In today's episode we are joined by Shaz Nawaz, from AA Accountants, and we talk about property tax. Make sure to tune in if you want to learn some of Shaz's tax mitigating strategies that any investor should be aware of.
Featured Guest: Shaz Nawaz - AA Accountants.
Tax is the overlay to every single asset. So whatever asset you decide to invest in, there's going to be a different tax treatment. In today’s episode we’re focusing on Pillar 4 - Property, and we are delighted to welcome property tax expert Shaz Nawaz to share his vast knowledge around common tax mitigating strategies that any investor should be aware of. Shaz will be covering reliefs and exemptions, capital allowances, personal tax strategy as well as when you should and not consider incorporating your properties. We all have an obligation to pay our taxes, however, if you can minimize those, and feel comfortable with retaining as much profit and income as possible, then this is going to help you to build your wealth.
Resources Mentioned In This Episode:
WT23: Using Trusts To Protect Your Assets
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The purpose of wealth talk is to educate, inform and hopefully entertain you on the subject of building your wealth. Wealth builders recommends you should always take independent financial tax or legal advice before making any decisions around your finances.
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Welcome to Episode 31 of wealth talk. My name is Christian Rodwell, the membership director and I'm joined by the founder, Mr. Kevin Whelan. Hello, Kevin. Good morning, Chris. pleasure to be with you today. Good. speak to you again today, Kevin. Now, Kevin, we continue this week with our look at pillar four, which is property portfolio. And we've covered off several strategies they've last few weeks and it's been really really interesting listening to our different guests, hasn't it? Yeah. It's fascinating to see what people really find an enthusiasm and a focus on when you combine, you know, decent resources, lots of energy and enthusiasm, a willingness to get stuck in and not just go round in circles.
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turning the wheel, they get outstanding results. And what you're seeing is people just get bigger, stronger, better, as they keep turning those wheels because they're just moves them forward and keeps propelling them to higher and more more rarefied air.
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Mm hmm.
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And no matter which strategy someone chooses within property, one thing that they'll all have in common is managing their tax.
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Well, you know, the tax is the overlay to every single asset. So, whatever asset you decide to invest in, there's going to be a different tax treatment. But Chris, you know, we talked about this right from the very foundation of what we do when we're teaching wealth and the principles of building wealth with people. Do you remember tax Freedom Day Chris? do indeed, yes. Quite a surprising statistic right in that for someone who's working, the amount of tax that they pay, actually they work up until
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date in April, and it's calculated each may in 2019. Well, yeah, so getting getting even later then in that case, and so that's how long someone would work. And before they start actually earning any of that income for themselves, so that's the amount of tax that they need to pay. And you know, the interesting thing about
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taxes is a principle is well, we all have an obligation to pay our tax, the tax system is really set up for us to be able to minimize our taxes. And if you can minimize those, and feel comfortable with retaining as much profit as much income as possible, then of course, it's going to help you focus and build your wealth. And so we teach this through our principle known as debits. If you remember that and our foundation, students will know that were the different ways you can save money in each letter stands for something that education bills, insurance, tax, and support costs. So it's the
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Principle of what we do. And when you're building your wealth, you always have to work out the difference between gross income and net income. And that difference is almost always simply, or at least one of the big ingredients is tax. And that's why we're just thrilled to invite someone to talk to us today Chris and share some wisdom on the subject of property. And while property is the focus of today, I would say just in general principle, there are some things that I think I would share in advance of hearing from the very colorful character Mr. Shatner was so you had a good interview with him didn't you? Yes, very very, very lively character and certainly knows his topic that's for sure. So she has no as trusted expert in tax and chartered accountant for a accountants and
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perhaps you can explain your relationship with with shadow Finn wash as is when you as well connected as I am
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I seek out the best of the best of the best. And you have to do that. You know, you always see the names that come up time and time and time again. And Charles does that. And I met him, I really liked him. He's no nonsense characters I said, very lively, very colorful. And he's definitely one of those people you just don't forget. And he knows his stuff inside and out. And when I had the opportunity to speak on stage with him, you know, I could tell just how enthusiastic he was, and how generous he was with his time, as well, not just on stage but also to other people. So I think he's a great character to share knowledge with, but you know, one of the principles and I'm sure, he'll dive into a little bit more depth, when it comes to property is, you know, in every single way of building wealth is always exemptions. And they're always beliefs. And they're always ways that you can mentally
