When you are a landlord whether a professional or an accidental one you would want to get the maximum financial benefit from your property. One of the ways to achieve this is to work in the most tax efficient ways. This will reduce the amount of taxes you pay and as a result you can save more money.
To work in the most tax efficient way you should be well aware of your property taxes, your tax deadlines, your business structure options and how they affect your taxes.
Property taxes will include taxes such as rental income tax, corporation tax (if the business is incorporated), capital gains tax, stamp duty tax. Let's look at the following tips to see how you can be most tax efficient and save money.
#1 Make use of all the allowable expenses
Allowable expenses are all the costs incurred which are essential in running your business. These costs are not taxable and therefore you can deduct these costs when calculating your taxable profits. This will reduce the taxable profit and therefore the tax you will pay on it.
When you are a landlord managing property, allowable expenses would be any costs related to the renting or maintaining the property. The costs you can deduct are letting agents fees, advertising costs. Any kind of ground rent, utility bills, service charges. The costs would also include costs of repairing the property,however some costs are classified as capital costs and they won't be allowable expenses for example the costs of extensions cannot be deducted from the profits.
If you want to save costs you should keep a record of all the costs incurred. If you are not sure which costs are allowable expenses you can make a list of all the costs incurred and ask your financial accountant to guide you. The capital costs you incur, although you cannot claim it in your annual return, however you can claim it against the capital gains when you sell your property.
You might be eligible to claim 'Replacement of domestic item relief'
If you live in your property you can aportion the expenses and claim the expenses which were incurred in the rented part of the property. In the case when you live in your property you might be able to claim ' Rent a room allowance'
# 2 Make use of all the available tax bands
If your spouse is not working this means that they have not utilized their personal allowance or if they are working and their total income falls within the lower tax rate bracket, it is worth considering transferring property in your spouse's name. The transfer is exempt from the capital gains tax and you as a couple would be paying tax at the basic rate.
#3 You should know your deadlines
If you don't want to lose money on paying penalties you should be on top of your taxes. Don't leave everything to the last minute. Keep all the records, have all the calculations done on time and pay your taxes on time. If you are self-employed you can look at your tax deadlines by clicking here
#4 In some circumstances you can claim VAT
Although income from the residential property is exempt from VAT meaning you cannot register for VAT, however if you are in a completely unrelated business and you are a landlord as well you can claim VAT on the expenses which were related to your property. For more information on this you can follow the link here
#5 Structure your business wisely
You can either work as a self assessment landlord or you can incorporate your company. When you are self-employed you pay income tax (will vary depending on the tax rate band you fall into) while pay corporation tax when you are working through a limited company( fixed rate will be charged).The corporation tax is set to increase from 19% to 25% from April 2023 for businesses earning above £50 000. When you have incorporated your company you can decide on the amount of money you pay yourself as a salary and as dividend, in this way you can make use of dividend allowance as well.
If you are looking for property accountants to help you with structuring your business, handling your accounts and your property taxes please contact Taxaccolega, property accountants in croydon and our team of accountants will be happy to help you.