Tax-Efficiency with Bricklane.com (and Why It Matters)
Bricklane.com’s Property ISA makes people coming together to invest in property as tax-efficient as owning your own home.
With Generation Rent struggling to get on the ladder, we think it’s important they get access to similar tax benefits as those who are already homeowners, whatever their financial position.
Whether or not you’re saving for a first home, tax-efficiency means more money in your pocket, so we wanted to explain how it works.
How you could be taxed
When you invest your savings, you can generally be taxed at two levels:
When you invest with other people, there usually has to be a structure in place to set out each investor’s rights and protections. This often takes the form of a company, which incurs corporation tax of 20% on gains in the value of investments and income received from them. This is tax deducted from the shared holdings of the investors before it’s received by each investor.
As well as tax inside the company used, investors may be taxed when they receive benefits from their investment. This personal tax may be applied to both capital gains arising from their investments, as well as income received.
What about homeowners?
When you own your own home, you don’t have to worry about corporation tax, because you own it directly.
Because the government recognises the special value of owning your own home, homeowners are exempt from personal tax on gains on their homes over time.
With house prices having grown so much in the past, this has been a significant benefit for those able to get on the ladder.
How tax with Bricklane.com works
- No Corporation Tax on Property through HMRC REIT Status
Bricklane.com’s Regional Capitals fund has received special status from HMRC called a Real Estate Investment Trust (REIT). This means the fund incurs no corporation tax on gains in property values, or rental income received.
In return for this status, the fund must maintain standards of governance and diversification to ensure investors are getting a fair deal. This REIT status means our customers don’t lose out by investing as a group, rather than buying a property themselves.
2. Personal Tax-Efficiency through ISA Status
Bricklane.com’s Property ISA makes use of the government’s ISA scheme, which means investors also pay less tax when they receive the benefits of their investments.
Like owning your own home, a Bricklane.com ISA means you pay no tax on increases in property values. Even better than owning your own home, there is no income tax to pay on the rental income received from tenants of properties owned by the fund.
As a comparison, someone owning a buy-to-let property directly would generally pay tax on both property value gains and rental income.
Customers don’t have to use an ISA with Bricklane.com (they can also invest in a taxable general account), but the benefits are significant if they do.
What’s the bottom line?
As well as making the tax benefits of homeownership available to all, there is a significant financial benefit to the tax-efficiency described above.
To illustrate, we’ll use an example of someone who has invested £10,000 in Bricklane.com’s Property ISA vs. another who used a vehicle without ISA and REIT status.
To keep things simple, let’s assume that over time the property owned has increased in value by £1,000 and there has been £500 of rent generated.
With Bricklane.com’s REIT status, no corporation tax is deducted, whereas a normal structure would pay corporation tax of £300 on value increases and rental income (20% of the £1,500 gains are deducted).
With ISA status, the Bricklane.com investor pays no tax on property value gains or income. An investor without ISA status could have to pay £350 on capital gains and income tax based on current rates of taxation*.
The bottom line is that the Bricklane.com ISA investor keeps all £1,500 of their returns, whereas someone investing with a company without REIT or ISA status may only receive £876 — over 40% of the value is lost through tax.
We’ve worked hard to provide Bricklane.com investors with the best possible product, and tax-efficiency is a key part of it. We’ll address other areas like security, and how we pick the best properties in future posts.
Visit Bricklane.com to learn more:
In the meantime, if you have any questions about returns, or anything else, you can email us at support@bricklane.com, talk to us through online chat, or give us a call on 0203 1111 432.
* Example used is a higher rate tax payer, with no remaining capital gains or dividend allowance. Rates of taxation could be higher or lower depending on the individual’s circumstances.
All tax rates, allowances and rules referred to are subject to future change, and the above does not constitute tax advice. Please note that the tax advantages of ISAs depend on your individual circumstances.
Capital at risk. As with all investments, the value of your Bricklane.com investments can decrease as well as increase. It could take the time it takes to sell a property, or longer, to get your money back at an acceptable price.
This is a financial promotion by Bricklane Investment Services Ltd, which is an appointed representative of Gallium Fund Solutions Limited, which is regulated by Financial Conduct Authority, FRN: 487176
