Being a buy-to-let-landlord is a complicated undertaking at the best of times, but with so much going on, tax efficiency is often the first thing to get overlooked. However, there’s a range of simple tips that mean any landlord can significantly reduce their tax bill, ensuring their buy-to-let business is able to thrive, whilst saving a lot of money at the same time. By following a few simple steps landlords can reduce their tax burden and, when the time comes, file a return that means they’re ahead of the curve and in great shape for the year ahead.
Set Up a Limited Company
Although not necessarily an easy process, if you’re able to set up a limited company as a landlord you’ll soon see a reduction in your tax bill. This will allow you to employ yourself or someone else to manage your property portfolio, purchase property through the company and see you get to offset costs against profits. This approach isn’t for everyone, but, if it’s right for you, an accountant will point you in the right direction and advise you on the best way to transfer your properties to a limited company.
Extending Your Portfolio
Investing in existing properties is a great way to avoid existing stamp duty charges and will also mean seeing the value of your portfolio increase. Changes in development rights mean being able to extend a property far further than was previously possible, which could result in an increase in monthly income. It’s worth noting, however, that if you do make improvements, you might be affected by changes to HMO rules. From 2017 it was ruled that properties with five or more tenants are required to have a HMO license, so if you are planning to make changes, you should check with the local council before undertaking any substantial building work.
Using Available Tax Bands
As a landlord, one way to cut your tax bill is to transfer your assets to your spouse, as capital gains trust is generally not paid when assets are moved between spouses. In such a case, use of a lower tax band means potentially paying less on your rental income. For instance, if the property in question has no mortgage attached and you’re not taking any financial gain from the transaction, you probably won’t have to pay stamp duty.
Getting the Most From Your Property
Getting your property reassessed is a money-saving move that not only reassesses its worth but also dictates how your business is viewed. A rental property that’s properly reviewed is a way to strengthen your position and ensures lenders will reevaluate your loan to value. If, however, your rental property increases in value, your loan obligations will reduce, which could mean an improved rate in your buy-to-let business.
Claiming Expenses and the Use of Short-Term Lets
To be a tax-efficient landlord means claiming everything you’re entitled to, and being on top of your expenses is only going to reduce your tax bill. Any landlord can reduce their bill by being more diligent, so those who do keep a keen eye on their expenses are usually ahead of the curve. Keeping receipts and talking to a tax advisor about what can and cannot be claimed ultimately leads to a real savings. For example, the cost of keeping a home office or a letting agent’s fees can be offset against your profits. So why not claim for them? Something that's often overlooked, but pays dividends going forwards.
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