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property developer tax planning tips

Investing in ‘bricks and mortar’ has always been a sensible way to grow your money. And with the growth in the average house price beginning to plateau, now may be a good time to look at buying up properties in need of some TLC and refurbishing, or developing them as an investment opportunity.

Whether you’re an individual buying up property as a development project, or a full-scale property business with plans to build a large-scale development, it’s important to know the impact that tax can have on your income and potential profits.

With this in mind, we’ve pulled together a few key tax-planning considerations that should be on your development business radar.

7 ways to reduce your property tax costs 

Minimising the impact of tax on your property income is all about planning ahead. When you’re on top of the financial management of your property development business, you’re in a much better position to look ahead, understand your tax liabilities and make the requisite changes to maximise profit and reduce tax costs.

With the new tax year that began in April, it’s vital to be proactive with your planning. So here are some important areas to consider when you’re looking at the year ahead and working out your finances.

  1. Move to cloud accounting – online accounting software, such as Xero, is the ideal place to manage your finances, keep on top of tax liabilities and also keep all your accounts, documents and records easily backed up to the cloud.
  2. Scan your receipts and documents – filing your tax return is a lot easier when you have all the paperwork to hand. Keep copies and digital records of all receipts and invoices so you don’t miss deductions and any tax-exempt expenses. Receipt Bank is a simple app that can scan your receipts and upload them automatically to your Xero accounts.
  3. Deduct the relevant mortgage costs – when you’re deducting mortgage costs, remember that mortgage fees and revaluation costs can be included. The more you can deduct from your profit number, the less tax will be due.
  4. Sole trader or limited company? – Incorporating your property development business as a limited company reduces your tax costs. Rather than being a sole trader and paying income tax (at a rate as high as 45%), you become a director and pay corporation tax on your profits, at a far lower rate of 20%.
  5. Register for VAT – If you’re building new properties, you should register for value-added tax (VAT). New builds are ‘zero rated’, meaning you can save 20% on all eligible expenses during the build, once VAT registered.
  6. Consider the best ownership of the property – If you’re buying property and you’re a married couple, you should consider placing ownership in the hands of the person that has the lowest marginal tax rate – this only applies if the property is held outside of a limited company, though.
  7. Claim homeworking expenses – if you run your development business from your home, you can claim a portion of your home office running costs as a business deduction. You’ll get the best advice on which element can be claimed against by working with a professional accountant.

We’ll help your property development business flourish

At Square Mile, we help a wide range of property businesses to get the best from their finances, and keep their tax overheads to the absolute minimum.

We’re a certified Xero partner and can help you set up, customise and streamline a cloud-based accounting system that makes managing your finances an absolute breeze. And our years of accounting and tax experience mean we can give you the advice, planning tips and insights you need to achieve the ideal tax planning for your property development business.

Get in touch with us to have a conversation about improving your tax planning.

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