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Minus taxes. And that's whether it's income tax, capital gains tax, whether it's corporation tax, whether it's inheritance tax, these are all the taxes that we have to overlay on everything we do. So it's quite a critical thing, to build knowledge and not just to deal with people who historically maybe counting the beans for you, and then tell you the tax you're gonna pay. What you need is something proactive, to be involved with you to help you minimize all of those taxes. You know, so focusing on Well, what what what's exempt, you know, and we talked on a previous podcast, Chris about using
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different types of property exempt residential property, if you remember that. We talked about the sort of properties you could buy with your pension, which you can't buy straightforward residential property and of course, SAS is a is a huge tax saver, as well. So again, there's an overlay with tax and with the vehicles you use, because you
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are not just tax free, but you also get tax relief. So you're essentially paid to do those things. So SAS will be eligible for tax relief. We've also spoken in previous podcasts I think about, and I'll bring it up again, actually, we talked about the business pillar, Chris, where you can get life cover and claim tax relief on that live cover. So in fact, you pay no national insurance and you pay no taxes. And actually, the government are paying your insurance for you, which is often needed when people are building the roof of their wealth plan, you know, keeping their family safe while they're still building their wealth. So all of this is critical, and one that I'm going to just love to share with you, Chris, but I'll, I'll make a kind of teaser point now, which is, whenever you have a business and you sell that business, then you get something called entrepreneurs relief, which means you only pay tax at 10%. So you know, this
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Just wonderful opportunities that will allow you to mitigate, pay less tax, make more profit, and build your wealth. So these are the reasons why tax is such a critical thing. And we don't want people to be tax experts, because you can buy in that expertise. And a good accountant will save you way, way, way more money than they could possibly charge you. So, I would say a good accountant is an investment not a cost. And that's how wealth builders should see them. Hmm. Well, I'll prepare anyone listening right now to get a notepad and a pen because what shares shares is really really valuable. So shall we head on over and take a listen to that right now then Kevin? Look forward to that.
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Okay, so Michelle Snowmass Welcome to wealth talk shares. Thank you for having me, Chris. Pleasure. Ya know, great speak to you today shares now shares I would really like to just find out a bit from you, really, as to some of the things that property investors
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should definitely be thinking about when it comes to their personal tax strategy. Absolutely. And I was thinking about this
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conversation that you and I were going to have. And I thought I'd look at how many different tax changes we've had, which have directly impacted property investors over the last 14 sorry over the last few years, and since first of April 2013 have managed to find 37 tax changes that directly impact property investors. So and those tax changes haven't been extra tax reliefs or benefits or allowances. These are tax changes, which in effect have meant that property investors need to pay more tax. So just two or three very quick examples are changes in wear and tear relief, changes in mortgage interest, changes in stamp duty and all of these have improved
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did lots of property investors in very different ways. So the way that the tax regime and the climate is, I'm sure there's many more changes to come tax changes, which are going to impact and affect property investors. So the point I'm trying to make is
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property investors need to be one step ahead of the game. And they need to make sure that they are claiming all their reliefs, exemptions and allowances to ensure that they are tax efficient. So the first and most obvious one is that everybody has a personal allowance, which at the moment is 12,500. And quite often, I see property investors don't always utilize all of their personal allowance. So that person allowance means you don't pay any tax up to 12 and a half thousand pounds. So it's important people utilize that. Above and Beyond that, if they are running a limited company, they get an additional 2000 pounds tax free by way of dividend
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So they should ensure if they have a limited company, and they're a shareholder, that they take out 2000 pounds per shareholder tax free.
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Above and Beyond that, if they have loaned money to their limited company, which I'm sure you've seen before is is a common scenario, a property investor either buys a property or invest into a project, and they use their own money to fund the purchase or a particular project. If they do that. They should charge interest to the company. And quite often, I find, they don't, but if they do, and then a basic rate taxpayer, the first thousand pounds of savings income that they get, and charging interest is also saving income is going to be tax free, and that comes into the banner of the personal savings allowance. So it's 1000 pounds if you're a basic rate taxpayer
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It's 500 pounds if you're a higher rate taxpayer, so people should take advantage of that.
