ARCUS TAXATION ACCOUNTANTS

But this also means that gains made after April 5 will no longer benefit from either indexation relief on gains made between 1982 and 1998, or taper relief on gains made after April 5, 1998.
So as an owner of property other than that which you live in, as well as many other assets, you could be caught paying more tax than you thought.


Let me explain in more detail;

In 1985 the Government of the day recognised that high levels of inflation were forcing people to pay Capital Gains Tax (CGT) on illusory gains. Indexation was introduced to overcome this and allows you to uplift the base cost of your asset for capital gains purposes for the impact of inflation between the time you bought it (or 1982 if later) and April 1998.

That is when Gordon Brown changed all the CGT rules. He did not abolish indexation relief in his Budget; he froze it at the amount built up by that date. This means that many people selling shares, buy to let properties, or other assets over the last 10 years, have benefited from the indexation that they had earned. Our current Chancellor plans to abolish indexation along with taper relief on April 6 when he replaces the existing system with a flat 18pc rate of CGT.
 

Buy To Let: Landlords defy gloom in the housing market as rental yields rise

Growing demand for rented accommodation has resulted in higher costs for tenants and a healthy increase in returns for landlords.

Buy-to-let specialist lender Paragon Mortgages reports that rental incomes in the UK rose by 2.5 per cent during the past month, bringing the annualised rate of growth to 19.4 per cent. Tenants are paying £965 on average a month, compared with £808 a year ago.

The buoyancy of rental income offset the cooling in the rate of house price inflation and led to an increase in yields last year. Having been steady at 6 per cent for five months, December saw average gross yields rise to 6.2 per cent.

Established residential property investors in fact had a bumper year in 2007, despite the disruption in the financial markets since September. Total investment returns, including both rental income and capital appreciation, stood at 21 per cent, substantially more than in either 2005 or 2006.

"There's been fall in consumer confidence in recent months, but this appears to be to the benefit of established landlords," said John Heron of Paragon.

"This is solid evidence from the sharp end that landlords remain confident about the long-term prospects of residential property investment, as the UK population continues to grow on the back of inward migration and other demographic factors.

"Buy-to-let has counter-cyclical characteristics," Mr Heron added, "which means it will remain resilient, and indeed will outperform the market, at times of lower economic confidence and growth."

Landlords are also managing to secure significant rent increases. Richardson at Winkworth said tenants renewing their agreement were typically paying 5-10 per cent more per year, while new occupants were having to pay as much as 20 per cent more than they would have done a year ago.

Judd added, however, that tenants were becoming increasingly aware that their landlords might put up prices and were trying to secure longer-term lets of 18 months or two years.
A number of small landlords have sold properties in recent months because of higher borrowing costs, but for the less heavily geared, the outlook is sunnier.

Rents rose at their fastest rate on record last year, as demand started to pick up. Agents believe price growth may start to slow this year but yields – rents as a proportion of a property’s cost – are still expected to look more attractive than they have in recent years.

Reduce your taxable income by maximising expenses.

At a time when the Inland Revenue is trying to maximize their tax revenue (when weren’t they?) we offer below a few pointers on expenditure you may not have considered.
 

Mortgage Interest

They key factor here is the purpose of the loan, not what the money is used for. So whilst you will probably be aware that the interest on the loan to buy the property you now rent out is deductible, did you know that if you re-mortgage and the total loan does not exceed the value of the property when it was first let the additional funds can be used for anything.
If the loan does exceed the original value you can still claim the interest as long as it is used on the property or to purchase another rental property.

The other key factor here is that you can only claim the loan interest, and not the capital repayment element of the mortgage payment.
 

Motor Expenses

The cost of running one or more cars used in your property business can be claimed as a business expense. Generally, the vehicle will have some private non-business use, so an appropriate proportion should be claimed.

The appropriate proportion will vary from investor to investor but could be in the range 25% to 50%.

However you could also claim mileage instead, as long as you keep proper records. Inland Revenue rates are 40p per mile for the first 10000 and 25p per mile thereafter- tax free!


Furnished Lettings Deduction

Most landlords rent out their properties fully furnished. You can claim either the 'wear and tear allowance' or 'renewal and replacement expenditure'. Most people are better off with the wear and tear allowance.

So given that the cost of second hand furniture is low you can furnish the property with just enough to qualify and then claim a valuable 10% deduction.