{"id":5844,"date":"2019-05-02T12:31:49","date_gmt":"2019-05-02T12:31:49","guid":{"rendered":"https:\/\/www.foxymonkey.com\/?p=5844"},"modified":"2019-05-07T20:04:02","modified_gmt":"2019-05-07T20:04:02","slug":"how-taxes-work-property-partner","status":"publish","type":"post","link":"https:\/\/www.foxymonkey.com\/how-taxes-work-property-partner\/","title":{"rendered":"How Taxes Work at Property Partner"},"content":{"rendered":"\n

This article explains how taxes work at Property Partner. Knowing what we have to pay taxes on and how to report them are key to investing. Understanding taxes can help us to better plan our investments whilst also complying with the tax law.<\/p>\n\n\n\n\n\n\n

This post also shows how you can take advantage of the tax breaks we enjoy here in the UK. When I say that the UK is a tax haven people laugh at me. But between pension wrappers (SIPP), ISAs, junior ISAs, EIS & SEIS tax reliefs, capital gains and dividends allowances, you can legally avoid paying most of the taxes.<\/p>\n\n\n\n

Property partner<\/a> is my preferred way to invest in buy-to-lets and has done a great job so far. See my first Property partner post<\/a> that explains how Property Partner works if you’re interested.<\/p>\n\n\n\n

Whether you make a profit by selling property, collecting rent or development loans payments, you need to pay a tax on the profits. But don’t worry, we will soon see that it’s not that bad. The government actually tries to encourage saving and investing because it’s good behaviour. They won’t have to do the heavy lifting later on for us.<\/p>\n\n\n\n

Property Partner makes it easy for us to report our taxes. They offer a tax breakdown document we can download for any time period as we will see later in the reporting section. Now let’s understand what kind of taxes we incur in the first place.<\/p>\n\n\n\n

How Investments are structured in Property Partner<\/h2>\n\n\n\n

Property partner<\/a> has structured its investments using SPV companies. SPV means “Special purpose vehicle”. In simple words, SPV means a company used for only one purpose. In our case, one SPV owns 100% of one property, and we, investors, own shares in the SPV. So if I own 10% SPV shares, it means I own 10% of the property.<\/p>\n\n\n\n

SPVs are one of the most common ways to own a buy-to-let using your limited company. It\u2019s clean and you get a mortgage easier than a trading company. That\u2019s because a new company has no debt or other obligations for the lender to worry about. It\u2019s one company for one property. Simple.<\/p>\n\n\n\n

The tenants pay rent to our SPV and Property Partner<\/a> distributes the rent in the form of dividends<\/em> to investors. But rent only accounts for the first part of our total returns. If you invest in property, I\u2019m sure you know that the most important gains can be made when the property goes up in value.<\/strong> In other words, when you sell. <\/p>\n\n\n\n

Selling a property at Property Partner effectively means selling your shares in the SPV. Selling your shares at a higher price will generate Capital Gains<\/em> which is what we pay tax on.<\/p>\n\n\n\n

So if we bought a PP property for \u00a310,000 and sold it later for \u00a315,000, we\u2019d have to pay a capital gains tax on the \u00a35,000 profit. How much depends on your personal situation (and a big chunk of it could be zero!). Don\u2019t worry, it’s not rocket science and the tax case studies below will help you understand it better. <\/p>\n\n\n\n

The Three Tax Pillars Explained<\/h3>\n\n\n\n

All Property Partner income falls into 3 categories. It\u2019s either in the form of dividends, interest or capital gains.<\/p>\n\n\n\n

\"Income