When you first become a landlord, you might focus on the amount of rent your tenants pay minus your overheads to determine how much of a profit you make. You may well, as a result, ignore the many tax efficiencies you can use to improve your bottom line.
Tax efficiencies are totally legal, but lots of people overlook them each year and this can essentially cost them hundreds of pounds – or more – each year. Here’s some simple ways to save tax as a landlord.
Set up a limited company
If you have multiple rental properties then setting up a limited company is one of the best things you can do. It can be a fiddly process, but once it’s done, you can save large amounts of money each year.
Setting up a limited company separates your personal tax liability from the company liability. You can also buy new properties through the company, which means you can deduct these expenses against your profits. You can also employ someone to manage the portfolio – this can even be you!
Extend your existing properties rather than buy new ones
You can increase your portfolio’s value without paying any stamp duty by adding an extra bedroom or reception room. You could also add extra amenities such as a garden room or a conservatory in order to increase your monthly rental rate.
If you decide to expand your property in order to house more than five people, make sure you have an HMO licence before you bring tenants in. It’s also important to make sure you’re not changing the status of your rental property by adding particular features or extensions; each local council has its own rules here, so stay on the right side of them.
Explore all the tax bands
If you transfer your property assets to your spouse, you don’t have to pay Capital Gains Tax (CGT) and if your spouse is in a lower tax bracket than you are, you’ll save money this way. This works best if there’s no mortgage on the property and you don’t make any financial gain from the transfer.
Make the most of your expenses
There are lots of expenses involved in being a landlord and you can claim many of them back or write them off against your tax bill. There are the big things, of course, like your letting agency fees, but there are also smaller expenses, such as replacing a sink, hiring a carpet cleaner or repainting a skirting board. If you keep track of these smaller costs, as well as retain the receipts, you can reduce your tax bill each year. Even if it’s just a few tens of pounds, it’s worth the effort of filing a receipt away.
Don’t fear the void
Of course, you should try to avoid the void, but sometimes you can’t and during these times, you’ll be paying the utility bills and the council tax until new tenants arrive. You can claim these bills as expenses, lowering your eventual tax bill (although hopefully your void will be short…).
