9 tax-planning tips for landlords

property development

With more people than ever renting their home, rather than buying, it’s a great time to be a landlord or to opt for a buy-to-let property investment. There’s a good market for tenants and, with the right planning and financial management, you can create a positive revenue stream from your property, or properties.

But if you’re going to make the best possible profit from your rental business, it’s vital to consider the effect of tax on your income and potential profits.

To help you navigate the murky waters of taxation more easily, we’ve highlighted some of the key ways to manage your rental finances more effectively and reduce the possible impact on your bottom line.

9 ways to reduce your property tax costs 

To keep your rental properties delivering the income stream they should, it’s important for you to look ahead and put the right tax planning in place. 

Whether you’re renting out a house that came to you from an inheritance, or running a growing portfolio of rental properties, it’s crucial to have a proper oversight of your financial affairs, and to consider the impact of tax on your income. 

With the beginning of the new tax year in April, now is a good time to take stock, look to the year ahead and get the most effective tax planning in place. To this end, we’ve summarised some key ways to reduce your tax liabilities and boost those all-important rental profits.

  1. Move to cloud accounting – online accounting software, such as Xero, helps you manage your finances, keep on top of tax liabilities and keep all your documents and records in one central cloud-based location.
  2. Digitise your documentation – to file your tax return, you need copies of all receipts and expenses. The latest cloud technology makes it easy to scan and store all your paperwork so you don’t miss deductions and any tax-exempt expenses. Receipt Bank is a simple app that can scan your receipts and upload them automatically to your Xero accounts.
  3. Deduct the relevant mortgage costs – when you’re deducting mortgage costs, remember that mortgage fees and revaluation costs can be included. The more you can deduct from your profit number, the less tax will be due.
  4. Become a limited company – holding your rental properties through a limited company will make you more tax efficient. Instead of paying income tax as a sole trader (at a potential rate of 45%), become a director and pay the far lower rate of 20% on the profits you create as a landlord.
  5. Are you married? If you’re in a married couple and own your rental property outside of a limited company, you should consider placing ownership in the hands of the person that has the lowest marginal tax rate. That will save tax in the long run.
  6. Benefit from working at home – if you run your rental business from your own home, it’s possible to claim back some of the home office running costs as a business deduction. Talk to an accountant to find out what can be claimed and the best way to do this on your return.
  7. Avoid some capital gains tax – moving your buy-to-let property to joint ownership can help reduce your exposure to capital gains tax (CGT). By sharing both your capital gains tax allowances of £11,100 per year you can bring down the your CGT liabilities on the property.
  8. Use the rent-a-room relief – if you rent out a spare room in your property, you can claim the rent-a-room relief, which can save you up to £7500 in the year – this only applies for private ownership and not for limited companies.
  9. Claim against refurbishment expense – When refurbishing a rental property, make sure you meet the criteria to be able to treat the expense as revenue expense. By doing so, your expenses become deductible from your rental profits for your whole portfolio. If you don’t take care, and it’s treated as capital, then you won’t get a deduction until you sell the property.

Talk to us about cutting your tax

At Square Mile, we work with a diverse range of property businesses to help them manage their rental finances effectively and boost their year-end profits.

As cloud accounting specialists, we help you set up a Xero system and add all the apps and cloud solutions that will make your life easier as a landlord. And we’re always on hand to help you review your tax planning and ensure your rental business is as productive and profitable as possible.

Get in touch with us to see how we’ll help you reduce your tax bill.

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