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Also, if you have a husband, wife or a civil partner, and if you are a basic rate taxpayer, and your husband, wife or civil partner isn't using up their personal allowance, they they you can use something called a marriage allowance and use 10% of their unused personal loans and claim tax relief on that too. And that comes to around I think, 247 pounds or something like that. And you can go back four years. So if your partner or husband or wife
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is earning less than 12 and a half thousand pounds, you can use their personal allowance so long as you are a basic rate taxpayer. Now this is where it gets interesting. If somebody and 12 and a half thousand pounds, I either using their personal loans and they don't have any earrings.
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Come and they've learned quite a bit of money to their limited company, let's say 100,000 pounds. For this particular example Chris. If they charge interest on that hundred thousand pounds,
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they get something called the starting rate savings allowance, which means the first 5000 pounds worth of income, okay, is tax free.
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So let's run with that example. So let's say Chris you've got per half thousand pounds that you get by way of salary or other income, you then charge interest on your loan that you've given to your company. The first 5000 pounds is going to be tax free, so you would end up on 17 and a half thousand pounds. Okay, without paying a single penny in tax.
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You can then charge your further
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over you your adapter that 1000 pounds in terms of interest by using
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Your personal savings account, which I've just covered, which takes you to 18 and a half thousand pounds, is then take the 2000 pounds tax free dividend, which takes you to 20,500
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without paying a single penny in tax. Now I know I've kind of run through that pretty quickly. And lots of people sometimes can't always follow the numbers. But I hope that's kind of made some sense, Chris, if you haven't, obviously, feel free to ask me a question because it is important that your listeners appreciate and understand this point. Fully. Know, thank you so much for running through that we've chosen 37 tax changes you mentioned there. So this again, it shows the importance of working with an accountant that really understands property. I know you've you're a property investor yourself shares and, you know, what are some of the other advantages of making sure that obviously working with an accountant that does understand all of these different property laws and changes? Well, the first thing is obviously is that if you work with a
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specialists, they'll have lots of knowledge, experience and expertise of having worked with other people in your sector. So not only will they understand all the different tax rules that apply to your business, they'll also be able to understand how to make the tax rules apply.
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And by that what I mean is, a property investor isn't always thinking about all the different tax rates, reliefs and exemptions that apply to their business. But if they talk to a specialist, specialist will say, Well, if you're looking to buy a commercial building, for example, which we'll cover in a short while, and I share with you one of my existing or current property projects, if you're buying a commercial building, make sure that you make a claim for capital allowances as an example. So that kind of triggers a point where the client starts thinking about capital allowances. There could be other scenarios where there's stamp duty involved. So we cover that particular Avenue
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In terms of a property uninhabitable,
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how much are you paying for the property? Is it a mortgage on it, and various other things that that can help you reduce the amount of stamp duty one pays. So working with a specialist, they'll pick up on these things, they'll flag them up. And then the client and the specialist can fully consider all the different options, and then make a make an informed choice. That's the first thing. The second thing is if you're working with a specialist, who also does what you're doing. So in this particular case, for example, if you're working with a property specialist, who also invest in property, they're going to be able to share their own experiences of how they are doing things in their property business. So not only will they really understand your journey, your pain points, your frustrations, they'll also be able to look at the opportunities and the advantages of how he can do things differently so you kind of get to bite at the cherry
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By working with the same person without having to pay anything extra.
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Now, one of the big changes over the last few years has obviously been the introduction of the section 24. So anything new can add to this as to how best to manage?
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Yeah, absolutely. I think the first thing is, I think that
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particular change was extremely unfair. Because if you look at any other business, if a business owner, let's say somebody who's selling stationery, if they obtain a loan for their business, they can claim 100% of the cost. So why should it be any different this because somebody owns a property business. So I think that that particular change is extremely unfair, in my opinion, both as an investor and as a tax specialist. But moving on from that, I think a lot of people Chris, have kind of jumped on the bandwagon where they haven't fully understood an acknowledge
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aged all the pros and cons for why they should incorporate their property business. So quite often I come across people who own three or four properties, who ended up incorporating when there was no need for them to incorporate. So they've incurred over the additional fees and lost some of the tax benefits or advantages of having the property in their own names. Just because they thought incorporating was the best thing to do, because every other person they were talking to was saying you should incorporate your property portfolio. So I'll cover some of the pros and cons of having a limited company and some of the things people should consider before I do that. What I would say is, if we have a property investor, who has losses in their property business, they shouldn't be looking to incorporate the first thing they should do is use up those losses because if you incorporate your property portfolio, you can't carry over your losses. So if you have losses, make sure you use them first.
