Are you a landlord in UK? Being a landlord is not all about rental income. Because you also need to consider Income Tax, allowable expenses, mortgage interest, property-related costs and changes to the UK tax rules. Still, the good news is that landlord tax saving is possible when you claim the reliefs and expenses you are legally entitled to. The amount you can save depends on your property income, expenses, tax band and whether you own the property personally or through a company.
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What Is Landlord Tax Saving? What Does It Actually Means?
Landlord tax saving means reducing your overall tax liability. Well, it can be done by making use of legitimate tax reliefs, allowable expenses and appropriate property tax planning.
For example, as a landlord, you may be able to claim allowable costs such as:
- Property management fees
- Letting agent fees
- Repairs and maintenance
- Landlord insurance
- Accountancy fees
- Certain legal and professional costs
- Council tax or utility costs where the landlord is responsible
Moreover, the expense generally needs to be incurred wholly and exclusively for the property rental business and meet HMRC’s rules.
How Much Landlord Tax Savings Can You Make in the UK?
There is no standard figure for how much landlord tax savings you can achieve. It is because every landlord’s circumstances are different.
For example, a landlord with £20,000 of rental income and £5,000 of allowable expenses has a different tax position from someone earning £50,000 with £15,000 of qualifying expenses. Therefore, your tax position can also depend on your Income Tax band and how you finance the property.
This is why it is better to calculate your actual taxable property income rather than rely on a fixed percentage of tax savings. There is no fixed amount or percentage in this regard.
How Can You Claim All Your Allowable Expenses As A Landlord in the UK
One of the simplest ways to reduce your taxable rental profit is to keep proper records and claim eligible expenses. But the question is how to know if the expenses are allowable for you or not, right? For this reason, seeking the professional help of an experienced accountant comes in handy.
Some common examples of relevant allowable expenses for a landlord include repairs, insurance, professional fees and letting agent charges. However, not every property-related expense is automatically deductible. For example, the cost of buying or improving a property is generally treated differently from the cost of repairing it. Thus, keeping receipts and invoices is essential.
Why Is It Important to Understand Mortgage Interest Tax Relief
Mortgage interest works differently for individual residential landlords. Yes, for individuals, finance costs on residential property are generally not deducted directly from rental income when calculating taxable property profit. Instead, eligible finance costs can generally give rise to a basic-rate tax reduction.
Obviously, this means the tax benefit can differ depending on your circumstances and tax position. So, you should never assume that all mortgage payments can simply be deducted from rental income as it’s not an absolute truth.
Consider Whether Your Property Structure Is Suitable
As a landlord, you may own properties personally. Others may use a limited company.
Therefore, you must know that a company can have different Corporation Tax and finance cost rules from those of an individual landlord. But incorporation of a company in the UK can also create additional responsibilities and costs. Before transferring an existing property into a company, professional advice is particularly important because the transaction can have Capital Gains Tax, Stamp Duty Land Tax and other implications.
Why Landlords Should Keep Accurate Property Records
Good record-keeping is one of the easiest ways to support legitimate landlord tax saving.
Keep records of rental income, property expenses, mortgage interest and finance costs, repairs, insurance, letting fees, and professional fees. Additionally, you should also keep records of relevant property purchase and improvement costs with you. Ultimately, good records also make it easier to prepare your Self Assessment tax return accurately.
Need Help With Landlord Tax?
At Cheap Accountants in London, we help landlords with property accounts, Self Assessment, tax calculations and ongoing accounting requirements. If you are worried about landlord tax saving, don’t worry! Our team can review your circumstances and help you understand which legitimate tax reliefs and expenses may apply to your property business.
Get in touch with our accountants for professional support with your landlord tax affairs.
From bookkeeping to VAT returns, we manage it all so you can focus on growing your business.
Final Thoughts
Effective landlord tax saving is not about avoiding tax. It is about making sure you are not paying more than the law requires. Claiming legitimate expenses, understanding mortgage interest rules, keeping accurate records and reviewing your property ownership structure can all form part of sensible tax planning.
Property tax rules can be complicated. It can be confusing, particularly for landlords with multiple properties or higher rental income. Professional advice can help you make informed decisions for landlord tax saving in the UK.