Independent Tax Advice – Johnston Smillie

Independent Tax Advice Scotland
– Johnston Smillie

We sat down with Jamie Edwards, who is the Senior Client Manager at Johnston Smillie. In our time together, we spoke about frequently asked questions he gets on a regular basis, as well as solutions to issues you may be having when it comes to tax & finance.

Here are a few of the most common questions that get asked at Johnston Smillie. Our answers below are quite general and we believe it is better to have a conversation about your own personal circumstances. It is very difficult to carry out retrospective tax planning, so taking tax advice at the outset is essential!

If my wife owns a property and I buy an investment property, do I pay the Additional Dwellings Supplement (ADS)?

Yes. Homes purchased by married couples, those in a civil partnership, cohabitants (those living as if a married couple) and dependent children will be treated as being owned by a single buyer.

What costs can I offset against my rental income?

Here is a list of the most common expenses that we come across for Edinburgh rental properties:

  • Property management fees
  • Factors fees
  • Landlord Insurance
  • Landlord Registration fee
  • Repairs, including statutory repairs
  • HMO licences
  • Council Tax and utility bills relating to void periods
  • Replacing existing furnishings/appliances, but not the initial purchase of the item
  • Accountancy fees for the preparation of your tax return (to an extent)

Repairs to the fabric of the building are generally tax deductible.  However, when there is an element of improvement/upgrade any claim might be subject to HMRC challenge if it does not comply with current tax legislation.   

Tax relief is also available on mortgage interest/finance costs, but new legislation has been introduced to restrict the amount of tax relief available on these expenses.  Tax planning advice is therefore key to ensure that any resulting tax liabilities are kept to a minimum.

If you do not have many expenses, it may be beneficial to claim the £1,000 property allowance instead of actual costs against your rental income.

Should I buy a property through a limited company?

We are frequently asked this question and the answer generally depends on a number of factors.

The compliance requirements of a company differs enormously to an individual receiving rent in their own name.

Typically, we would need to know:

  1. What are your long-term objectives?
  2. What is the level of your other taxable income?
  3. What level of profit would you expect to receive from your new property purchase?
  4. Will you require to take out a mortgage or are you buying the property outright?
  5. Are you married or in a civil partnership?  Do you have children?  Could a share of the property be put in their names?
  6. Do you require the profits from the property, or can they be retained by the company/paid into a pension?

After an initial fact-finding meeting we would then produce a report demonstrating the potential tax liabilities throughout the lifecycle of the rental business.

There are many non-tax factors to consider when setting up a company, but at Johnston Smillie we can guide you through the process and highlight any issues to be considered.

There can huge long-term savings made from putting the correct strategy in place from the outset. 

Should I put a property in my children’s name to use their tax allowances?

This sort of tax planning will not work if your child is a dependent and under age 18. Any income will be taxable on the parent even if the property is in the child’s name.

There may also be implications for:

  • Capital Gains Tax
  • Inheritance Tax
  • Land and Buildings Transaction Tax (LBTT) for Scottish properties or Stamp Duty Land Tax (SDLT) for acquisitions elsewhere in the UK.  The child may have to pay the ADS (or UK equivalent) when they are old enough to buy their own property
  • It may restrict the child’s right to help-to-buy ISAs and similar products

The work involved in unravelling this sort of arrangement can be expensive.

If you would like more information or advice regarding your own situation, please contact Johnston Smillie on 0131 317 7377 or email one of our tax specialists at tax@jsca.co.uk

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