In this article our guest writer, Amer Siddiq, from Tax Insider will delve into the importance and benefits of tax planning. The whole purpose of tax planning is to save you tax and to put more profits in your pocket. That is why the rich are always looking at ways of beating the taxman, because they benefit from tax planning! Paying less tax When I started investing in property the challenge to me was not to just grow a property portfolio but to grow it in the most tax efficient way possible. It soon dawned on me that implementing just the simplest of tax saving strategies was going to help me to make considerably more profits. Don’t fall into the trap where you only think about tax when you are considering selling or even worse after you have sold the property. By taking tax advice at the right times and on a regular basis you will legitimately avoid or reduce taxes both in the short and the long term. This means that you will have greater profits to spend as you wish. Clear ‘entrance’ and ‘exit’ strategies When you sit down and analyse properties that you are considering for investment, you will no doubt look at how much rental income the property will generate and what you expect to achieve in capital appreciation. Knowing the estimated tax liabilities right from the outset will save you from any nasty surprises in the future. Your personal circumstances can change at a whim. The last thing that you want to do is fall into a situation where you are forced to sell a property but are unable to pay the taxman because you never considered your tax situation. Staying focused When you are deciding on the property investment strategies that you are going to adopt it is a good idea to talk them through with a tax adviser. If your investment strategy changes then it is likely to have an impact on your tax strategy so it should be reviewed with your tax adviser. Your tax strategy will go hand in hand with your investment strategy and will help you to keep focused on your property investment and financial goals. Improving cash flow One of the challenges that you will face as a property investor is cash flow. In other words, you need to make sure that you have enough money coming in from your property business to pay for all property related bills, maintenance and repairs, and of course tax on the rental profits. Remember, timing of expenditures can be the difference between a ‘high’ and a ‘nil’ tax bill. Therefore, keeping in regular contact with your tax adviser, especially when coming towards the end of the tax year can have a significant impact on your property cash flow. Avoiding common tax traps There are many tax traps that you can fall into if you have not taken any tax advice at all, not to mention the numerous great tax planning opportunities you will miss out on too. It is not uncommon to hear stories about investors who have made a £100,000 profit on a single property and then sold it without taking any tax advice whatsoever. If you fall into this situation then you could be hit with a hefty tax bill. It will hurt you even more if after selling you realise that you could have easily turned the tax liability to zero had you taken some simple tax advice. Good tax advisers will know of the most common traps that you are likely to fall into, so a few minutes spent wisely could save you thousands in taxes. For more information, look to our tax articles on our website, www.martinco.com/news/category/tax-news-tips.
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