There are plenty of factors to take into account if you want to become a successful buy-to-let landlord, but one that often gets overlooked is tax efficiency. Putting a few tax saving strategies in place may not be quite as glamorous as hunting down the perfect property, but when it comes to saving money it can make a huge difference to your numbers.
Armed with these simple bits of advice, you’ll be able to significantly (and legally) reduce your tax bill as a landlord, which will help get your buy-to-let business in better shape ready for next year’s tax return.
While it may require a fair amount of planning to organise, setting up a limited company can be a great way to reduce your tax bill as a landlord. Not only will you be able to buy property through the company (which will allow you to offset costs against profits), you’ll also be able to employ yourself or someone else to manage the properties held within your portfolio.
This particular landlord tax saving strategy won’t be right for everyone, but if it works for you the savings can be significant. Contact your accountant to find out if you can benefit from transferring your properties to a limited company.
Maximising your property’s potential
Putting money into your existing properties will help you avoid hefty stamp duty charges from additional purchases and should see the value of your portfolio rise at the same time. Recent changes in development rights mean that you can now extend your existing property further than you previously could, which should result in an increase in yields.
Providing you take into account the ceiling price of the area in which your rental is situated, real gains can be made by extending or expanding your property. One thing to bear in mind, however, is that if you are making significant improvements which could result in increased occupancy, you may be affected by HMO rules.
Make use of all available tax allowances
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’s 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 won’t have to pay any stamp duty either.
Make sure you are getting the most from your property
This may seem completely obvious at face value, but you’d be amazed at just how much money is left on the table each and every year by landlords who do not have their rental properties reassessed. Getting your rental property revalued can make a huge difference, not only in terms of how much it is worth, but also the way in which your business is viewed by outsiders.
Having a more accurate assessment of how much your rental property is worth will strengthen your position with lenders and get them to reevaluate your loan to value ratio. Should your rental property price increase, your loan to value will obviously go down…and that could mean more choice and a better interest rate for your buy-to-let business.
If you are based in or around Brackley and would like an accurate assessment of your property’s market value, give our office a call on 01280 702867 and we will be pleased to help.
Keep records of your expenses
We recommend that you claim everything you are entitled to if you want to become a tax efficient landlord. There are plenty of landlords who could reduce their tax bills simply by being a little more diligent about their expenses, so our advice is to make sure you claim for everything.
Keep every receipt and speak to your tax advisor or accountant about exactly what you can and cannot claim for…you’ll likely be surprised by how quickly these landlord expenses mount up! For example, things such as the costs of keeping a home office and your letting agent’s fees can all be offset against your profits, so why not claim for them?
Be wise when you 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 on offer to them. This is especially true of landlords with multiple properties, as they can reap the benefits of the 0% Capital Gains Tax band each and every year should they decide to sell one of their homes. Currently, the tax free figure stands at £11,300, which is a pretty good saving in anyone’s book.
Naturally, the best way to save tax as a landlord is to employ both a brilliant accountant and a reliable tax advisor who can assist you every step of the way. This article is intended to highlight a few ways in which landlords can lower their tax bills, but is not intended to be concrete advice.
If you are interested in becoming a landlord or would like to expand your property portfolio we would love to hear from you. We can be contacted on 01280 702867
Alex Britchfield | Partner | Davies & Partners