Property tax is complicated and it can be difficult to work out whether you’re paying the right amount. A good accountant or specialist tax adviser should be able to make sure your Buy to Let business is running as tax-efficiently as possible and their advice can often save you many times their fee.
So, before you make any investment, we’d always recommend you seek independent professional tax advice that’s tailored to your own particular circumstances.
Meanwhile, here are five top tips for making sure you don’t pay more in tax than you need to:
1. Do you own the property tax-efficiently?
Ongoing rental profits and capital growth of the property are both subject to tax. How much you pay will depend on several things, one of which is how the property is owned. You could:
- Own it personally
- Share the ownership with a spouse or partner/friend
- Have it owed by a company
- Put it into a trust
What’s best for you will depend on your personal circumstances, so take professional advice.
2. Are you taking rental profits in the most tax-efficient way?
When you declare rental income on your tax return, it’s added to any other income you’ve earned. So, if you’re currently a lower-rate tax payer, be aware that the additional rental income could take you into the higher-rate band. If it does, find out whether there’s a better way for you to take rental profits in the future that would mean you pay less tax.
3. Big costs: are they 'revenue' or 'capital'?
This is where a property tax expert can really help you. When significant works are carried out on a Buy to Let property, they fall into one of these two categories:
- Revenue: this is when you repair or replace like with like, such as fitting a new boiler or replacing old windows with basic double glazing, which is considered standard today. These costs can be claimed against rental income to reduce your annual income tax bill.
- Capital: these are works that increase the value of the property, such as converting a garage into a room or significantly upgrading the kitchen. Capital costs are claimed when you sell the property, to reduce your capital gains tax bill.
It’s worth taking advice when you’re upgrading or renovating a rental property to make sure you’re carrying out works in the most beneficial way from an income tax perspective.
4. Are you claiming all the expenses you are entitled to?
As a general rule, you should be able to claim any cost that’s incurred in the business of letting a property, such as:
- Travel to and from the property
- Legal and accountancy advisory fees
- Cleaning charges
- Safety certification
You can also claim for any bills you end up paying when the property’s empty, e.g. council tax and utilities.
The best thing to do is keep all receipts for anything to do with your Buy to Let and pass them on to your accountant or bookkeeper. They should make sure everything that can be legitimately claimed, is!
5. Are you carrying forward any rental losses?
If you make an overall loss on your rental property in any tax year, it should be carried forward and offset against the following year’s rental profits to reduce your tax liability. It’s common for landlords to make losses in the first couple of years because of the amount they’ve had to invest in adapting, refurbishing and getting the property ready to rent. So:
- Make sure you give your accountant all the receipts for money you’ve spent on the property, and
- double-check that losses have been carried forward
Reminder: Although you have until the end of next January to file an online tax return (October 31st 2021 is the deadline for paper returns) it’s worth starting to get things in order now – especially if you’re a new landlord or you’ve bought and renovated a Buy to Let in the last 12 months.
Want to find out if you are achieving the best rent? Book a rental valuation and find out
The Your Move Content Marketing Team
