EXPERT TIPS: MAXIMISING YOUR RENTAL PROPERTY TAX BENEFITS

Thursday May 4, 2023

Maximizing profits as a landlord requires proper management of tax obligations. From claiming expenses to getting ownership structures right, this article provides seven essential tax tips for landlords.

 

1 – Don’t forget to claim your expenses As a landlord, you’ll be incurring expenses each year that you may be able to set off against your rental income to reduce your taxable profits. Examples of such expenses include plumbing repairs, buildings insurance, and landlord’s insurance.

 

2 – Loan interest relief restriction for Income Tax You can claim Income Tax relief on the interest you pay the bank on your mortgage to fund the purchase of the property. However, the rules regarding interest relief have changed since 2017. From April 2020, the interest is no longer deducted from your income to calculate your taxable profits. Instead, you may be eligible to receive an income tax credit of 20% of the interest paid. You can claim relief on your self-assessment tax return each year.

 

3 – Get your tax return done and budget for the tax It’s essential to get your tax return done as soon as possible since the deadline for your tax return for 2021/22 is 31 January 2023. Once you’ve done your tax return, it’ll be easier for you to budget for your tax payments for 31 January and 31 July 2023.

 

4 – Keeping records By law, you’re required to keep records for five years after the 31 January submission deadline of your tax return. That means, for the tax return due on 31 January 2023, you need to keep your records until at least the end of January 2028, as long as your return is filed on time. You should keep records relating to the purchase and any improvement expenses for even longer as the records will help support a claim for relief when calculating your capital gain tax bill on sale.

 

5 – Purchasing more than one rental property at a time – SDLT relief Stamp Duty Land Tax (SDLT) can be a large cost when acquiring a rental portfolio, especially since the introduction of the 3% surcharge for additional properties. If you’re purchasing multiple properties together, perhaps from a developer or another landlord, you may qualify for Multiple Dwellings Relief, which can help reduce the SDLT due.

 

6 – Get the ownership structure right When purchasing property, don’t just buy it in your own name. Consider whether you should put it in your joint names, perhaps with a spouse, civil partner, your adult children, or business partner. If you do that, the profit is spread for income tax purposes. It may be that they have tax bands available to lower the overall income tax bill. Some landlords with multiple properties consider using a company since the corporation tax rate of between 19% and 25% is often lower than the income tax rate.

 

7 – Thinking of selling – Capital Gains Tax You now only have 60 days to report the gain to HMRC and pay the tax. If you’re selling, make sure to get organized so that you don’t miss the deadline and incur a penalty.

 

By following these top tax tips, landlords can ensure that they are meeting their tax obligations while also maximizing their tax savings.