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So some of the benefits case of having a limited company or running your property business to a limited company is you get to claim 100% of the mortgage interest. So you get full tax relief on that. The second kind of benefit all the reason for doing it is if you can demonstrate that you have a business, then when you move your property portfolio from your name or from your name and somebody else's as a partnership, for example, into a limited company, you claim section 162 incorporation relief. What that means is you don't have to pay any capital gains tax because of course, a limited company is a separate legal entity. So if you transfer something to a limited company or that buy something from you, you have to pay capital gains on it, if it's a capital asset, but but if you can demonstrate you have a property, business or a business, then you don't pay
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capital gains tax by claiming section one six to incorporation relief. The other thing to add on top of that is, if you are moving your property portfolio over to a limited company, you'll have to pay stamp duty land tax. However,
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there is legislation which says that if a partnership incorporates, then the partner than the limited company doesn't have to pay stamp duty land tax. So if somebody owns property in their own name, they may claim section 162 incorporation leave, but they still have to pay stamp duty on moving the properties over. And quite interestingly, I went for a haircut yesterday and somebody was sat there and we got talking and I obviously kind of shared with them that I property investor and I was with property investors and his accountant had incorporated his property portfolio and he told me, he'd been
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paid over 42,000 pounds in stamp duty yesterday 42,000 pounds in stamp duty. And as I asked a few more questions, I soon established he he should not have paid that stamp duty.
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So there are people out there who are paying lots of money because they aren't working with specialists. So you could
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claim section 162 incorporation leaf, no capital gains tax, and obviously no pay no stamp duty. So obviously, if you were a partnership, there, the big benefit is when you move the property portfolio from your own name from the name of a partnership into a limited company, you get an increase in the base cost. Let me run you through this very quickly. Let's say Chris, you've you bought 10 properties over the last 10 years. And the average price you've paid is 100,000 pounds each. So you've physically paid
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million pounds for those 10 properties. And let's say those 10 properties today are worth 2 million pounds. If you were to sell them all, you've obviously made a million pounds gain to 2 million pounds, today's market value less than million pounds, you've paid for them. So that leaves a million pounds, taxable gain, you'd pay capital gains tax on that. Okay. And if you're a higher rate taxpayer, you're paying 28% capital gains tax on that. However, once you move those properties into a limited company, you have an increase in your base cost. So, so let's say you move them on the same date. Now your base cost is 2 million pounds. So if you sell one of those properties, and the average price, let's say per property is 200,000. If you sell one of those properties in six months time, for 200,000 or 210,000, you're only going to pay if you sell it for 210,000. You're only going to pay tax on the 10,000 pounds.
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Additional gain, which is a massive tax saving. And I've kind of run through that pretty quickly because obviously I know that there's plenty more to share. But I hope your listeners will kind of be able to look further into that in terms of the base cost increase and to the advantage. Another advantage is that when you have a limited company, the company pays corporation tax, which at the moment is at 19%. And coming down to 17%, in April 2020, whereas personally, you could end up paying
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20% 40% and then even 45%, depending on your personal income. And if you take a salary and then take dividends, you've already seen that you can get 2000 pounds, tax free dividend, you've got your personal allowance there and if you're really smart about it, you can take 8632 pounds of salary as opposed to 12 and a half thousand pounds and then you won't have to pay any national
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insurance. Another big advantage where and this is one of the big reasons why lots of people in corporate generally speaking, Chris, is that you have limited liability. So if the company was to go bust,
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any assets in the company, obviously, are at risk, but you personally are not liable. Whereas obviously, if you own the property in your own name, if something goes wrong and you can't pay the debt to the loans, then your personal assets or your money in your personal bank account, and your personal property, ie your home is at risk. So with a limited company without you, you ring fenced the company and you liabilities ring fence to the company. So those are some of the benefits or some of the reasons you should be looking to incorporate and some of the things you should be considering. Now let's move over over to some of the costs which people should consider or bear in mind. Obviously when you move over your property portfolio, you'll have legal fees to pay to
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Make sure you've factored those into the cost. You'll also have to pay valuation fees if you've got mortgages on your properties. And of course, if you haven't got mortgages, the first question is in why your Why are you looking to incorporate? Because section 24 doesn't affect you because you're not paying any interest. The question could be an increased increase in the base cost, but that takes us down a different route. So legal fees, valuation fees, you might have to pay a higher rate of interest because sometimes
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the mortgage rates in a limited company can work out to be higher than in a personal name.
