02 Mar Property income – tips for reducing your tax liability
These are a number of tax saving tips:
1. Claim for all your expenses.
Make sure that you claim for all your expenses when submitting your tax return.
These should normally include:
Costs incurred when travelling back-and-to the rental property
Telephone calls made (or text messages sent) in connection with the rental property
Cost of safety certificates
Cost of bank charges (i.e. overdraft)
Advisory fees e.g. legal and accountancy
Subscription to property investment related magazines, products and services
2. Splitting your rent
A little know tip is to consider putting your buy-to-let property into joint ownership, but then split the rent in the most tax efficient way.
3. Void period expenses
If for any reason your buy-to-let property is empty for any period of time; any expenses such as utilities or council tax incurred when the rental property is empty can be claimed as a letting expense.
4. Every landlord has a ‘home office’.
Even if you have just a single rental property; don’t forget that a landlord can claim expenses for running their rental business and the associated costs of running a home office. This is a minimum of £156 without having to provide written evidence of their expense deductions.
5. Finance costs
Landlords that have borrowed money to purchase their buy-to-let property should ensure that they claim all the loan interest paid relating to the financing of their buy-to-let investments. This include where a landlord may have borrowed money form friends or family or taken on credit card or personal loan debt in connection with their rental business. Remember it is only the interest on the loan and not any capital repayments that can be claimed.
6. Carrying forward losses
Many landlords who have made significant ‘rental losses’ in previous years may not have even realised having never previously made a tax return. These landlords may now be making significant rental profits which they need to declare. They should therefore go back and calculate their rental losses from previous years. This is because these rental losses can be carried forward and set off against rental profits in subsequent tax years.
7. Capital gains avoidance
Landlords that are facing a large capital gains bill if they sell they buy-to-let property could avoid this if they are prepared to ‘move’ into their buy-to-let to claim Private Residence Relief ( PRR) potentially saving themselves tens of thousands of pounds in tax.
8. Wear and tear allowance
Landlord that let their property furnished can potentially claim up to 10% of the rent as an expense through the wear and tear allowance. This is allowed as the depreciation cost on the furnishing of their rental property.
Key to maximising the amount of expenses a landlord can legitimately claim is the concept of apportionment and the ‘whole and exclusively’ test applied by the HMRC to letting expenses. Make sure you are not missing out!
10. Getting your return in on time
Finally, don’t be late. If you do want to be a minimum of £100 worse off then make sure that you get your tax return in before the 31 January. It will now have to be done online as the paper submission deadline has passed. You will not however be able to submit your return electronically if there are any capital gains element to your tax return. This option is not available for landlords submitting their self assessment tax return online. Landlords however are still able to do it through an accountant with the right type of tax software.
Any queries on the above please contact – Andrew Jackson, firstname.lastname@example.org or 01254 583515