Accountants for Landlords

Accountants for Landlords

Tax planning for UK landlords involves strategies and considerations aimed at optimizing your tax position and maximizing your rental income. Here are some key points to keep in mind:

Declare rental income: You must declare all rental income received from your properties to HM Revenue and Customs (HMRC). Failure to do so can result in penalties and legal consequences.

Deduct allowable expenses: You can deduct certain expenses associated with your rental properties to reduce your taxable rental income. These may include mortgage interest, property maintenance costs, letting agent fees, insurance premiums, and legal expenses. Be sure to keep detailed records of these expenses.

Mortgage interest relief changes: The tax relief on mortgage interest for residential landlords has undergone changes. As of April 6, 2020, the ability to deduct mortgage interest as an expense has been phased out. Instead, landlords are eligible for a basic rate tax reduction on their mortgage interest. This change affects higher-rate and additional-rate taxpayers the most. Consult with a tax professional for further guidance.

Capital allowances: You may be able to claim capital allowances for certain fixtures and fittings within your rental properties, such as furniture, appliances, and carpets. These can be deducted as an expense, reducing your taxable income.

Incorporation: Some landlords choose to operate their rental properties through a limited company to take advantage of certain tax benefits. However, this strategy may not be suitable for everyone, and there are costs and complexities involved. Seek professional advice to determine if incorporation is appropriate for your situation.

Personal allowance and tax bands: It's important to consider your personal tax allowance and tax bands when planning your rental income. If your rental income pushes you into a higher tax bracket, you may want to explore strategies to reduce your overall taxable income, such as contributing to a pension scheme.

Capital gains tax (CGT): When selling a rental property, you may be liable for CGT on any capital gains made. However, certain reliefs and allowances, such as the annual exempt amount, lettings relief, and principal private residence relief, may help reduce your CGT liability. Seek professional advice to ensure you're utilizing all available reliefs and allowances.

The annual exemption allows chargeable gains up to £6,000 from 6 April 2023 (£12,300 2022/23) to be taken free of tax. This allowance will reduce to £3,000 from 6 April 2024.

Private Residence Relief

You do not pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:

you have one home and you’ve lived in it as your main home for all the time you’ve owned it

you have not let part of it out - this does not include having a lodger

you have not used a part of your home exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use)

the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total

you did not buy it just to make a gain

If all these apply you will automatically get a tax relief called Private Residence Relief and will have no tax to pay. If any of them apply, you may have some tax to pay.

Letting Relief

If you lived in your home at the same time as your tenants, you may qualify for Letting Relief on gains you make when you sell the property.

You can get the lowest of the following:

the same amount you got in Private Residence Relief

£40,000

the same amount as the chargeable gain you made while letting out part of your home

Letting Relief does not cover any proportion of the chargeable gain you make while your home is empty.

Speak to a member of our team at Tax Returns Accountants to help.

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Inheritance tax (IHT) planning: Owning rental properties can impact your estate's IHT liability. Seek advice on strategies to minimize IHT, such as setting up trusts or making gifts to beneficiaries.

Seek professional advice: The tax rules for landlords can be complex and subject to changes. Consider consulting with a Chartered Accountants like Tax Returns Accountants who specializes in property taxation to ensure you're fully compliant and making the most of available tax planning opportunities.

If you’ve recently started to rent out a property, you may be wondering about your tax responsibilities. We know that taxes can be a bit of a tricky subject, especially for new landlords submitting a tax return. And that’s where you need to contact the team at Tax returns Accountants.

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The Tax Returns Accountants team is here to help you stay on the right side of the taxman. In this guide, we cover how to complete and file a Self Assessment tax return – from registering to keeping hold of your records afterwards.

If you’ve not sent a tax return before, you’ll need to register for Self Assessment by the 5th October in your second tax year of being a landlord.

CLAIM YOUR ALLOWABLE EXPENSES AS A LANDLORD

As with every other self-employed individual, there’s a list of business expenses you can claim as a landlord to reduce your tax bill. They include:

Property repair and general maintenance costs

Running costs, including council tax, water rates and electricity bills

Accounting and management fees

Costs of services

Insurance

Replacement of domestic items

Mortgage interest and other finance charges

Once you work out your taxable rental profit, you may be able to deduct these expenses (as long as they were incurred solely for the property) from your rental income to lower your tax liability.

RECORD-KEEPING

In order to work out the profit that you’ll pay tax on, you’ll have to use all records of your expenses and rent received from tenants. While you don’t need to submit the records themselves as part of your tax return, HMRC can request to see them should they launch an investigation.

The records that you should keep at all times include:

Receipts

Invoices

Bank statements

Rent books

Mileage logs

You must keep these records for at least five years following the 31st January of the tax year in which you’ve used them to file your Self Assessment tax return. If your records aren’t accurate, HMRC can charge a penalty.

If this is your first time filing taxes or you simply want to make things simpler for yourself, turn to Tax Returns Accountants. We can help you complete the Self Assessment tax return form by storing your income and expenditure information throughout the tax year through our cloud bookkeeping system.