HOW MAKING TAX DIGITAL CHANGES WILL AFFECT REAL ESTATE INVESTORS

Investors in real estate began increasing their exposure to private equity in mid-2022, despite growing fears that an impending tightening of monetary policy would damage smaller companies in the sector. However, as the Financial Times reports, real estate was also among the beneficiaries of increased investment, with many billionaire investors opting to sacrifice liquidity for returns.

This is perhaps an example of how investors manage trends and contingencies in monetary policy and the broader markets. However, while some developments don’t fall into the realm of contingency, they must be taken into consideration when investment decisions are being made. One such immovable object in the UK, mirrored throughout the rest of the developed world, is the digitalisation of tax returns.

The UK Government’s Making Tax Digital (MTD) legislation aims to reduce the administrative burden involved in submitting tax returns, making it much simpler (and faster) to submit taxes by migrating the whole exercise into an online process. Whether that’s taxation on personal or business income, or submitting a vat return online, ‘online’ is the operative word. It’s the way that it’s being done going forward.

Thankfully, there are cloud-based software solutions available to make this transition as painless and easy to execute as possible through automation. Companies such as Sage, a leading supplier of accounting, financial, HR and payroll tech services for small and medium-sized businesses, can be a godsend when governmental innovations like this get rolled out.

Even so, there are some impending changes to MTD in the UK – from the tax year commencing 6th April 2024, to be precise – and it behoves real estate investors, a category that HMRC deems landlords to belong within, to be aware of them in advance. As everyone will be aware, the programme already requires every VAT-registered business above the VAT threshold to use software in order to accurately (and regularly) account for their VAT.

Any investor receiving in excess of £10,000 per year from their property or properties will be required to make accurate, quarterly updates digitally via MTD in addition to an annual return. Their accountant must register for MTD before 6th April 2024.

Up-to-date and accurate records are, it should be emphasised, mandatory in order to remain in compliance with HMRC’s MTD requirements. 

This transition will bring benefits to investors in its wake: anyone seeking to pare down their tax bill (by, say, spending more money) will have access to an ongoing overview of their emerging profit and tax situation.

Cloud-based accounting services will be a boon for investors from 2024, offering substantial savings on admin time and permitting accountants to make any necessary adjustments and reliefs.

Forewarned, as the saying goes, is forearmed: it’s as well to start preparing now for the changes, especially as spreadsheets for MTD tax accounting are most unlikely to be especially user-friendly. It’s always better to have plans in place prior to the rollout rather than postponing preparation and diving head-first into it, hoping for the best.

Remember, hope isn’t a plan, but accurately crafted plans, including subscribing to a robust and efficient software service, are a good way of maintaining an optimistic outlook.