Buy-To-Let Tips

Practical Advice To Help You Profit From Rental Property

Tax Tips For Buy-To-Let

Tax laws are extremely complex so it is important that you obtain appropriate professional advice regarding your buy to let investment property from the outset. This will ensure that your personal circumstances can be fully assessed. However, here are some areas to consider as top tax tips for the property investor.

1. Set up a separate bank account for your buy to let property.
   
   
2. Keep full records of your rental income and the expenditure you incur on your property. These are essential when completing your Annual Income tax Return.
   
   
3. Claim for allowable expenses incurred before you let the property for the first time in addition to the ongoing expenses.
   
   
4. Deduct any business expense that is incurred for the purposes of earning profits from letting property. ('Capital' expenditure is not deductible although special allowances are available.)

   Common examples of deductible business expenses include:

   • Interest and other finance costs
   • Property maintenance and repair costs
   • Advertising for tenants
   • Accountancy fees
   • Buildings insurance
   • Cost of TV licence, telephone line rental, satellite system etc
   • Kitchen appliance insurance cover
   • Costs of drawing up a new rental agreement for not more than 1 year

   There are many more expenses that can be deducted in order to minimise the income tax liability of property investors.

5. Income tax: A buy-to-let landlord has to pay income tax to the extent that the income from the property rental exceeds the allowable expenses. Rent will be treated as income and taxed in line with your basic or higher-rate tax bands i.e. it will be added to your existing income. You will, however, be able to offset  expenses against the taxable rental income. This makes it more tax-efficient to have a mortgage on your investment property rather than your main home where you can no longer get tax relief on your mortgage.

   
   

6. Capital gains tax: This arises when you sell your investment property. You will receive taper relief, which gradually cuts your tax liability depending on how long you have owned the property. After three years you would be taxed on 95% of the gain. This falls each year, and after ten years you would be taxed on only 60% of the gain. When you sell your property, you will be taxed at between 20% and 40% on all relevant capital gains above a basic limit, the capital gains tax allowance. Buy in joint names to get double the allowance.
   
   

7. Capital Gains Tax and Inheritance Tax (IHT) can be reduced or eliminated ... take advice from tax specialists in these fields - not just the accountant who completes your annual tax return, who does not have the detailed knowledge required to reduce your tax charge as much as possible.