I talk all things tax…….
Hey everyone. I am your property guide Samuel Leeds and today you will have so much knowledge that will help you in your property business for sure. I interviewed a property tax specialist Mr.Joshua Tharby. I welcomed him to my show and he was very excited to share so much stuff with us.As many students were asking me to share the details of tax regarding property so I thought of interviewing Josh so he can explain better to my students and other people. Let’s begin.
Firstly, I asked Joshua to share his background history and how he came here in this field. He is a young guy as he shared that he started with an accountancy as he was trained as an accountant. He has been doing it for the past six to seven years. Three years ago, he found a firm of property specialist accountants and he deals with different clients as he is also a property investor. He is quite successful now and has so much knowledge.
After his background history, I asked him the first question:
- If you are buying a property or new to property, should you set up a company or just buy as an individual? He found this question quite easy as he said, it depends on lots of different things but he discussed a few of them. He said, it depends which side you are taking into consideration and see the side that you are looking for the property to achieve. Find out where you are now and where you want to see yourself in future. If you have a good job then you may be a higher tax payer and you don’t want to leave your job but you are looking for a long term property that you want to invest in. Here you will battle from a limited company because your tax is deductible due to mortgage interest as you don’t need that money for living. You are already doing a job. While if you see the opposite then it will be like you don’t want to do a job and want to become financially free so you need some specific amount every month for your living. You start doing property in your own name because mortgage rates are cheaper. And if you are not paying high tax so according to Section 24, you are going to get a 20% tax credit on your finance costs.
- I asked him to explain to the viewers what Section 24 is. He started by saying, it is a part of legislation and before Section 24, your every cost is treated the same as the other cost in business. It’s like you have to pay the full taxes while things have changed now slightly as finance costs are not taxable.
- The next question I have asked Tharby is to talk about group structure as he is also a property investor and a creative person as well. He said group structure is actually a safe way to work as it protects you from different issues. A lot of people start as a limited company when they are generating a good cash flow and some start using different strategies like rent to rent with goals to develop assets doing developments down the line but they don’t go well as far as the structure is concerned. The money you have created in the cash flowing company can be used to fund your developments and your property investments. Usually if you have enough money, like 100,000 pounds as profit in your deal sourcing company, you could loan them between the companies. If you see from a tax point of view you have to pay tax to one company and you might not get tax relief in the other if you are doing an inter-company loan. Whereas, group structure allows you to move your money around even if you want to keep your properties and have done development. There will be no stamp duty, capital gains. While if you own the 100% shares in all companies then there would be some issues you have to face. He suggested that, if you want to build a business empire then go for the group structure.
- While talking about group structure, I asked him what if someone wants to do deal sourcing as well as rent-to-rent then should he start together or keep both separate, what would you recommend? He recommended keeping both of them separated. He further explained from a tax and VAT point of view that if you are doing rent-to-rent then it tracks tax as property investment. It is on a tax return so it is necessary to make two sets of accounts so that as an accounts perspective he can do the tax return. From a VAT perspective, being separate allows you to buy your stuff without being blocked as if you buy something like a laptop or anything but you have got exempt supplies and tax supplies then some of your VAT will be blocked. But if you are two separate companies, you can claim your VAT back. From your rent-to-rent HMO company you can’t reclaim your VAT so you leave it as it is. Overall you are about to reclaim more of that from HMRC.
- In the above conversation, Joshua mentioned VAT, so I asked him to elaborate it for our viewers as if they are confused, it will be clear to them. He started with a full form of VAT which is Value-Added-Tax. He said, it is a sales tax that you make. The output which is a technical term for sales is at standard rate supply where VAT is charged about 20%. It depends because there are also reduced rate supplies and some of them are zero rated as well or even exempt. If you are deal sourcing and selling products then you will charge about 20% VAT. For instance, if you set up a deal for 3000 pounds and keep the same profit then VAT should be added on top so the customer will pay 3600 pounds in the end. But if we see the other side or flip it then you can reclaim the VAT and get back all your input which include laptop, offices and anything because it is also on 20%. I also said that some people won’t go for VAT registration and he agreed with me and said that people should accept it because staying below the mark would not get them success and wealth. He is absolutely right because when I came into the property nobody taught me about tax and I was unaware but I will surely teach my kids about tax.
- Talking about tax, I added there are many people who want to save their money and don’t want to pay tax while there are other people who keep on paying low taxes so I think they need to understand about tax. So, I said to Joshua to share his advice in understanding tax. He said, it is of course necessary to learn about tax, if you really want to grow yourself and your business. After starting a business, everyone’s first priority is making money and profits which is good but you need to maximize it after making it because you have to pay taxes as well. See from all perspectives and make it happen.
- What’s the difference between tax avoidance and tax evasion? Joshua said it is a difference of thickness of a prison wall as tax avoidance is legal whereas tax evasion is illegal. You are going to prison if you are doing tax evasion, hiding your stuff and assets from the authorities and not paying tax. While minimizing the tax you pay is legal which is tax avoidance. He quoted that: ‘Always avoid tax, never evade it.’ Electric cars are tax free and even the insurance is tax deductible.
