If you’re a landlord in the UK, you’re probably aware of the various tax implications that come with owning rental properties. However, with the right tax planning strategies, you can maximise your rental property deductions and save money on your tax bill. Here are some essential tax tips for landlords to help you maximise your rental property deductions.
Keep accurate records
The key to maximising your rental property deductions is to keep accurate records of all your expenses related to your rental property. The list includes receipts, invoices, bank statements, and other relevant documents. For instance, records regarding free property valuations can come in handy when claiming Capital Gains Tax or refinancing. Further, you can use these records to claim deductions for expenses such as mortgage interest, repairs, maintenance, property management fees, and insurance.
Depreciation is the reduction in the value of an asset over time, and it’s a deductible expense for landlords. You can claim depreciation on your rental property and any improvements you make to it. To calculate depreciation, you can use HMRC’s standard rates, which vary depending on the type of property and the year it was purchased.
Deduct repairs and maintenance
Repairs and maintenance expenses are fully deductible in the year incurred. This includes expenses such as fixing a leaking roof, replacing a broken window, or repainting the property. However, it’s important to distinguish between repairs and improvements, as improvements are not deductible in the year they are made.
Claim interest on loans
If you have a mortgage on your rental property, you can claim the interest as a deduction. This includes interest on loans for the purchase of the property, as well as interest on loans used to make improvements to the property. However, if you’ve taken out a loan to fund personal expenses, you cannot deduct the interest on that loan.
Deduct property management fees
If you use a property management company to manage your rental property, you can deduct the fees you pay them as an expense. This includes fees for finding tenants, collecting rent, and maintaining the property. You can also deduct any other expenses related to managing your rental property, such as advertising expenses and legal fees. However, deciding this one may require a great deal of consideration.
Claim home office expenses
If you use a home office to manage your rental property, you can deduct expenses associated with it. This includes expenses such as rent, utilities, and office supplies. However, the space must be used exclusively for business purposes to qualify for the deduction.
Deduct travel expenses
If you travel to your rental property for business purposes, you can deduct the expenses associated with that travel. This includes expenses related to transportation, lodging, and food. However, if you combine business travel with personal travel, you can only deduct the expenses related to the business portion of the trip.
Claim capital allowances
You can claim capital allowances on certain assets such as furniture, fixtures, and equipment that you use in your rental property. This includes items like appliances, carpets, and curtains. Capital allowances allow you to deduct a portion of the cost of these assets each year, reducing your taxable income.
Claim for void periods
If your rental property is vacant for a period of time and you’re not receiving any rental income, you may be able to claim for the expenses incurred during this time, such as council tax or utility bills.
Landlords who own their properties as individuals are subject to income tax on their rental income. However, if you incorporate your rental business and own the properties through a limited company, you may be able to reduce your tax liability by paying corporation tax on your rental income instead.
Take advantage of AIA
If you make significant improvements or purchases to your rental property, you may be able to claim an Annual Investment Allowance (AIA) on your tax return. The AIA allows you to deduct the full cost of the asset from your taxable income in the year it was purchased. However, it is important to note that this deduction is limited.
Remember to keep accurate records of all expenses and consult with a tax professional. This will ensure you’re taking advantage of all available deductions and complying with all relevant tax laws. Further, make sure that you stay up-to-date with changes to tax laws and regulations, as these can affect your deductions and liability.