Landlord Advice Hull - Buy-To-Let Tax Advice

New tax rules which will affect landlords in 2017 will remove landlord’s’ ability to deduct mortgage interest from rental income on profit calculations. In effect, the Chancellor wants to tax landlords on their turnover rather than profit, meaning that tax will be payable on nonexistent income, a large blow to landlords. In this post we will share our buy to let tax advice and look at ways to mitigate the changes and provide landlord tax advice for buy to let landlords who are considering investing in buy-to-let – or improving returns on a property they already own.

Buy to let tax advice for landlords 

Our experienced buy to let accountants are very knowledgeable in providing buy to let tax advice.  With the recent changes we would like to offer proactive advice and ensure you are taking advantage of the tax reliefs and opportunities available to you.

1. Claim back on Landlord's expenses (Income Tax Planning for Landlords)

The more expenses you claim, the less tax you will pay. There are lots of expenses that many buy-to-let landlords overlook altogether or do not claim enough. Examples include home office expenses, use of your car. wages of gardeners and cleaners, and letting-agency fees.

2. Claim Replacement of Domestic Items Relief

Among the recent changes to the tax rules affecting buy-to-let landlords was the replacement of the Wear and Tear Allowance with the Replacement of Domestic Items Relief with effect from April 2016. The Replacement domestic items relief enables all landlords of residential dwellings to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property and claim back expenses to reduce your tax bill.

Instead of claiming 10% of their net income as a deduction in calculating their taxable property business profits, landlords will only be able to deduct the actual costs incurred on replacing the furniture and appliances for use within their properties.

This measure will give relief for the cost of replacing furnishings to a wider range of property businesses as previously there was no tax relief for the replacement of furnishings in partly furnished or unfurnished properties.

3. Become a Limited Company

A more drastic solution is to set up your own company to hold your properties. by doing this you can avoid 40% income tax and pay just 20% corporation tax. Of course it's not quite as simple as this and there are lots of other tax planning issues to consider and there are a number of issues you will need to think about carefully before you adopt this strategy.

Perceived advantages of an incorporated business:

• the restriction on interest relief for residential landlords, which is being phased in from April 2017, does not apply to companies.
• the corporation tax rate is only 20% (reducing to 19% and then 18%), consequently there is a potential tax saving for those property investors who do not need to extract all profits from their business.
• In addition the government has announced changes to the taxation of dividends which will impact on the attractions of using a limited company.

Before incorporating your buy-to-let business you should consider all the pros and cons, speak to an accountant and take detailed professional landlord tax advice and be confident that the structure meets all your requirements.

4. Capital Gains Tax Planning for Landlords

Capital gains tax is generally payable when you sell rental properties. It may also be payable if you transfer a property to someone else, eg another family member (although spouses are generally exempt).

Tax is generally payable at 28% on your "profit" - the difference between the price you paid for the property and the price you sold it for.

Where a let property is owned by one spouse, a transfer into joint ownership can save income tax on the annual profits, and Capital Gains Tax on the eventual sale, as both spouses will be able to set their annual capital gains exemption against the capital profit made. For example, the first £11,000 or so is tax free, being covered by your annual CGT exemption. If both you and your spouse own the property then the first £22,000 or so is tax free.

Also, Not all capital gains are taxed at 28%. This tax rate is only payable if you are a higher-rate taxpayer. Taxpayers with less income only pay 18% tax. So if you can transfer properties to your spouse who is a basic-rate taxpayer or sell properties in years when your income is very low (e.g. when you retire) you may be able to pay tax at just 18%

When transferring a property from the sole ownership of the higher earner to the sole ownership of the lower earner there is no Capital Gains Tax to pay on such a transfer, but some Stamp Duty Land Tax (SDLT) may be due if the property is mortgaged. The formula for calculating SDLT due on rents payable under leases is complicated, but there are a number of interactive tools on the HMRC Stamp Office website to help you.

Capital Gains Tax on Second Homes

It is possible to reduce capital gains tax by making a main residence election for a second home you own. It is also possible to reduce capital gains tax by moving into a rental property and making it your home for a period. So if you actually live in your property for a while you can elect for it to be your Principle Private Residence (PPR) or Main Residence Release (MRR), which means it will protect a proportion of the gain from Capital Gains Tax that arises on the sale.

5. VAT Advice for Commercial Landlords

If you are dealing with a property transaction which is in anyway unusual, get expert VAT advice from an accountant on matters whenever you consider a lease or purchase of commercial property.

6. Inheritance Tax Advice For Landlords

If you are a property investor or a landlord with more than one house it is possible you have assets that your children or other beneficiaries may end up having to pay inheritance tax on. It is therefore essential to take specialist landlord tax advice and carry out some careful inheritance tax planning so that your beneficiaries are not left with big tax bill.

Landlord Accountants - Providing Landlord Tax Advice

There are lots and lots of other tried and tested tax planning strategies for landlords in Hull, East Riding of Yorkshire & across the UK. Please contact our specialist landlord accountants in Hull if you have any questions on buy to let tax advice or would like specific landlord tax advice relevant to your personal circumstances.

Overseas Landlord? 

Check out our popular blog on the tax implications when selling a property abroad.

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