK will be liable for some level of SDLT whatever its purchase price. However, if you go on to sell your first home, then your second property could be eligible for a refund on the SDLT you paid on it. This is worth checking out because it could be a significant sum you’re entitled to.
There are other situations where you may obtain a stamp duty tax refund such as tax relief for properties containing asbestos. If the property is considered uninhabitable such as unsafe asbestos throughout the property, mold, unsafe electrics or severe leaking you may be eligible for a stamp duty tax refund. This is certainly an area to look into if you are buying a property to renovate.
5. Make Use of an Enterprise Investment Scheme (EIS)
The EIS scheme is one of four government tax breaks given to promote venture capital schemes. Some EIS allowances cover certain types of property development, typically where commercial development is being planned. Where they are deemed appropriate, EIS schemes could be worth as much as £5 million each year up to a total of £12 million.
6. Invest in a Help-to-Buy ISA
The UK government encourages people who have yet to get on the property ladder to save and does so through a scheme known as Help to Buy. Various programmes exist under Help to Buy including ISAs which are tax-free saving accounts that are used to save for the downpayment that individuals and couples might need to secure a mortgage. Only people who’ve never owned property before will be eligible for these types of ISA, however. Other types of tax-free investments are possible through National Savings and Investments for people who are saving for a house but might have owned one in the past.
7. Business Rate Reliefs on Commercial Property Investments
Small business rate relief can be accessed by English businesses that only use one property so long as its rateable value is less than £15,000. Other schemes exist for relief on commercial properties in other parts of the UK. This is an important part of tax law that can affect freehold properties where there is a commercial unit downstairs and living accommodation above.
8. Amenity Tax Relief
The tax rules in the UK allow commercial property developers to avoid charging stamp duty to buyers in certain situations. Typically, this will affect larger developments in which the developer has provided civic or community amenities within the development plan.
9. Buy-to-Let Mortgage Tax Relief
Since 2020, it has no longer been possible for property investors to deduct mortgage expenses from their rental income. HMRC uses a tax credit system instead which equates to 20% of the mortgage interest payments buy-to-let landlords pay each year. Though less generous than the old system, these credits are still worth claiming to help lower your annual tax bill, especially since most landlords’ interest charges have been going up over the last year or so.
10. Benefit From a Property Transfer
Finally, property transfers – as opposed to sales – can be another good way to avoid paying taxes. Property transfers are quite legal when they’re conducted properly so they constitute a tax-efficient way to change the legal ownership of land without a sale and the ensuing SDLT charges. There are various ways to transfer commercial properties from one business to another. More commonly, transfers occur when someone inherits a property. Although inheritance tax may be due on the estate, SDLT shouldn’t apply in most cases. Seek specific legal advice about transferring a property to someone you want to inherit it before you pass away, however.
