Putting together an efficient tax strategy should be a must for buy-to-let landlords seeking to maximise their income.
It may not be quite as exciting as hunting down the perfect property, but it can make a huge difference to the bottom line.
There are several ways this can be achieved. Following careful considerations, one could:
Set up a limited company. This can be a great way to minimise the tax bill as a landlord in some circumstances. Not only will you be able to buy a property through the company, which will allow you to offset costs against company’s profits, but you will also be able to employ yourself or someone else to manage the properties held within your portfolio.
On top of this, limited companies continue to be exempt from the rules change to Mortgage Interest Relief, meaning that they can continue to reduce their tax bill.
Extend to reduce: Putting money into your existing properties will help you avoid hefty stamp duty charges and should see the value of your portfolio rise at the same time. Recent changes in development rights mean that you can extend your existing property further than you previously could, which should result in an increase of monthly income.
Use all available tax bands: Another way to potentially cut your tax bill as a landlord is to transfer your assets to your spouse. Capital Gains Tax is generally not paid when assets are transferred between spouses, so you could effectively make use of their lower tax bands.
There is also the possibility that you will be able to pay less tax on your rental income too if their tax bracket is lower than yours. If the property in question doesn’t have a mortgage associated with it and you are not taking any financial gain from the transfer, you will not have to pay any stamp duty either.
Get the most from your property: Having a more accurate assessment of how much your rental property is worth will strengthen your hand against lenders and get them to re-evaluate your loan to value.
Should your rental property price increase, your loan to value will go down and that could mean more choice and a better mortgage interest rate for your buy-to-let business.
Claim all legitimate expenses: Claim everything you are entitled to if you want to become a tax-efficient landlord. Keep every receipt and speak to your tax advisor about exactly what you can and cannot claim for. You will likely be surprised by how quickly these landlord expenses mount up.
Consider short-term lets: If you are in-between tenants, there are ways in which you can lower your tax bill.
Sometimes it can be worth considering the option of taking on a short-term let during a void period to get some money coming in.
Choose the right time to sell: Too often, landlords lose money when they sell a rental property simply because they do not take full advantage of the available tax relief available to them.
This is especially true of landlords with multiple properties, as they can reap the benefits of the zero per cent Capital Gains Tax band every year should they decide to sell one of their homes. Currently, the annual exemption amount is £12,300.
The best way to save tax: By natural process, the best way to save tax as a landlord is to instruct a trusted and reliable tax adviser who can assist you every step of the way.
This guide is for general information only and does not substitute specific advice. While we believe it to be correct at the time of writing, you should not rely on it as specific advice and Peria & Co cannot accept any liability for its contents. If you need guidance please contact us at info@peria.co.uk or call us on +44 (0)1932 849023.