I'm going to share with you some very specialist information, which could mean you get a payment back from HMRC. Now, the tax man doesn't do that very often, so I think you're going to love this blog. Just to be clear, this is not financial information. This is for educational purposes only, but read carefully because this could put a whole load of extra money back into your pocket.
I've personally saved hundreds of thousands of pounds of tax using this specialist knowledge, as have many of my Property Mastermind delegates. Of course, you do need to have paid some tax or be paying tax in the future in order to get a refund. Some of my clients have used this money to more than cover the investment to join my 12-month Mastermind programme.
This is something that I normally only share with my Mastermind students, but I've decided to make you aware of this very valuable information, because I want to pay it forward. I believe that some people who read my blogs, and take action to then get a big refund back from HMRC, might decide to use some of that money to invest in themselves and join my Mastermind programme.
The Value of Specialist Property Knowledge
After all, if you don't know what I'm about to share with you on this blog, something that could put a lot of money back into your pockets, then my question is, what else are you not aware of that you should know about? One of my favourite sayings is, "You don't know what you don't know." Robert Kiyosaki, the author of Rich Dad, Poor Dad, says, "What you know can make you money, and what you don't know can cost you money."
To become wealthy, it's not just about making money. You need to know about how to keep the money you're making, so i.e. how to minimise your taxes and use the various tax reliefs. Then also, you need to know how to grow your money as well. This is not something that the tax man is going to tell you about. In fact, your accountant may not have told you about this either, because this is very specialist knowledge, and actually they may not know about it.
When dealing with motivated sellers, don't look to take advantage of their situation. Instead, seek to understand their problem then find the ethical win/win solution. This solution should work for everyone involved.
If you have HMOs, Houses of Multiple Occupation, Holiday Lets, Serviced Accommodation, or any type of commercial property, such as shops, offices, doctors' surgeries, warehouses, care homes, then you could well get some money back from the tax man.
This is all about capital allowances. Just to be very clear here, this has nothing to do with capital-gains tax allowances. That's something completely different. This is about capital allowances, whereby if you have a qualifying property, you can get back a percentage of the purchase price and a percentage of the refurb costs to offset against your tax.
The capital allowance is based on the investment in plant and machinery, but what does that actually mean? Well, for example, let's say you take a normal house and you convert that into an HMO. Anything you put in on the second fix for the property, such as new wiring, new plumbing, heating systems, fixed soft furnishings like carpets and flooring, that can be claimed.
Another way to look at this is, if you could take a house, and turn it upside down and give it a bit of a shake, anything that does not fall out of the property is something that you can claim for. The capital allowances equate to usually between 10% up to 40% of the initial investment, and the money spent on the property.
Now, for a HMO, it's normally about 18%. That means if you've got a HMO that's cost you about 400,000 in terms of the purchase and the works done on it, then you could get as much as £70,000 as a capital allowance. If you were to offset that capital allowance against your income as a higher-rate taxpayer, it means you get almost £30,000 back from the tax man.
"When dealing with motivated sellers, don't look to take advantage of their situation. Instead, seek to understand their problem then find the ethical win/win solution."
What You Should Know
There's a couple of things you should know about this. First of all, only the legal owner of the property can claim the capital allowance. So if you own the property in your own name, you can offset this capital allowance directly against your personal income tax, and also your property income tax. If you own the property in a company, then it's the company that can offset this capital allowance against its corporation tax.
Secondly, capital allowances can only be claimed once in the lifetime of a property. So if an owner has already claimed capital allowances, then you will not be able to make a claim. However, the good news is something like 95% of capital allowances have not been claimed, because most people do not know about this. Now, also there are some property owners who can't claim. So if you have a normal residential property, you can't claim capital allowances. If the property is owned by a council or a pension, they also can't claim capital allowances.
If someone has a property where there could be a capital allowance claim and they've not claimed yet, then you might be able to make a claim. Now, in the Finance Act of 2012, they said that if you buy a property where you could make a claim, but the claim hasn't been made, you only have up to two years to make the claim, or you could lose it.
So if you bought a property before 2012, it's not an issue. If you bought a property in the last two years, you need to get a move on to make sure you can actually make the claim before you run out of time. Now, don't worry if you've bought a normal house from a previous owner, because they couldn't claim, but if you've then converted it into an HMO, then you can claim. It doesn't matter when you've done that, you can still claim for it.
Making A Claim On Your Properties
I saved an absolute fortune in tax when I first learned about this in 2010, and I did this for all of my HMO properties. However, in 2014 HMRC decided they didn't want to allow people to claim capital allowances on HMOs. Other commercial properties, fine, but you can't do it on HMOs. So anyone who wanted to claim would have to take them to court to challenge them.
Well, that has happened. Actually, in 2019 a claim was successfully challenging HMRC. So the precedent has now been set. So you can, again, claim against HMOs. Remember, this is not just for HMOs, but if you have serviced accommodation, if you have holiday lets, or any type of commercial property, you could potentially claim a capital allowance. If you don't have these type of properties yet, but you're planning to get into them, then this might be a great way of you getting some of your initial investment back, which means you're going to get a higher Return on Investment.
So, how do you actually claim? Well, first of all, you need to get a specialist surveyor to assess the property and produce a report. That report then goes to your accountant, who can put the relevant information into your tax return as sideways loss relief. Now, if you are an employee and you're pay-as-you-earn, PAYE, then you can get a refund back from the tax man once you've submitted your tax return. If you're self-employed and pay your own tax at the end of your tax year, then you don't need to pay that tax, and you can use that money right now.
"You can go to www.capitalallowanceclaim.co.uk. You provide some basic information, and they will email you with an estimate of how much you can actually claim."
If you make a claim in the actual year that you buy the property, you can use your annual investment allowance. So that's if you buy the property, and you make the claim in the year you buy, you use the annual investment allowance. Now, normally that is £200,000, but in January 2020, the government increased this annual investment allowance to £1 million because of the effect of Brexit, and they wanted to stimulate investments. However, this is due to end at the end of December 2021, and go back down to 200,000. There is some lobbying to get it extended, but it hasn't happened just yet.
Now, if you've purchased a property in previous tax years, which are now closed and you can't change those, you can use what's called the writing-down allowance, which means you can offset 18% of your capital allowance each year against your income until you've used all of it up. Of course, if you're looking back to the last tax year, which has not closed, if you bought some in the last tax year, you can actually go back and make a change, and probably get a payment back from HMRC straight away.
So this, you might be thinking, sounds amazing. "How on earth do I find out if I can get a claim?" Well, there's a website you can go to and get a completely free, no-obligation quote, to see if you could get a claim and how much it might be. You can go to www.capitalallowanceclaim.co.uk. You provide some basic information, and they will email you with an estimate of how much you can actually claim.
Now that's completely free of charge. If you decide to go forward, they can arrange a specialist survey, and then you'll pay them just 5% of the capital allowance that they identify. Now, the details they're going to need are some personal contact details of yours, obviously. Details such as how much you purchased the property for, when you purchased it, how much you spent on the refurb if anything. How you use the property, such as serviced accommodation or whatever it might be, HMO. Then, who is the legal owner of that property. That's it.
The tax man could have a check with your name on it, you just need to find out if you've got a claim. So if you've got HMOs, holiday lets, serviced accommodation, or any type of commercial property, you could well get some money back from the tax man. So I recommend, go and check it out today. Visit www.capitalallowanceclaim.co.uk.
I do hope this information has been incredibly valuable for you. If you would like to access some useful Property Training, just click on the link below, it is completely free of charge. So until next time, remember to always Invest with knowledge, Invest with skill.
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