However you own your buy-to-let properties, the chances are that you are paying some tax. Tax is inevitable but no one likes paying more than you have to, so this blog is all about minimising the tax you have to pay on your buy-to-let property.
These tax saving tips are in no particular order and advice will change depending on your particular circumstances.
- Going Limited
Owning your rental property through a Limited Company can, in certain circumstances, save you tax but you should be aware that this is not always the case. See our Factsheet ‘How should I own my rental property’ for further details.
For example, one tax saving tip here is that if you pay yourself a dividend of £2,000 tax-free, you can then put this back into the company as a director’s loan – building up a tax-free loan without reducing the amount of cash in the company.
- Using your spouse’s tax band
Joint ownership of property spreads the taxable profit and means you can utilise your spouse’s personal allowance and basic rate tax bands.
If partners living together jointly own property as tenants in common, the default position is that income earned from this property will be taxed according to a 50:50 split. Although, a form 17 election can be made via the HMRC website to set a different split of income which actually reflects the beneficial interest.
- Claim all available expenses.
Claim absolutely everything that you are entitled to claim even, if you think its trivial… as the well-known strapline says, every little helps.
Expenses you should consider claiming are:
- Mileage for travelling to the property or on business related journeys.
- Using your home as your office
- Letting Agents fees
- Maintenance cost
- Mobile phone bills
- Replacement of domestic items such as washing machines
- 20% relief is available on mortgage interest
An alternative to claiming expenses is the Property Income Allowance of £1000 which can be deducted from your rental income (provided that the income is not received from a connected party) instead of any expenses. It is only worth claiming this allowance if your expenses are less than £1000 and they are less than the actual rent received. You cannot claim any expenses if you claim the Property Income Allowance.
- Be better organised
The more organised you are, the less tax you will pay because you will keep all of your receipts, record every penny and keep separate bank accounts for income and deposits so as not to confuse the two.
- Understand the difference between Capital and Revenue Expenses
Revenue expenses are deductible in the year they are incurred, and capital expenses have to wait until you sell the property. Have a read of our blog ‘Landlord Taxes Explained’ to learn more.
- Save Your Tax
It’s a good idea to put a % of your income away to pay tax. A good rule of thumb would be 20% of your income generated should go into a separate account to cover tax. Tax is payable on rental profits on 31st Jan and for some, on 31st July.
- Is buy-to-let your best option?
Could your buy-to-let be a Furnished Holiday Let? Or an Airbnb? Both are considered businesses as opposed to investment vehicles and there are tax advantages to this.
Keep an eye out for our Blog next week on The (Tax) benefits of a Furnished Holiday Let (Including Airbnb)
- Get good tax advice
All of the above is good, but nothing can beat seeking out Good Tax Advice – we act for 100’s of Landlords looking to ensure that they meet their filing deadlines and save tax along the way.