10 Ways to Beat the Tax Man 1st Jul 2017
Being tax efficient is key to being a good landlord. Experts were asked by Portico (London) for 10 legitimate ways to reduce tax bills. This is what they had to say . . .
1. Expense, expense, expense
The first step in making your property tax efficient is knowing what expenses you can offset. Keep all receipts in order to offset expenses. Get advice from a good accountant who specialises in this area. Some of the most common expenses are:
• Water rates, council tax, gas and electricity
• Business and contents insurance
• Letting agents' fees
• Legal fees for lets of a year or less, or for renewing a lease of less than 50 years
• Accountant’s fees
• Service charges
• Direct costs such as phone calls, stationery and advertising for new tenants
• The associated costs of running a home office
2. Reduce your stamp duty bill
The advice is to avoid large stamp duty by extending current rental properties. Now is a good time to extend because permitted development rights are more generous than they have been in the past. The golden rule for expanding an existing property is that the uplift in value should be more than the cost of the works. There will be a ceiling price for properties in some areas however, which means your property may not increase over a certain price even if you expand it - unless the area improves.
3. Transfer your assets
Another way to potentially cut your tax bill is to use your spouse's 0% and 20% tax bands. No Capital Gains Tax is payable if you transfer assets to your spouse, plus if their earnings fall into a lower tax bracket you could pay less tax on the rental profits.
Stamp duty land tax is not payable on such transfers as long as the property is not mortgaged, and the husband or wife who is passing on the property doesn’t want any money for it.
4. Save when you sell
If you are selling your rental property, make sure you claim all of the available relief. It may be more tax efficient to sell one property in each tax year to take advantage of Capital Gains Tax bands (0% for gains up to £11.300 in a tax year).
5. Landlord Ltd?
Some landlords find it is more tax efficient to manage their properties through a limited company which effectively acts as a letting agent. This is especially true in light of forthcoming changes to mortgage tax relief. The company could employ the landlord, relative or member of staff to manage the properties. Take financial advice to see if this is the best option for you.
6. Restructure your portfolio
You can also set up a Limited Liability Partnership (LLP) or a Limited company as a way of allowing all finance costs to be set against profits. This is complex and can be expensive to set up but it might be a positive way forward for landlords with larger portfolios. Again take financial advice to see if this is the best option for you.
However, always be wary of spending a lot of money restructuring your portfolio around tax legislation. The government could change the rules in the next budget and you might then kick yourself for spending money on an expensive restructure.
7. Buy property through a company
If you’re thinking of buying property, setting up a limited company is more tax efficient in the sense that all finance costs can be set against profits. Seek financial advice.
You can cut your interest costs by re-mortgaging. Buy-to-let mortgage interest rates have fallen significantly in recent years, so deals currently on the market may well be substantially better than on products arranged a few years ago.
9. Get your rental property revalued
With large increases in property prices in many areas, another tip is to get your rental property re-valued. This will make your lender recalculate your loan to value, and a lower loan to value means a better interest rate and a larger choice of lenders.
10. Fill the voids
If your buy-to-let property is empty for any period of time, consider whether any expenses such as utilities or council tax can be claimed as an expense. Given the high demand for rental properties, and the limited supply, your property should not have long void periods.
Letting agents can actually save landlords money (Endsleigh). Whilst not using an agent may result in ‘savings` of around £159 per month, when rental income and voids are taken into account it was found that agents actually saved landlords an average of £2000. Most of the savings were made through agents minimising void periods, compared to landlords who deal with the rental of their property themselves. The majority of those surveyed stated that costs were reduced as the agent found tenants quickly, and were able to help with legal and financial matters resulting in savings there.
The Key Place can provide you with a full management service for your property. Contact us now for further information.