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You'll also have to pay arrangement fees to the mortgagee, you might have to pay stamp duty if the property is in your individual name as opposed to a partnership and you lose your annual exemption. So if you, Chris, make a capital gain of less than 30,000 pounds in this particular tax year, you won't have to pay any capital gains tax.
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Yeah, unfortunately, a company doesn't have that annual exemption as an allowance. So you lose that 12,000 pounds benefit. So those are some of the things people should be considering. There's a few others, but these are the kind of main wants to get people started. Yes, that's very helpful. I know it's a it's a question that still comes up very often doesn't get amongst people. So thanks for showing that wave of shares. And I know you mentioned you have a couple of examples that you'd like to run through for our for our listeners as well. Yeah, I've got one really interesting example of a life case study, which is my own case study. So I'm working on
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a few different property project to share one review on your listeners, which will hopefully demonstrate the value of good sound tax planning. And everything I'm about to share right now isn't risky. It's not Pacey. It's not tax avoidance. It's real basic, simple tax planning that exceptionally effective.
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So you'll have to forgive me one small crease because I'm going to run through numbers. So I hope as I run through them are making 10. So yeah, and if I lose you for any reason, then means I'll probably lose some of yours 123 back, feel free to stop me as a shot. That doesn't make sense. Can you run through that again. So we bought a property for 500,000 pounds.
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We then paid to obtain planning on it with an legal fees and the stamp duty that cost us 65,000 pounds. The refurb on that is going to cost us 400,000 pounds. We're then going to pay interest on the phone 2000 pounds, because that's coming from a third party lender that's about 5052 and a half thousand pounds. So all those four numbers added together gives us 1,000,017 and a half thousand pounds.
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The GDP on this particular project is 1.3
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2 million, so we're going to make gross profit of 302,500. So if we did nothing else, and refurbed the properties and sold them at the market value is given to us by our agent, we'll make 302,500 in profit. And so now I'm going to share with you some of the things we did, which saved us quite a bit of tax.
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The property had asbestos in it.
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So we we paid quite a bit of money to have that asbestos cleared out. And if that is an issue for one of your listeners, then you can claim something called land remediation relief. If you claim land remediation relief, you get 150% relief on the cost. And this is for things like asbestos, Japanese knotweed.
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Other forms of contamination. So that saved us
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14,250 pounds in tax.
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What we then did and I've already kind of shared the example in terms of incorporation, after we obtained planning permission on the side, we then incorporated that
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property into a limited company. So as you can imagine and appreciate, we bought it for 400,000 pounds obtain planning for six one bedroom flats and six two bedroom flats. So when we incorporated we had the property valued and it was worth 650,000 pounds. So because we've incorporated we were now going to see an uplift in the base cost from 500,000 to 650,000 pounds to that hundred and 50,000 pounds additional base cost that's going to save us 19% incorporation tax
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and that 19% of 150,000 increase
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To 28 and a half thousand pounds in tax savings. We did that.
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Because we bought a commercial property, we were able to claim capital allowances to capital allowances, our fixtures and fittings which are in a building. So I'm looking around in my office right now, just to kind of give people a few examples. So we've got a new unit here. You can claim capital allowances for that we've got a suspended ceiling, this covered lounges on that we've got smoke alarms, fire detector, camera system,
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the central heating and the radiator. So there's quite a few things here and a few of the bits in terms of combs, and all these things here. You can claim cocktail lounges, amongst many others. So we claimed 126,000 pounds worth of capital allowances in terms of physical hard cash in our pocket type of taxation.
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On that 126,000 pounds, we're going to save 23,964 pounds in tax savings.
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Above and Beyond that, what we also did was that property had VAT on it and we bought it as a going concern. So we did a deal with the landlord for them to stay in the building for a certain period because they stayed in a building. Not only were we buying the property but we were buying some of the buying a top business as a going concern.