- The next question is very informative as I asked Mr.Tharby to share his post details that he made on his Facebook with a caption: ‘a tax deductible barbecue’. He was doing it with his staff and he was also working. Basically my question was to talk about tax things to make people understand. He said, he believes in positive thinking so he won’t say like other people that you claim this and that instead he tries every time to claim when even it’s not possible. Even HMRC legislation says we can’t claim it but then I say let’s claim it.
You can take this barbeque example as the employee gets an annual event allowance every year, it is like 150 pounds a year so you can utilize it in different events like 50 pounds in christmas, 50 pounds in other events, it depends how you map it. After using it, it is fully tax lookable but you won’t pay personally being an employee because you are getting benefit from the company. If you are a director of a limited company, you will get 300 pounds a year and if you’re married and he/she is your partner then it is doubled. You can use 50 pounds as an increment and what we suggest is buy a 50 pounds gift voucher every month and if you can’t return the voucher, use a company card for it then you can use that to buy anything you want. It is just you can claim as much cost as you want. Many people come to us who started off their business and after some years when their company is set up, they claim it and this is how it works.
- Continuing this conversation, I asked him if someone signed up for Samuel365 for 95 pounds a month which is thousands of pounds a year then how can they claim back? He explained that the tax purpose will be treated as the student sustains on the first day when their business starts trading because after joining Samuel365 and paying 95 pounds a month, they will surely move ahead to the next step of learning and start finding properties and maybe they will start a limited company also. So This is how they can do it, they will get tax relief and they have got seven years. This is amazing. I also didn’t know that. We usually give gifts to our tenants in any event like christmas so it shows that we care for them and it makes them happy but then I thought this is tax deductible? Joshua said yeah it is. I don;t exactly remember but I think it’s up to 100 pounds or somethin. It might be small but it is fine to give chocolates or flowers as it is like a tax deductible gift. If you are in a company you can claim for the stuff being the employee, it will go in your director’s account, you will receive a receipt and then you can claim it as a business expense.
- Joshua has been in the property and doing refurb so I asked him, how it works from a tax perspective? According to him, it is difficult to go through every layer when it comes to tax point of view as if it is a capital revenue that means it is improving your asset. If you bought a house that needs a lot of work then you have to bring it to a good condition so it is usually deemed capital and when you sell the property you get tax relief at that time only. Whereas revenue expenses is where you incur on a day to day basis in order to generate revenue. Get many expenses as you do through as revenue so, you will be able to get tax relief now because many people want to sell their properties. I asked him to share an example for revenue expenses. Let’s suppose the carpets are off the condition after five years and you replace it, so this is a revenue. And when the first time you put down the carpet that was the capital and after replacing, it is said to be as revenue.
- Okay the next question that I asked was how do you pay yourself through your limited company as Joshua is doing properties, trading and making money. Even many of my students have started their limited company and left their job. He told me three ways through which you can pay yourself. The first thing is to take the salary because you are separate from your company and it is not like you can take out the money from your business account. This way you will get the paid slips, you will pay income tax, national insurance on it and he recommended people to do it for this current tax year as a small amount of income. Let’s say if you have got another income for the tax year and it falls on your personal allowance so from the tax perspective it will be tax free. There may be little work on national insurance but the salary will be tax deductible. So, it means that from your first amount of money you are free from tax paying as it is your personal allowance, that’s why pay a small amount of salary to yourself to avoid paying huge taxes. The other thing is interest, charge your company interest because you and your limited company are separate entities.
- Talking about property investment related to tax efficiency, the question was buying through a company can be tax efficient and you can avoid Section 24 depending on the scenario and many of my students have service accommodation which is like a tax paradise because there are so many advantages so what does it looks like? He was very clear about this question as he said people don’t get it but service accommodation is much better than their name on LLP, because it brings a good amount of capital allowances. It applies to all the integral features as you will get the tax relief on this. Mostly it is on property value let’s say between 20 and 30. It actually gives tax allowable expenses and also Section 24 does not apply to financial delay of service accommodation. This is actually amazing that from your service accommodation you can make more money and pay less tax.
- What’s next is, I discussed with Joshua that I own many properties on my name so should these properties be moved or transferred into a limited company or not? I gave my opinion too that I think it should not be moved. I asked him what do you suggest? He said it depends on the number of properties I have and he said, also there are ways in which you can move properties into a limited company. He shared one quote that if you work for 20 hours a week in your property business, you will qualify for incorporation relief which allows the properties to move into limited company and tax free. And if it is not available from a tax perspective then it does not make any sense. Basically he said it is possible for the people who have a large property portfolio to move their properties into a limited company. So it depends on the size of the portfolio because you have to look how much you are going to save and how much it will cost and everything. He advised people that if you have got one or two properties on your name then there is no need to transfer into a limited company.
Get Connected with Joshua
After the whole interesting conversation, I asked my guest to tell people who want to connect with you for any tax-relatable advice, ideas or suggestions. He said to type his name Joshua Tharby on Youtube and any social platform i.e. Facebook, Instagram, he also has a Facebook group. But for a bulk of information he asked to head towards his Youtube channel.
It was a pleasure to interview Joshua Tharby. The conversation was quite informative and interesting. I am sure all of you enjoyed it. Joshua was also delighted to be a part of my show. I find this video the most valuable one on my channel. Do share it with your friends who are on property. Alright, this is all for today, keep watching me and don’t forget to smash the subscribe button of my Youtube channel. Take care, bye!
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