7 Secrets of a successful property investor - Secret #6 Reducing Risk and Tax Planning

One of THE most important principles of property investment is to have a Buffer. You might ask what is a buffer?

It’s your nest egg!

Or insurance against the following things happening across your portfolio

•          Mortgage rate increase (buy to let or main house)

•          Lack of rental

•          Repairs to property

•          Flexibility on rentals

Without a buffer you run the risk of running out of cash and getting wiped out.

We recommend 5% of your property value should be held in your rental account for such circumstances. So with 200k property, hold 10k as a buffer. 

As your portfolio grows then so should your buffer. Our clients with 6 or 7 properties have buffers with 60-70k. Now some of this money can be held in a high interest account but you should have ready access to some of it to keep yourself safe. You must stay disciplined on this at all costs – we had one client who spent some of her buffer on a holiday and new clothes and on her review we asked for her rental account statements and asked her to put the money back or else we would resign her as a client.

You Must Plan from day 1

Income Tax

•          Compliance - HMRC dictates that as soon as you receive income you need to declare it.

•          Non Compliance - Failure to comply could result in fines, penalties and records going as far back as 3 years

•          A tax specialist can register you, and liaise with HMRC and the client to cut down red tape and confusion

•          They will inform you what you can & cannot claim, when this is done, the frequency and any updates to legislation through budget changes etc

Capital Gains Tax

Excludes

•          Sale of your home

Includes

•          a property that you've bought as an investment, for example a buy-to-let property

•          a second home, for example a holiday home in the UK or overseas

•          business premises, such as a shop or a factory

•          land, such as agricultural land

Summary

Capital Gains Tax is paid through the Self Assessment system and will be calculated as part of your Self Assessment tax return.

You should keep any records and information that might help you work out your capital gain or loss. If you've made a loss on a disposal you'll need to claim it in order to set it off against your gains.

If you would like to be referred to our preferred supplier for all tax issues then please contact us

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