Property Tax Liability
for Property Owners

NOW, I'm no expert when it comes to taxes, or property tax for that matter. However, as a property investor, you need to be aware that you'll be liable for some sort of property tax on your properties.

Our government here in the UK loves taxing us poor buggers. It therefore surprises me to see that so many investors forget to add tax expenses into their cash flow charts.

Property tax is one of the biggest costs involved in property transactions. So you can't afford to ignore it.

You're liable for either the lower-rate tax band of 22% or the higher-rate tax band of 40% (beginning on April 6, 2008, the 22% rate will fall to 20%). Whichever band applies to you, the payable property tax will have a significant effect on your cash flow.

It doesn't matter whether you acquired a property by accident, such as through inheritance, divorce, or marriage. If the property is registered under your name, then you will be liable for the taxes described below.

Property Tax Liabilities:

1. Rental Income Tax - payable by individuals, partnerships, and trusts in accordance with their net rental profits

2. Capital Gains Tax – payable by individuals, partnerships, and trusts in accordance with the capital gains when the property is sold

3. Corporation Tax payable by limited companies in accordance with rental profits and capital gains arising from the sale of the property

4. Stamp Duty Tax – paid upon the acquisition of property by the purchaser and based on the property’s value

5. Inheritance Tax – paid by individuals in accordance with any gain in value on the date of death (known as the probate value) net of outstanding mortgages

6. VAT – The cost of running a business, also known as the input tax

Remember, tax can be one of your biggest expenses! Make sure that you get a good property tax accountant who can professionally advise you and help you successfully grow your property portfolio.

I hate to admit this, but in the vast majority of cases, property tax accountants actually do SAVE PEOPLE MONEY!

You'll find that those investors who keep on top of their property taxes are the ones who are able to quickly and legitimately grow their portfolios, without having to fear the tax man!

REMEMBER, HM Revenue & Customs has numerous means for tracking tax fraud. The fees and penalties related to property tax evasion are a significant source of income for the government, so it makes sense for them to target such people.

I recommend reading some of these great books at Property Tips Tax Bookshop

Further details and links can be found on Directgov website (opens in new window)

Also check out HM Revenue & Customs website (opens in new window)

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