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So we were able to not pay the VAT which meant we paid less than duty so if you buy a building for foreign thousand pounds Chris, and you've got to pay VAT unit at 20%. That means you're paying 600,000 pounds for the building. You've got to pay via
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To show you, you've got to pay stamp duty and the V 100,000 pounds VAT element to be paying back and on top of that you're paying Sdlt. But because we reduce it transfer going concern, we didn't have to pay to the tee. Therefore, we paid less stamp duty. So we saved seven and a half thousand pounds on that. And that wasn't just for the stamp duty. If we had to pay the hundred thousand pounds VAT, we do have to go to a bank or a third party lender said can you loan the money to us for a period of four to six months, we'd have had to pay them interest arrangement fees, all of that. So including all that that adds up to seven and a half thousand pounds. There's two or three other things we did which aren't necessarily all tax savings, but I'll share them anyway because I think they will add value to your listeners after having bought the building because we will go into the planning process.
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We have
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To pay business rates. So what we did was work with a local charity, a social enterprise. And we said, we'll give you use of the building. So you can you can have the building for free, as long as you carry on doing good for the community. So this particular charity works with homeless people. And that's something that is quite close to my heart because obviously there's homelessness is on the increase in the UK as it is obviously in Peterborough. Now I'm a local city councilor. So I kind of see the detrimental impact. Homelessness has on families. So because this particular tattoo was helping homeless people, I said you can have the building for free and use it for an entire year rent free. They took that the only kind of condition if I can call it a condition was they pay the business rates. Now because they're a charity, they don't have to pay business rates.
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So they were able to save the business rate. And they were also able to get the additional 20% discretionary rate relief. So they didn't have to pay the business rate. And I didn't have to pay the business rates. And that saved us an additional 10,600. Had we've not given the property to them, we do have to pay those business rates every single month. So that was a saving. And the final one is that because we're converting the building from a commercial
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property into a residential property when we refurb, the property, which was going to cost us 400,000 pounds, which you'll recall from one of the many numbers I shared earlier, on that 400,000 pounds, we have to pay 5% VAT
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so that equates to 20,000 pounds. If we sell the individual units, we can claim back to 5%. If we if we don't tell the individual units tend to count came back to 5%. However, if you set up a wholly owned
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subsidiary for example, and grant a lease of longer than 21 years to that subsidiaries or nunda subsidiary then becomes the managing agent.
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And then the leases are within 21 years, the main company ie the company that owns the property can claim back the vat. So in this particular instance, we are going to claim back the vat of 20,000 pounds. So, all of those savings our job just kind of quickly rattle through, add up to 112,314 pounds. If you recall, Chris, the initial gross profit was 202,500 pounds. If we add the if you add the additional
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hundred and 12,314 pounds, that's a 37.12% uplift. So when we were going to make an additional 37% on top of the original gross profit, so in total it gives
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To us about 415 hundred thousand pounds in profit. So I hope I that kind of demonstrate good effective tax planning. Certainly does. It certainly does. And I managed to keep up the numbers that that is that is quite impressive. Yeah. But that's not because I made it easy for you that after you're pretty smart, and you were kind of able to stay on top of it. No, that's great. And did you say you had a second example as well shares?
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Well, I've got plenty of other examples, but I think there's a couple of things that are I'll run you through first and then I'll share a couple of other examples. In terms of some of the things we've done for property investors, which which they have found pretty useful. Now, if somebody has a spare bedroom, what they can do is rent that room out to a larger or a tenant. Okay, and as long as they give them a use of their kitchen and the living room to which one would do obviously because of that
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tenant we would need to cook food somewhere and use their bathroom facilities. You can get an additional seven and a half thousand pounds tax free under what's called rent a room relief.
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That's tax free. Obviously there's two of you who own a property that Halliburton and wife then you get half of that each year you get 3750 pounds each. Now here's where the interesting thing comes in. A lot of people are interested in running serviced accommodation, but they sometimes don't know where to start or they're not keen to buy a property or they're not keen to do something called rent to sa to what they could do is as long as they have a spare room, they could run their first serviced accommodation, the unit conduct particular bedroom, and 10 and a half thousand pounds
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or up to 700,000 pounds and not pay any tax on it. And then obviously if serviced accommodation books
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And they get you get used to systems processes, how the whole thing works. This is pretty good. We like this business, they can then go out and obviously
Unknown Speaker 37:08
create a much bigger service accommodation business. So that's something people should look out for. If they're if a property investor, or any business owners income is going to go over 50,000 pounds, they just need to bear in mind, they are going to lose entitlement to child benefit. That's something people sometimes miss out on and that they should consider something else which which I would advocate is investing in ISIS because obviously, there's huge tax benefits for doing so. If you have children, try and use up their junior ICER allowance as well. That's pretty useful and pretty handy. And of course, if you've got other income from another business or other employment income, then do think about investing into a pension.
