As a property investor, you will be required to pay tax on your profits. Tax regulations are constantly changing so another important member of your team will be an accountant. Accountants vary in specialisation and temperament and you need to shop around to find one who has specialist knowledge of the property market and who will instinctively give you, as an entrepreneur, good advice.

Accountancy is a retrospective practice and not many of them have an entrepreneurial spirit, but there are good ones out there who will embrace what you are trying to do and help you manage both your business and tax planning efficiently.There are huge savings to be made if you deal with tax in the correct way but I would not advise tax avoidance schemes, as these are expensive to set up and have a habit of catching you out. This chapter can only deal with tax in general terms and you would be advised to consult your accountant regarding your individual tax circumstances.

What Taxes Will I Have To Pay?

There are a variety of taxes that apply to property. The main ones of concern are stamp duty, capital gains, VAT and income tax. When you buy a property you have to pay stamp duty. The rate of this can be changed by the Chancellor in his Budget and has been increased in recent years. If you sell a property that is not your ‘primary residence’, you will have to pay capital gains tax. If you make a profit on the rentals you will be liable for income tax.

Stamp Duty

Current rates of tax payable on property fall within these bands:

Purchase not exceeding £120,000	Nil
Purchase between £120,001 and £250,000	1%
Purchase between £250,001 and £500,000	3%
Purchase over £500,001	4%

Obviously, it is in your interest when buying a property that you do not pay a small amount over any of these thresholds, as it will cost you more in tax. This explains why there is an enormous sticking point at £250,000.

Example

If you buy a property for £250,500 it will cost you £258,015, including £7,515 in tax. If you negotiate the price down to £250,000 then you will pay £2,500 in tax.

Trying To Keep Below A Threshold

The Inland Revenue is now very aware of this and it is difficult to do deals by paying cash for fixtures and fittings. There may be some leeway in specific cases, but you should always consult your lawyer and accountant rather than risk falling foul of the Revenue.

Income Tax

Income tax is payable on any profits that you make from your property dealing. The Inland Revenue now operates a self assessment system and it is your responsibility to report your income and expenses to the Revenue for each year ending the 5^th April. Rents are defined as income and against this you can charge a variety of allowable expenses.