As property prices continue to rise all across the country, landlord businesses gain a lot of importance. We know that many landlords achieve financial freedom due to capital gains, but they are also liable to pay taxes on this income.
If you're a landlord and are still confused about the taxes you are liable to pay, keep reading this article! Here, you will find 10 tax-saving tips for landlords that will hopefully help you become a successful landlord and reduce your tax bill!
Our 10 Tax Saving Tips For Landlords
1. Claim your property expenses
When you file your tax return, always make sure that you claim your expenses, like:
- Advertising costs you may have with your property;
- Costs from travelling from and to the rental property;
- Text messages and telephone calls sent in connection with the property;
- Accountancy fees for rental purposes;
- Legal fees;
- Fees for any safety certifications which you obtained for the property;
- Landlord insurance;
- Water rates, council tax, gas and electricity.
2. Exclude deposits from your property income tax return!
Be aware that you should exclude deposits from your new tenants from your property income tax return, as you don't need to pay tax on them!
3. Opt for short-term occupants
If this is an alternative for you, opting for short-term occupants is a way of claiming council tax and utilities as regular expenses and, for that reason, saving more money.
4. Transfer a property's ownership to your partner
If your partner is a low-income earner and you live together as a married couple or in a civil partnership, consider transferring a property's ownership to them, as this can help lower the income tax rate.
This way, you can avoid the Capital Gains Tax, and so you can instead use the lower tax bands available to you.
5. Sell your property efficiently
Did you know that landlords who have multiple properties can enjoy the benefit of the 0% Capital Gains Tax band every year if they decide to sell one of their homes? The tax-free figure is £12,300, which is pretty good!
If you have to pay Capital Gains Tax on the property though, be aware that, since October 2021, the deadline to report and pay it is 60 days!
6. Claim the Replacement Domestic Items Relief (RDIR)
The Replacement Domestic Items Relief (RDIR) is a tax relief that landlords can use to claim costs related to the replacement of furniture, household appliance or any item used only by your tenant.
Note that the item must be a replacement for the original one. Be also aware that you can't claim the replacement of domestic items if you are already claiming the Rent a Room relief or if the property is a furnished holiday letting.
7. Save some of the income to pay taxes
If you save a quarter of your rental income in a savings account each month, you will have the needed funds to pay your taxes. Just set it aside!
8. Form a limited company
Setting up a limited company is a smart way of reducing your tax bill as a landlord, since all of the purchases you made are going to be on behalf of the company. This way, you can offset expenses against the profits.
We suggest that you get professional advice from your accountant to check if this strategy would be adequate for you!
9. Have separate bank accounts
In case a tax inspector asks for proof of your rental income, you will not have a hard time providing the needed documents if you use a separate bank account.
So remember it's important to have a separate rental account from the personal one. Then you just need to pay all the rent into that account!
10. Declare losses on rental income
If you spend more on your properties than your take in rental income, you have made a rental loss. In the UK, the rental losses can be carried forward and offset against profit in other tax years!