Tax savings for property investors

By Rebecca Davison

Capital Gains Tax (CGT) allowances were recently reduced and will shrink again from April 2024, increasing the tax burden on property investors. The government has targeted multiple rule changes at the sector over recent years but there are still savings opportunities for those with significant property investments.

property, can reduce or even remove inheritance tax liabilities.

Consider incorporation: Since the phasing in of Section 24 (the ‘Tennant Tax’) property investors cannot claim mortgage interest or any other property finance as tax deductible. Instead, a tax credit restricted to 20% of the mortgage interest costs is available to offset against the tax liability.

Claim expenses and capital allowances: Management fees and maintenance costs can be deducted from rental income to provide tax relief, whilst on commercial properties and furnished holiday lets, capital allowances may also be available on fixtures and fittings such as heating systems and furniture. Making cost-effective, tax deductible improvements to rental properties could justify a rent increase to cover some costs.

Tidy your portfolio: Options may include selling low-yielding property, reducing mortgage payments or changing the ownership of your portfolio to protect profitability.

Timing property sales over multiple tax years can also reduce your CGT liability.

Structure property investments for tax-efficiency: Using a self-invested personal pension (SIPP) to hold commercial property can provide tax advantages such as tax-free rental income and capital growth. Family Investment Companies are another popular option to help mitigate ongoing and future tax liabilities.

Take care with estate planning: Making use of Inheritance Tax allowances and reliefs, such as the residential nil-rate band, or using a discretionary trust to gift a

For higher-rate taxpayers, incorporating a property business as a limited company can offer significant tax advantages, as corporate tax rates are typically lower than individual higher income tax rates. Particularly where portfolios are highly geared, the investor is a higher rate tax payer and where the intention is for the buy to let properties to be retained for a length of time with profit reinvested in more assets, incorporation could be highly advantageous. Even where tax relief isn’t available there can still be significant long-term advantages.

Tax laws and regulations are complex and subject to change. Seeking expert guidance and a personalised plan from a tax advisor or accountant is essential to ensure compliance and maximise savings.