- If the current legislation stays in place, review your exposure to the changes in income tax relief for finance charges including mortgage interest. This is a must-do for all affected buy-to-let landlords.
- Review any replacement furniture and equipment to ensure you will qualify for the Replacement of Domestic Items Relief (RDIR). Remember, if you sold the replaced item(s) you must deduct any proceeds of sale when calculating your entitlement to RDIR. This relief only applies to the replacement of existing items not the purchase of new items.
- If you are buying a buy-to-let residential property, consider allocating a nominal amount in the contract for any second-hand furniture left in the property. In this way, if you subsequently replace the furniture, you can write off all the expenditure under the RDIR. If you do not allocate sums in the contract, you will have no legal claim to the furniture and you will not be able to claim RDIR when you replace it. This strategy will also save you Stamp Duty Land Tax (Land & Building Transaction Tax in Scotland and the Welsh Land Transaction Tax) as this is not applied to the cost of furniture.
- Consider making a joint property election with your spouse to vary the split of any rental income in a proportion other than 50:50. This is a useful device to allocate income to the spouse with spare allowances or that is taxed at lower income tax rates. Property must be jointly owned to benefit from this strategy.
- In certain circumstances, it may be beneficial to incorporate your property business. However, great care should be taken in planning to see if this is feasible and if stamp duty and CGT on-costs can be legitimately avoided.
- Make sure that you amend your Will if you have acquired or disposed of rental properties since your last review.
- Consider employing family members to assist with the management of your property interests. If there are sound commercial reasons for doing this, you should be able to make a successful claim against your tax. In this way, you can reduce your exposure to higher rate tax and provide your family with additional income subject to deduction of tax at lower rates.
- Transfers of property (or a part interest) between spouses are generally free of CGT and IHT charges. This may enable you to direct rental profits into the hands of the spouse taxed at lower rates. Planning is key as in certain circumstances this may trigger a stamp duty charge.
