Simple But Effective Methods For Minimising Tax Liabilities As A Landlord
Ask anybody involved in letting out residential property and odds on you'll hear a complaint about the income tax due on the rental income, and the higher the income the higher the tax is inevitable.
No matter how many residential lettings you hold, they are nonetheless classed as a business, specifically a property business, therefore there is no shying away from paying tax. Although there are numerous ways in which, as a landlord, you can claim back some of these tax expenses. Here are just a few examples of ways to maximise the tax expenses for your property.
What can you claim for? In order to calculate how much tax you need to pay, you must complete your own self assessment tax form, on which you work out your net rental income by subtracting your allowable tax expenses from your gross rental income (total amount of rent you receive). The idea is that this will give you a better idea of how much profit you are making whilst also determining exactly what amount should be taxed.
Our Top 5 Expenses You Can Offset Against Your Tax Bill 1. Mortgage Payment and Your Insurance Costs: Interest on the loans it took to buy the property can be claimed as an expense. For instance, you probably have a commercial mortgage, or other form of commercial property finance, if so you can have the interest only repayments bracketed as an expense. If you make any repayments on the capital it will not and cannot be classed as an expense. On top of this, insurance premiums for building and contents insurance can also be reclaimed as a tax expense.
2. Utility bills: The majority of the people leasing the property in today's society cover the utility bills of the property themselves, as defined in their tenancy agreement. However, should the landlord have responsibility of covering the property utilities, such as gas, electric or water, then they can be reclaimed as allowable tax expenses.
3. The money you pay out for professional services: There are various professional expenses that can be offset against rental income too. Accountancy fees (ironically) and legal fees all fall within this bracket. To find out exactly what professional fees you pay, check with HMRC online.
4. Repairs and general maintenance of the property: If you're renting out to students regularly, you'll know maintenance and repair costs will be a regular expense, it's also classed as a tax expense as all properties need to be kept up to standard and maintained. If it can be easily classed as a repair, it can be put on your tax return; just don't try getting away with 'improvements' such as a new patio or conservatory.
5. The fees your agents charge: If you have settled on hiring an letting agent to manage the property and deal with the tenants, the management fee you pay to them can be passed on to HMRC. Letting agents will normally tag on a monthly fee to the rent as well as charge a fee for finding new tenants when required.
Along with all these tax allowable expenses there are numerous others that a landlord can claim for. For example any marketing expenses required in order to gain tenant interest, cleaning costs and ground rent. Similarly, should service charges be required on your property, say if you own a flat/s, then you can offset these against your rental income too.
Completing your tax return: Filling out your tax return is essential to ensure that you do not end up paying more (or less!) tax than is necessary for your circumstances. There are two different ways to complete your tax form, which one is right for you depends upon how much you earn on rental income. For example, if your property income comes to less than 68,000, then you do not have to provide a breakdown of the total expenses and income on the return. Although if your property income totals at over 68,000 you will have to provide a detailed breakdown to HMRC who will demand to know exactly where all your expenses are going and where all your income is coming from.
Howard writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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