With the ever-increasing tax burden and tax obligations on landlords, here are some helpful top tax tips to consider; written by Mark Stemp, who works for the national audit, tax, advisory and risk firm Crowe. Haslams are not tax experts, so if you would like further advice please contact Mark Stemp, Tax Partner at Crowe: mark.stemp@crowe.co.uk.
Don’t forget to claim your expenses
As a landlord you will be incurring expenses each year which you may be able to set off against your rental income to reduce your profits which are subject to tax. Examples include expenses such as plumbing repairs, buildings insurance and landlord’s insurance.
Loan interest relief restriction for Income Tax
Income Tax relief can be claimed on the interest you pay the bank on your mortgage to fund the purchase of the property. The rules started to change back in 2017 however from April 2020 the rules mean that the interest is not deducted from your income to calculate your taxable profits. Instead you may be due to receive an income tax credit of 20% of the interest paid. Relief is claimed on your self-assessment tax return each year.
Get your tax return done and budget for the tax
Human nature means that we tend to delay this task, but with the deadline for your tax return for 2021/22 on 31 January 2023 fast approaching, you need to get your tax return done very soon. Once done, it will help you to budget your tax payments for 31 January and 31 July 2023.
Keeping records
You are required by law to keep records for five years after the 31 January submission deadline of your tax return. That means for the tax return due in on 31 January 2023, so long as it was filed on time, you need to keep your records until at least the end of January 2028. Many forget that you should keep records relating to the purchase and any improvement expenses for even longer as the records will help to support a claim for relief when calculating your capital gain tax bill on sale.
Purchasing more than one rental property at a time – SDLT relief
Stamp Duty Land Tax (SDLT) can be a large cost on acquisition of a rental portfolio, especially since the introduction of the 3% surcharge for additional properties. If you are purchasing multiple properties together, perhaps from a developer or another landlord, there is a relief known as Multiple Dwellings Relief which can help to reduce the SDLT due.
Get the ownership structure right
When purchasing property, don’t just purchase it in your own name. Consider whether you should be putting it in your joint names, perhaps with a second person such as a spouse, civil partner, your children (where they are adults) 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 as the corporation tax rate of between 19% and 25% is often lower than the income tax rate.
Thinking of selling – Capital Gains Tax
You now only have 60 days to report the gain to HMRC and pay the tax. That is quite a tight deadline. If you are selling you should get organised so that you don’t miss the deadline and get a penalty.
Next Steps:
As mentioned, Haslams are not tax experts, so if you would like to discuss your own tax position, Mark works with national audit, tax, advisory and risk firm Crowe, who with extensive experience of working with property landlords are willing to help you. Contact Mark Stemp, Tax Partner at Crowe: mark.stemp@crowe.co.uk.