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The Seven Deadly Tax Saving Strategies - Seven of Seven
Welcome to the Seventh and Final Property Tax Saving Strategies brought to you by Homes Seekers on behalf of Amer Siddiq.
Strategy 7 - 10% Wear and Tear or Renewals?
Choosing the RIGHT method can save you tax!
In this final tax strategy I want to talk about two different methods you can use to cut your annual income tax bill.
These two methods are known as
- the 10% wear and tear rule;
- the renewals basis method.
They are relatively simple strategies to understand, and they both relate to the furnishings provided in a property.
However, so many investors get confused by not knowing which method they can use and how it will affect their annual property income tax bill.
Choosing the right one can have a significant bearing on your tax liability.
So, let's get on with this strategy and start to learn more about both methods so that YOU can decide which one is best suited to your situation.
Just like the previous property tax strategy, I recommend that you print off and file this strategy away so that you have easy access to it whenever you are off-line!
'What is the 10% wear and tear allowance?'
It is an allowance that the Inland Revenue has introduced to make the lives of property investors easier when they are completing their annual tax returns.
In a nutshell, it allows you to offset 10% of your annual rental income against your property income tax bill.
This sounds straightforward, and in principle, it is. However, there are some important points to note.
a) If your rental income includes charges that would normally be borne by a tenant, then these have to be deducted before you calculate your allowance.
You will understand this better in a case study that follows later.
b) It does not matter how much YOU spend on furnishing your property.
You can only offset 10% of your RENTAL INCOME.
c) If you use this allowance, then it MUST be used for the duration of the property ownership (unless it becomes a partly furnished or unfurnished property).
'When can the 10% wear and tear allowance be used?'
This allowance can ONLY be used for a FULLY FURNISHED property.
It cannot be used for an unfurnished or even a partly furnished property.
A fully furnished property is one that a tenant can start living out of as soon as they move in.
In such a property, there will be no need for the tenant to go and buy any items such as furniture, electrical appliances, bedding, or even crockery.
The only accessories that the tenant needs to provide are his/her own personal belongings!
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