Avoid These 3 Expensive Mistakes Made By Property Investors.
There is little doubt that Property investing is an excellent way to grow wealth over the long term. There are many traps that investors can fall down, particularly when advised incorrectly by accountants who do not specialise in property, which can eat into their returns. This article will look at 3 expensive mistakes made by property investors to ensure that you as the reader are able to avoid them.
Expensive mistake 1, treating renovation costs as capital. A common mistake that investors make is assuming costs are capital when they could be claimed as revenue. The reality is that usually the majority of works conducted during a refurbishment will be revenue in nurture, meaning that they should be expensed. Investors will make the mistake of starting with the view that work is leading to an improvement and therefore capital. They will then try to pick out which costs are revenue from their builders invoice. This is often not helped by poor advice from their accountant who doesn’t specialise in property. This can cost investors thousands, even tens of thousands of pounds in lost tax relief. If you are unsure of the difference between capital and revenue costs then read here.
Expensive mistake 2, overdrawn directors loan accounts. Directors of limited companies can receive a loan advance from the company, provided that it is not in financial difficulty. This is a useful feature for investors who might be able to access temporary cash from their business to fund their lifestyle. There will be financial consequences for both the company and director if the loan is unpaid 9 months after the end of the company's accounting period. The company may be taxed at a whopping 32.5% via a section 455 tax charge. Also the director may be taxed personally if the loan is greater than 10,000, as the loan can be viewed as a benefit in kind. Please ensure you take advice if you are looking to extract funds from your company in this way and ensure if you are overdrawn on your directors loan account that you repay it on time.
Expensive mistake 3, not keeping tabs on property losses. Property investing is capital intensive and can result in the short term in companies and individuals building up losses. These losses need to be accounted for correctly and can be a powerful tool as the investor is able to offset them against future rental profits. Failing to understand how loss relief applies to property businesses can result in investors losing out on valuable tax relief, worth many thousands of pounds.
To help ensure your property business is a success, please ensure that you avoid making these 3 expensive mistakes made by property investors. The lost £££ Is best kept in your pocket for investing in your next property.
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