Unknown Speaker 38:00
Because obviously there's tax relief on that, but I won't cover that. I know, you've probably covered that in a previous podcast and you guys do that so much better than I do, because I'm just a
Unknown Speaker 38:13
simple bean counter and a number cruncher from that.
Unknown Speaker 38:19
Okay, well, that's fantastic. As and I know there's a there's a lot more that we can cover one thing though, which is really important to the whole wealth builders, values and principles, and I know certainly very important to our members, is the legacy aspect of wealth building. So I'd like to ask you shares and what is the best way for people to leave their properties for their children?
Unknown Speaker 38:42
The Well the answer is it depends. Okay. But more often than not creating a trust and then making the children beneficiaries, okay, is a good avenue to explore. So people should look at that very serious.
Unknown Speaker 39:00
And that is a good strategy in terms of mitigating inheritance tax, and their children get to keep all their properties. Of course, it depends on the size of the property portfolio and the value and how much they've got outstanding in terms of mortgages and what else is going on. But in terms of a very simple answer is start looking at trusts because they are a good mechanism for leaving property to the next generation. Brilliant. Thank you. So is there anything that I haven't asked you today shares around tax around exemptions and allowances that you feel it's worth adding in?
Unknown Speaker 39:40
We could spend all day with because I have a to the property tax course where I cover a lot in terms of
Unknown Speaker 39:49
the things property investors need to bear in mind, but I'll share
Unknown Speaker 39:54
a couple of quick examples for you on stamp duty land tax, which sure
Unknown Speaker 40:00
And I hope your listeners will find useful and beneficial. So if somebody is buying a property and that property has a granny annex on it, and that granny annex has a separate entrance and has its own kitchen and bedroom, then the buyer can reduce the amount of stamp duty they pay. Let me run you through a very quick example. So if somebody is paying 500,000 pounds for a property will have to pay a certain amount of stamp duty I don't remember the exact number. Let's just kind of make it up and see the stamp duty on that's going to be 30,000 pounds. In reality the figures not 30,000 pounds, but let's just say it is 30,000 pounds. If that property has a journey annex is a separate entrance and it's got its own bathroom kitchen
Unknown Speaker 40:49
facilities. What they can then do is they can claim something called multiple dwellings relief. What that means is you divide okay
Unknown Speaker 41:00
The total cost by two. So in essence, you're paying 250,000 pounds for each property in reality you're not obviously because the joining and if you're not worth 200,000 pounds, but because the classes two separate dwellings, okay, you can claim multiple dwellings relief up to 50 for each dwelling. What that means is you're going to significantly reduced your stamp duty. So if we use example, it would be 30,000 pounds, which in reality wouldn't but if we would be using that example, that purchaser would probably save 10,000 pounds, okay, by claiming multiple dwellings relief. So that's something people should look out for. Something else which people should look out for is if they are buying a property
Unknown Speaker 41:54
which is uninhabitable, then they don't have to pay the additional 3%
Unknown Speaker 42:00
Stamp Duty for a second property. So they already own their own home and they buying a second property, there's the additional 3% stamp duty that a purchaser has to buy. If the property's uninhabitable, you don't have to buy that 3%. And you probably won't be surprised to hear that quite often. People approach us where they've bought a property which is uninhabitable, clearly uninhabitable, but they've missed out and they've ended up paying the 3%. And I also get quite a few clients now mainly to refer and when they are buying a property with a granny annex usually is their own home. But because they own other properties, and they don't intend to sell the main home where they're living right now because they're going to rent it out. They end up paying a lot of stamp duty because they haven't or additional stamp duty because they haven't claimed multiple dwellings relief, so that that's something to look out for. So
Unknown Speaker 42:58
those two things are quite handy to know.
Unknown Speaker 43:00
Cash Flow.
Unknown Speaker 43:02
I think that's, that's great. And I think that we should
Unknown Speaker 43:07
cap it there because as you say, shares, there's a number of stuff that we could go on. But thanks so much so shares from a accountants. Appreciate your time today. Thank you for sharing on wealth talk, and I'm sure that you have given a huge amount of value for our listeners today. Thank you very much for having me, Chris. It's been an absolute pleasure.
