Lets be honest now, we don’t really look forward to filling in the tax return and paying tax do we. But there are a few ways that you could potentially reduce what you owe the tax man.
1. Claim all your Expenses
The first step in making your property tax efficient is knowing what expenses you can offset.
Keep all of your receipts so that you can offset absolutely every expense against your profits. Talk to your accountant about travel costs, certain motoring expenses or types of vehicles that can be set against your profits.”
The most common types of expenses:
• Water rates, council tax, gas and electricity
• Business and contents insurance
• Letting agents’ fees
• Legal fees for lets of a year or less, or for renewing a lease of less than 50 years
• Accountant’s fees
• Rents, ground rents and service charges
• Direct costs such as phone calls, stationery and advertising for new tenants
• The associated costs of running a home office
• Membership of Professional Bodies such as RLA or NLA
2. Reduce your stamp duty bill
There are two ways you can reduce your stamp duty.
1> Extending or expanding your current rental property(ies) to add extra habitable space. If you had 5x 5bed HMO’s and added one extra room to each you save the stamp duty buying a new property but gain 5 extra rooms. The more expensive the property, the greater the savings.
With permitted development rights being more generous than they have been in the past. However, be mindful of the change in the HMO definition due to come into force in October. From then on, any property with five or more sharers will need an HMO license, so if you extend your property and it becomes suitable for more sharers, check it’s up to mandatorily licensable HMO standards. Ask your council’s licensing department if you’re in doubt.
The golden rule for expanding an existing property is that the uplift in value should be more than the cost of the works. There will be a ceiling price for properties in some areas however, which means your property may not increase over a certain price even if you expand it – unless the area improves.
2> Reclaim over paid Stamp Duty. Did you know that 4 in every 10 purchases in the last 4 years have over paid on stamp duty. Its the responsiblity of your solicitor to complete the stamp return and due to the complexity of stamp duty you need advice from a specialist Stamp Duty Land Tax Accountant. Great News for members of Property Investor Reward Club, we have an expert on our panel who we have negotiated a preferential deal with and that costs you nothing up front.
3. Utilise all allowances open to you
Another way to potentially cut your tax bill is to “use your spouse’s 0% and 20% tax bands.”
Transfers between spouses generally have no capital gains tax to pay, plus if their earnings fall into a lower tax bracket you could pay less tax on the rental profits.
Take advice from your specialist Property Tax Accountant or speak with one the Property Investor Reward Club expert.
4. Save when you sell
If you are selling your rental property, make sure you claim all of the available reliefs.
If you’re a multi-property landlord, it’s often more tax efficient to sell one property in each tax year to take advantage of the 0% CGT band. Effectively this means you can make gains of up to £11,300 in a given tax year without any tax being due.
Offset all the disallowed expenses you incurred on purchasing the property and don’t forget to add on the indexation allowance to reduce your gains.
5. Manage through your own limited letting agency
Some landlords find it is more tax efficient to manage their properties through a limited company which effectively acts as a letting agent. The Company could employ the landlord, relative or member of staff to manage the properties. There are alot of pro’s and con’s of this approach and we again recommend you speak with a specialist accountant to cost of the differences for you.
6. Restructure your portfolio to incorporate
You can also set up an LLP and Limited company as a way of allowing all finance costs to be set against profits. This is complex and expensive to set up but it might be a positive way forward for landlords with larger portfolios.
Property Investor Reward club have specialists to advise on this but always be wary of spending a lot of money restructuring your portfolio around tax legislation. The government could change the rules in the next budget and you might then kick yourself for spending money on an expensive restructure.
7. Buy property through a company
If you are thinking of buying property, setting up a limited company is more tax efficient in the sense that all finance costs can be set against profits. Remember to add in the extra cost of commercial mortgages. This could offset any savings you make in tax. However as more limited company products come tobecoming more competitive.
Great News Property Investor reward club has a specialist mortgage broker who will not only give you discounted fees but share the mortgage commission they are paid with you.
If you’re considering setting up as a company to save tax, make sure you take appropriate advice.
Mortgage interest is often the largest monthly cost you will incur. A great way of cutting your interest costs is by re-mortgaging.
Buy-to-let mortgage interest rates have fallen significantly in recent years, so deals currently on the market may well be substantially better than on products arranged a few years ago. With 5 and 10 year fixed rate deals available at very low rates, it really is worth considering.
Property Investor reward club whole of market mortgage broker who will not only give you discounted fees but share the mortgage commission they are paid with you.
9. Get your rental property revalued
With large increases in property prices in London, another tip is to get your rental property re-valued. This will make your lender recalculate your loan to value, and a lower loan to value means a better interest rate and a larger choice of lenders.
10. Fill the voids
If your buy-to-let property is empty for any period of time, remember that expenses such as utilities or council tax incurred can be claimed as an expense.
But more importantly, rather than losing money while your property sits empty, try and earn some income from it, why not Airbnb the property until your find a long-term tenant?
PIRC is an exclusive membership club for property traders, investors and landlords which gives you immediate access to discounts from all the suppliers you need in your property business.
Benefit from EXCLUSIVE rates on everything from building materials to solicitors’ fees. You also earn cash back and rewards with every purchase at PIRC-Card.co.uk.