We all instinctively do some tax planning in our daily lives, even if it is simply remembering to buy our “duty frees” when we return from our holiday abroad.

If you are going to make the best of your property business, then you need to be alert to the tax implications of your business plans and to any opportunities to reduce the likely tax bill. Your instinct may be enough for your duty free goodies, but for tax on your business, you need a more structured approach!

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Spain has announced that it intends to abolish Spanish Wealth Tax from Jan 1st 2008.

The Wealth Tax was an annual tax based on the value of Spanish Residents Worldwide assets and on a Non-Resident Spanish situated property. The rates ranged from 0.2% to 1.8% in progressive bands.

Confusingly, this abolition is retrospective and requires the Spanish Parliament to approve it before it becomes Law. This could happen as early as this autumn but it may take longer.

This is good news for Spanish Property investors but it has to be balanced with the fact that Spanish Inheritance Tax remains an issue that requires good tax planning.

Spain has a minimal spouse exemption on death (unlike the UK) and Inheritance Tax at up to 34% on gifts to wife and children. For unmarried or same sex couple’s the rates are multiplied by a factor of 2.4 and go up to 81.6%!

For Capital Rich Retirees to Spain the Wealth Tax was a burden that made Spain less attractive.

That penalty has now gone, but again, careful planning is needed to minimise Spanish Income Tax at up to 43% and Capital Gains Tax at 18%! As well of course as the Inheritance Tax.

Contact Daniel Feingold to learn more about International and Offshore Tax strategies.

There are two very important methods that can be used to reduce your income tax bill.
- the 10% Wear and Tear Allowance
- the renewals basis method

They are relatively simple strategies to understand, and they both relate to the furnishings provided in a property.

However, many investors get confused by not knowing which method they can use and how it will affect their annual property income tax bill.

Choosing the right one can have a significant bearing on your income tax liability.

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Property investors often ask if they can defer paying CGT on gains they have made by reinvesting the money in another property.

Unfortunately, this is generally not possible.

There are only two exceptions:

1. Business Assets

2. Furnished Holiday Lettings

Let’s discuss these in more detail …

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This is a very commonly asked question, especially by those families in which one partner does not work.

After all, if the other partner is a taxpayer (especially a higher-rate one), then it makes sense to buy investment property in the name of the non-working partner. This is to make use of their annual personal allowance.

In today’s flexible mortgage market you can get a mortgage if you have little or even no income at all. However, you will probably have to pay a higher rate of interest and will have fewer lenders to choose from.

The banks may well ask for a guarantor just in case you fail to make mortgage repayments.

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One of the advantages of a company over a sole tradership or a partnership is said to be the fact that the shareholder’s liability is limited.

This is true as far as it goes, but in the real world, this limited liability can be an illusion.

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There are many different income tax saving strategies, but it is important to understand what is meant by the term income tax and when property investors and landlords are liable to pay it.

Income Tax Liabilities for Investors/Traders

Anybody investing in property is liable to pay income tax on any profitable income that is generated from their properties.

There are two types of people who invest in property and both are liable to pay income tax. These people are the Property Investor and the Property Dealer/Trader.

Let’s discuss them in more detail.

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