Unknown Speaker 43:27
Okay, so Kevin, what did you make of all of the insights there from shares? Well, I've you know, I've got a Ken Morris, just
Unknown Speaker 43:36
all those things down. But you see, one of the things you you'll notice, is Disney just gray, how people are enthusiastic about what they do. You know, just love that about shares. And I will pick up on something though, that, you know, he mentioned that I can't remember exactly how many tax changes but 37 or
Unknown Speaker 43:55
tax changes and more to come and that's always the way and the best
Unknown Speaker 44:00
One of course, which has hit everybody in the world of property is this. This thing is often referred to in curious tax language is section 24. And you will have heard him mention that and probably go into some detail about that. But essentially, the government made a decision to tax landlords, you know, and while there was a big effort with crowdfunding to try and stop that, if you remember Sherry booth, Cherie Blair was kind of forefront of that. And it just didn't get defended. And as a result, the government brought in this, this, this notional section 24, which essentially it kind of says
Unknown Speaker 44:43
previously, your mortgage was classed as an expense. So if you had an income of 1000 pounds in a property and the mortgage was 200 pounds, your tax bill would be on the 800. And all they've done is said look
Unknown Speaker 45:00
That's not happening anymore. And over a number of years, that's a sliding scale down to getting, you know,
Unknown Speaker 45:09
some of it allowed. And then little less and a little less than a little less, it's easy to Google section 24. But essentially, you're going to pay more tax if you're a landlord, which is why it's really important to understand corporate structures, you know, and talk to people who know what they're doing, about whether you should own your property in your own names, whether they should own it in an LLP, or Limited Liability Partnership, whether they should own it in a limited company. And there is no obvious right or wrong answer here. You just have to take good guidance. And remember also going back to previous podcasts, Chris, we talked to our contributors to we're much more focused on commercial type property where they're not affected by section 24. You know, so you've got to really think through exactly what you're going to do.
Unknown Speaker 46:00
From a strategy from a structure from allowances, you know, the tax needs to be front and center when you're working on property for sure. But in every pillar really, because there are always reliefs, exemptions, things that you won't know unless you're in the know. And that's why being connected, and being part of our community will always try and bring you those nuggets of knowledge to help you. Not just create your wealth and build your wealth but protected as well. Not just now, but for the next generation.
Unknown Speaker 46:36
That's right, and, of course, everything we teach with regards to the wealth building structure with the foundation with the Seven Pillars and the roof. An important part of that is being able to leave a legacy behind for your family, your children loved ones and I asked Chaz about the best way of how to leave properties to your children and Chazz his response was obviously the use of trusts and again, we've talked about
Unknown Speaker 47:00
This we've done a specific episode in the past time we about trusts Kevin. Yeah, I mean, anybody who knows me knows my reason why was fueled by, you know, the very early and tragic death of my dad. And as a result of that, you know, everything in my life has been focused on on almost acknowledging, in my own mind, probably, you know, a big focus on the legacy and trying to protect my three kids and my wife, and that's important to me. So, I think this is one of the most common things I hear people talk about, particularly talking about pensions as well, you know, which has got a very different tax treatment. People talk about their final salary, pensions and sometimes the loss of that legacy. So each, I think legacy is starting to become more and more of an important topic, Chris, and so much so that recently when I was at a satellite event, and it was a whole subject of the evening
Unknown Speaker 48:00
Want to really bring a podcast just to talk about legacy and how to start thinking about that not in a negative way, just contemplating and considering your own demise, but to think about it in a positive way. I mean, if anybody cares to check, enshrined in our value set the values that I created when I started wealth builders, one of those values was to build your wealth and leave an incredible legacy, but along with the wisdom, which has taken to accumulate it, because so many countries have words for the way that the next generation and the next generation will dissipate the wealth that was created by the original entrepreneurs. And some, some countries call it shirt sleeves to shirt sleeves in three generations, others clogs to clogs. But the principle is the same. You know, so the transference of knowledge, the transference of wisdom, as well as the transference of money is really an important thing. So I thought we'd do it.
Unknown Speaker 49:00
A little, kind of just take a breather from property and maybe do an interlude on that before we start getting ready for my most exciting asset that I love more than any, which is the business pillar that demands a whole different set of skills. And I look forward to diving into that in due course. But why don't we do that legacy one next time? Yeah, I think that would be great. Okay. Well, thanks for your time today, Kevin. I've enjoyed it as always, and I'm sure we'll catch up on next episode of wealth talk. I look forward to that Chris, and until then, see ya.
Unknown Speaker 49:35
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