It is very likely that at some point you will have to carry out some maintenance work to keep your property in an acceptable state of repair.

Once you have purchased and successfully let your property, any maintenance costs incurred that help prevent the property from deteriorating can be offset against your rental income. You can do this as long as it satisfies the following condition:

It is not a capital improvement

What is a capital improvement?

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If you take out a personal loan that is used ‘wholly and exclusively’ for the purpose of the property, then the interest charged on this loan can also be offset.

A loan used for providing a deposit is one scenario in which the interest charged on a personal loan can be offset against the property income.
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It is, in general, not possible to offset interest on a loan if it is not used for the purpose of a property, but there is a ruling which is mentioned paragraph 45700 of HMRC Business Income Manual.

Paragraph 45700 gives landlords the opportunity to release equity from their investment properties and offset the interest regardless of what the equity release was used for.
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Entrepreneur’s Relief (ER) was introduced for gains made after 5 April 2008, and replaced the old Taper Relief.

It is a lifetime allowance of £1,000,000 applicable to gains on disposals of business assets. Instead of being charged at 18%, the first £1m of gains made after 5 April 2008 are charged to tax at 10%.

Business Assets are strictly defined:
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You should be thinking about your proposed exit route from the first day you start your business, as it may affect how you set it up and the strategic decisions you make as time goes on.

Everybody Has an Exit Strategy

Some businessmen say they have no exit route – they will work till they drop, and leave the business to their children – but that is itself an exit route.

The THREE Most Common Exit Strategies…

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There is no IHT liability if a spouse inherits assets from their partner. This is regardless of the value of the inheritance.

Here are four common ways of reducing inheritance tax.

1. Utilising the £312,000 threshold level
If circumstances are such that your estate is not worth more than the current threshold level, there is no tax liability for the inheritor.  However, this scenario is becoming more and more unlikely!

2. Gifting to a spouse
All gifts between husband and wife are exempt from tax as long as they are both domiciled in the UK.
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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.

A company needs cash. When it first starts its business life, it can only raise that cash from one of two sources:

• By issuing shares in exchange for cash

• By borrowing money

The cash shareholders put into the company when they subscribe for shares is, of course, at risk if things go wrong – limited liability means that at worst they will lose this money.

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If a property has been your main residence, and at some other stage in your ownership it has been let as “residential accommodation” then there is a further relief from CGT on the part of the gain that is attributable to the period of letting.

The relief is the smallest of:

• The gain due to the letting

• The amount of the gain that is exempt as your main residence

• £40,000

The relief also applies where you own a house and let part of it throughout the time you own it.  See the case study below for an example:
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If you decide to let a room in your main residence, you can receive a rental income of up to £4,250 and have no tax liability.

In order to claim this allowance, the property must satisfy the following conditions:

a)    you must also live in the property;
b)    the room you are letting out must be fully furnished.

If you claim the rent-a-room relief, it is not possible to claim any expenditure that you have incurred with regards to the letting.

This is a very common strategy for those people who have houses that are too large for their needs. For example, if your children have left home, you may decide to rent the room they lived in for an additional tax-free income.
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The 10% Wear and Tear Allowance is an allowance that HMRC have introduced to make the lives of property investors easier when they complete their tax returns.  It can only be claimed when a property is furnished.

Before we go any further, it is worthwhile understanding what is meant by a furnished property.

Here is the HMRCs definition:
‘A furnished property is one which is capable of normal occupation without the tenant having to provide their own beds, chairs, tables, sofas and other furnishings, cooker, etc.’

What this means is that a tenant can start living out of the property as soon as they move in. The only accessories that the tenant needs to provide are his/her own personal belongings.

More importantly, this means that the 10% Wear and Tear Allowance cannot be used for partly furnished or un-furnished properties.

Here is a case study to illustrate the use of this rule:

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