Dealing with taxes is a standard necessity for landlords and property investors. It can be a tedious exercise. With the right preparation, however, you can minimize both the time and the expense involved.
If you are a landlord
If you are a landlord, you are directly investing in property. If you have been a landlord for an extended period, you will be well aware that the tax landscape has changed dramatically since the year 2000. In particular, mortgage tax relief has been abolished. This makes it even more important to make full use of all remaining options to minimize your tax liability. Here are some of the main ones.
Consider using the remaining SDLT holiday
This may or may not be a viable option. It is, however, still active for a few more months and hence worth keeping in mind.
Consider focusing on property you can improve
Property you can improve doesn’t have to mean obvious “fixer-uppers”, although it can do. It can simply mean property in need of a cosmetic update and/or some new appliances. This type of property may not actually work out more affordable overall. That said, you should only choose properties where the refurbishments are cost-effective. It can, however, be much more tax-efficient.
This is because you will pay SDLT on the purchase price rather than on the value after restoration. Admittedly, the increase in value can push up any subsequent CGT bill. On the plus side, you would still get the benefit of the capital appreciation. Right now, one possible area for landlords to look at is property with low energy-efficiency.
Remember to inform the local authority of voids
Depending on your local authority’s rules, you may get a discount on your council tax although it will probably be time-limited. Even if you don’t you may be able to claim CT and utilities as allowable expenses during void periods.
Keep records of all disposals as well as purchases
If you replace furniture and fittings, it’s advisable to be able to account for what happened to the old items. If you were charged for their disposal, you may be able to claim this as an expense. If, however, you received a benefit for them then this will be set against the cost of the replacement items. If you give items away, it’s generally most tax-efficient to donate them to a registered charity.
Definitely keep records of all purchases. Once the year is over, you or your accountant can work out which items are tax-deductible and which are not. Similarly, hold on to receipts for business expenses such as travel to meetings.
If you are a property investor
If you are a property investor, you are indirectly investing in property. There are various ways to go about this. The three main ones, however, are bonds/loans, shares and funds. All of these could potentially be put into an ISA. Maximizing your ISA contributions is generally the simplest and most practical route to minimizing the tax liability on indirect property investments.
There are various potential other routes. These do, however, tend to be very context-specific. This means that the only firm rule is to keep tax in mind when considering the viability of an investment. If necessary, get professional guidance on this.
Rogers Spencer are Nottingham accountants who can provide businesses with tailored accountancy services, which includes Bookkeeping, Business Taxation, Private Client Taxation, Audit & Assurance and more.