Tax changes have hit landlords hard over the past decade or so with changes such as:

• The withdrawal of mortgage interest as an allowable expense
• The introduction of a higher rate of Stamp Duty Land Tax for additional properties
• The lowering of Capital Gains Tax  (CGT) for all asset classes except property

Property tax can also be particularly complicated and can require a great deal of planning. You'll need to think about elements such as how the property is owned, the way in which you take rental income, and how you dispose of or pass the property on. And, of course, nobody wants to pay any more landlord tax than they need to!

Below are some tips to help you invest in a tax-efficient way and avoid unexpected tax bills.

Consult a financial adviser or wealth manager

A financial advisor or wealth manager is someone who can look at all your earnings and financial assets. They can help you decide how to own and make money from your property in the most beneficial way for you.

A financial advisor or wealth manager will help to create a plan with you to manage your ingoings and outgoings in the best way for you. One of the many roles of a financial advisor is a “tax planner”. They will manage everything from preparing tax returns to maximising tax deductions so you can get the most out of the system.

There will however be a charge involved with their services. How much they charge will depend on a number of factors such as the advice you need, how much time this will take, and the size of the assets involved. The typical charge is 1% to 2% of the asset you want advice on. The larger the asset the lower the percentage will be charged.

‍Take advice from an accountant or tax adviser who specialises in buy-to-let property

Your financial adviser or wealth manager may not have detailed knowledge of property taxation, which is a specialist area. Speaking with a property tax expert can help, especially if they can also manage your bookkeeping and accounting needs too.

However, even with a tax professional taking care of your accounts, you'll still need to understand the key areas that can impact your tax bill - keep reading to find out more!

Is it better to own and/or let residential property as an individual or via a limited company? 

There are pros and cons to both. Talk to a professional advisor, such as an accountant or mortgage advisor, to investigate which would be more beneficial for you and your personal circumstances.

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Consider how to take rental income from your property

For Income Tax purposes, you add rent received to your other earned income. This can take you into a higher income tax band or have an impact on any benefits you may already receive, such as child benefits. You can always contact HMRC to learn more info on this.

In some cases, if you have a partner or spouse, it can be more tax-efficient for the person with the lower personal income to receive the rental income. However, this must be reflected in the property ownership, so make sure you talk to a professional first.

Reduce tax liability through marriage or civil partnership

You can save money by using Marriage Allowance, starting a business together, and dividing property ownership shares. Marriage allowance allows you to transfer £1260 of your personal allowance to your partner. However, this is only possible if you meet the criteria: 

• You are married or in a civil partnership
• You do not pay income tax or you owe below the threshold
• Your partner pays tax at the basic rate

When you transfer part of your allowance your partner will gain a “tax credit” on their earnings of £1260. This means they can now earn more money before paying tax, and as a couple, you will pay less tax in total. However, it’s important to take professional advice on this.

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Make sure you deduct all allowable expenses and costs

The costs associated with running a professional rental business can be significant.  Make sure to claim all allowable expenses from your rental income.

Note that expenses for property tax fall into different categories:

• ‘Revenue’ expenses: These costs are mainly for running the property business daily, like maintenance and accountant fees and can be deducted from your income tax return each year.

• ‘Capital’ expenses: These are things that enhance the capital value, such as renovations or an extension. They can be deducted from your capital gains when you sell, along with stamp duty and professional fees associated with buying and selling.

Expenses can be complicated. We recommend hiring a property bookkeeper or accountant to do your taxes. They can help you claim all the deductions you're allowed to take.

Bear in mind, too, that all tax is going ‘digital’, so in the near future, spreadsheets will become obsolete. For more information, see the Government website.

Take full advantage of the CGT allowance when selling or passing on the property.

If you own the property in joint names, each party can apply their personal allowance. If you sell more than one property, you should think about completing the sales in different tax years. This way, you can benefit from the tax-free allowance for each property.

Plan well ahead so your children or other beneficiaries don’t pay any more tax than necessary.

Capital Gains Tax and Inheritance Tax can both come into play when you pass on property. For this reason, it’s vital to speak to a legal estate planner and property tax specialist at the earliest stage. We recommend doing this before you complete a purchase.

How we can help

If you still have questions and are unsure about tax and being a Landlord, contact us today and we will be happy to give impartial advice. We offer several services for Landlord protection and would love to be there for you.