Landlords need to be aware of the tax issues and obligations facing them not only as property investors but also as individuals with other businesses, careers and investments when making a buy to let investment decision.
Tax is a complex area and it is crucial that landlords seek advice from a tax expert. This will ensure a method is devised which best suits your individual needs.
The list below aims to give you some top tips to perform this new adventure in a superb way.
Tip # 1 – Do not forget to exclude the deposits you receive from new tenants when you add up your property income for your tax return.
Tip # 2 – If you are married or in a civil partners living together with your partner you can transfer a property from the sole ownership of the higher earner to the sole ownership of the lower earner, so that the profit is taxed at a lower rate. There is no Capital gains Tax to pay on this kind of transfer, but some Stamp responsibility Land Tax (SDLT) may be due if the property is mortgaged.
Tip # 3 – Open a new bank account for the property letting business and pay all the rents into this account and all the expenses out of it. This will make you easier answering questions if a Tax inspector ever asks you to prove the figures in that account because the property related costs are not mixed up with your personal expenditure.
Tip # 4 – Remember to print off your bank statements regularly (at least once a quarter – if you use an internet-only bank account) because the bank will only provide access to those statements for a limited period.
Tip # 5 –Set up a saving account and put aside about one quarter of your profit from your properties each month, so when the income tax bill arrives you have the funds to hand.
Tip # 6 – , You can go back and amend your own or your company’s tax return up to one year after the deadline for submission if, for any reason, you have not reclaimed some repair costs in the past.
Tip # 7 – You can save income tax on the annual profits and Capital Gains Tax on the eventual sale transferring into joint ownership a property owned by one spouse, as both spouses will be able to set their annual capital gains exemption against the capital profit made.
Tip # 8 – If you have let property as holiday accommodation in any European Economic Area (EEA) country before April 2010, and been taxed on the profits in the UK, you may be able to claim additional tax reliefs to reduce the taxable profits. However, there are tight deadlines for submitting such claims, so ask for advice on this matter without delay.
Tip # 9 – In the event of death, all assets including any properties should be priced on an ‘’as is basis’’ considering the tenancies at that time. An occupied property will typically sell for much less than a free property. Therefore the inheritance tax will be paid less if the property is occupied at the date of death.
Tip # 10 – If you own and reside in your property abroad for some time you can choose it to be your PPR (Principle Private Residence) or Main Residence Release. This will protect a proportion of the gain from UK capital gains tax that arises on the sale of the property.
Tip # 11 – Get VAT specialist advice when dealing with an unusual property transaction.
Tip # 12 – Whenever you consider a lease or purchase of commercial property, seek expert advice on VAT.
Tip # 13 – The SDLT calculations due on rents payable under leases are complex, but there are a number of online tools on the HMRC Stamp Office website to help you: http://www.hmrc.gov.uk/so/new-sdlt-calculators.htm
Tip # 14 –Gather information that the building was unoccupied for at least two years. A letter from the local Empty properties Officer should be sufficient.
Tip # 15 – Listed building consent can be very general so provide plans and estimates at the time consent is applied for to demonstrate that the consent covered the work involved. Keep evidence that the work done required consent to be provided. In the event that the job expands or changes, submit an application for consent to cover the changed work.