Property Investments – Limiting Tax Liabilities

Buying a new property is an exciting time but there are wider tax implications which may come into play. Paul Shorten an Independent Financial Adviser from Blacktower Financial Management Ltd  shares four key wider areas to be aware of and potential solutions to best mitigate the associated taxes.

Income Tax on Rental Income

If you are looking to expand your property portfolio and invest in Buy-to-let (BTL) properties you could potentially become liable to tax of up to 45% of the rental income.

If the appropriate tax/company structure is used to house the BTL properties then a resulting core benefit of a reduction in tax on the rental income to 19% can be obtained.

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It doesn’t apply to your main residence or on gifts to a spouse but it may be levied on additional properties such as buy to let properties or second homes. However, CGT is not applicable on properties after death which presents a more tax efficient way to invest in property, if your circumstances allow.

The current CGT rates for the 2021/2022 tax year are 18% for basic rate tax payers or 28% for higher rate tax payers chargeable on the capital gain you’ve made on a property since buying it.

With the use of an appropriate tax/trust structure from outset CGT can be mitigated. One of the most popular methods being to gift a property to a child which also gives a perfect opportunity for their first steps on the property ladder. Early planning is key though as the longer you wait the more chance the property will grow in value and become liable to CGT.

Currently if a married couple’s estate exceeds £650k of assets at the time of death it will be taxed at 40%. If you act earlier there a variety of ways to ensure your inheritance is passed through the generations with minimal exposure to inheritance tax.

  • Get married! Transfers between married couples and civil partners are not usually subject to IHT, so if the first partner to die leaves their entire estate to the other, no tax will be payable.
  • Pass your main residence on death to your children and/or grandchildren. This opens the opportunity to widen the amount available before inheritance tax is charged.  This is formally known as the residence nil rate band.
  • Life protection polices in trust can also be set up on behalf of your beneficiaries to pay the inheritance tax on the estate upon death.
  • As with CGT, with the correct use of appropriate tax/trust planning structures, IHT can be removed immediately or over a period of seven years leading up to death of the benefactor.

It isn’t only insuring the contents of your home that needs to be considered when purchasing a property, care should also be taken to ensure any mortgage payments can be made in the event of being unable to work due to accident or sickness or even a critical illness or death.

With the use of income/critical illness and/or life protection plans the ongoing mortgage payments can be paid for in the event of being unable to work. A lump sum payment can also be made to your chosen beneficiaries in the sad event of passing.  The common theme once again is if this is set up early then premiums become far more affordable than trying to obtain a protection policy at a later stage in life.

This article is for information only and should not be seen as advice or recommendation to act. If you wish to take action, please seek Independent Financial Advice First.

For more information and/or independent financial Advice, please contact:

Paul Shorten

Independent Financial Adviser

Blacktower Financial Management Ltd.

Paul Shorten – Blacktower United Kingdom (

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