As experts in property tax we often get asked by clients who are landlords and property developers how to save tax - especially so as the cost of letting a property rises year on year.
With our experience and special insider knowledge that HMRC in 2014 - 2015 is especially looking at checking landlords who are not declaring the correct rental income and correct capital gains on second homes. This is something that is becoming more important as people realise it is harder and harder to hide their untaxed property incomes.
Landlords or their accountants are required to fill the the land and property section on their self assessment tax return showing all the rental business income they have made and as many want to make sure they pay the least amount of tax possible. We have have created a simple list to help guide you.
Here are Tax Affinity Accountants top tips to save property tax.
1. Claim for all your property related expenses.
Its important to make sure you claim for all your expenses when submitting your tax return. These should include:
• Travel costs incurred when travelling back-and-to the investment property
• Estate Agent or private advertisement costs
• Mobile or landline telephone calls made (or text messages sent) in connection with the rental property
• Payments for safety certificates eg Gas Safety
• Bank charges (i.e. overdraft, interest on mortgage)
• Professional fees e.g. Architect, Solicitor, Accountant etc
• Monthly payments to property investment related products and services eg Insurances etc
2. Dividing your rental income between partners.
A top tip is to consider putting your buy-to-let property into joint named ownership. Then the total income can be divided into each person's income and multiplying the personal allowance claimable on the income.
3. Claim all empty period expenses.
Often there are periods between lettings that the buy-to-let property is empty and the owner has to pay for council tax or utlity bills. These should be noted and claimed.
4. Claiming the home office allowance.
£4 per week (ie £208 per year) can be claimed for the use of your home to manage and run your rental property income. This amount can be claimed without evidence and more can be claimed if it can be justified.
5. Interest and finance costs.
Most properties are on mortgages and the interest part of any mortgage is claimable as an expense. So if you have an interest only mortgage then the whole amount is claimable per month paid.
Often landlords also forget to claim for money borrowed from friends or family or taken on a credit card or personal loan for the buy-to-let property and the interest on these can also be claimed. The principal can only be claimed when selling the property against capital gains tax.
6. Dont forget to carrying forward loss from previous year
Most of the time a new buy-to-let property will not breakeven in its first year and so many landlords have significant rental losses for that year. Then when they start to make income from the property most forget about this loss which can be offset against the current years income.
This could even mean no tax to pay in the current year if the losses are great enough. This requires detailed technical knowledge and so any lanldord in this situation should contact an experienced accountant such as Tax Affinity Accoutants.
7. Capital gains avoidance
If landlords who are planning to sell their property, need to plan months or even a year ahead to increase their options of minimising capital gains tax which will arise on the sale of the property.
This is usually best done getting expert advice from an accountant experienced in tax and property such as Tax Affinity Accountants. What top property developers and landlords know that mostly the fees paid to a good accountant are far less in comparison than the tax he/she will save you.
8. Wear and tear allowance
Letting your property as furnished as opposed to unfurnished can allow you to claim up to 10% of the gross income as a valid expense for the upkeep and repair of furtniture in the tax year.
9. Make Sure to avoid HMRC interest and penalties
Sound obvious but far to often, we see penalties and interest charges for late filing of tax returns and missed deadlines for documents to HMRC. The deadline for a paper return to HMRC is 31st Oct and online 31st Jan each year.
Please also not that landlords will not be able to submit their return electronically if there are any capital gains elements on the return. ie the sale of any property.
An experienced accountant needs to be contacted for this purpose which if knowledgable enough could ensure all capital expenditure is claimed to reduce the capital gains liability as low as possible.
By Andrew at Tax Affinity Accountants.
Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered to be property tax experts helping and supporting ladlords across the UK. They regularly help new landlords and property developers and provide valuable ongoing support.
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