It is important to understand the tax laws in the UK and most importantly, the Capital Gains Tax. Most of us are aware that we can offset losses through tax deductions against our taxable income. However, the Capital Gains Tax (CGT) is a double edged sword. This tax law can be confusing for the ordinary taxpayer.
Tax Relief For Landlords
There are two types of tax relief – income tax and capital gains tax. What is the difference? Gains from capital assets include any depreciated value of property such as machinery, improvements to property, rental incomes and more. So, if you claim depreciation on a piece of capital equipment or property, you may qualify for tax relief by claiming a deduction of up to 50%. This depends on your province and country. However, you must complete and file your tax return as early as possible.
There are also several financial advisors who can give you sound tax advice concerning your business income and capital expenses. Be sure to choose a good advisor with solid experience in this area. You can find financial advisors by looking in the phone book, the Internet, or asking your local real estate agent. Before taking advice, make sure the advisor is qualified to provide tax relief advice and has a proven track record.
When it comes to landlords, one major tax relief is on capital allowances. The amount of allowable capital expenditure will depend on the size and type of your residential property. For example, a large commercial retail space will generally have greater allowances for depreciation. Be sure to get your property inspected before taking up your offer. Your tax advisor can help you determine the correct depreciation amount.
With respect to income tax, you may also be eligible for some relief on the sale of a residential property. There are certain sales that cannot be included in your gross income because of them. The allowable relief on the sale of these types of properties include the repair and replacement of total expenses incurred, such as expenses for plumbing, heating, electrical, and carpet cleaning. Some of these reliefs are also available if the property is used as a business office, or if it becomes a rental unit.
Another tax relief offered to property owners is on interest. The capital expenditure on interest can be offset against income tax, depending on your filing status and average tax rate. The tax relief on interest can be as much as 50 per cent of the total cost. The tax relief on leasehold improvements is limited to the amount of improvement actually performed, so the more leasehold improvements you have, the more your liability for these expenses could be.
Finally, there’s another kind of tax relief that a landlord may be eligible for. Landlords can deduct the cost of certain additions to their rental units. These include items like a kitchen and bathroom, walls and ceilings, and other improvements. You can deduct the cost of these additions each year as long as you live in the property as your main residence, and as long as you maintain the improvement or addition, the year after it is built. Any other capital allowances relief you get on these types of items will be discussed in the Owner’s Guide to Capital Allocation if you are a landlord.
As with any tax issue, it is always a good idea to talk to a tax professional about all the options you have available to you. In the case of a rental property, there are numerous options and decisions you’ll have to make, and the tax considerations are no different. A knowledgeable and experienced tax professional can help you understand your options and choose the best one for your particular situation. Contact an aIA specialist today to learn more about capital allowances.