If you are a landlord and invest in one or more properties that are available to rent, you will no doubt be aware that there are various tax implications depending on your circumstances.
Yet in the ever-changing world of tax and expenses, it can be difficult to keep on the right side of the law without a little help.
At Avanti Tax Accountants, we try to keep our clients ‘in the know’ at all times and advise on the best ways to manage your residential or holiday lets in the most tax efficient way.
This includes communicating an understanding of exactly which expenses are allowable – enabling you to make tax savings – and which are not.
If you have not already done so, you will need to register with HMRC to complete Self-Assessment Returns declaring your income, less your allowable expenses.
What is an allowable expense, to reduce the tax payable?
Since April 2017 you are no longer able to claim 100% of any mortgage interest – if you have been doing so, you will find your allowance being scaled back each year from now on. Landlords purchasing new properties will not be allowed to claim any mortgage interest as an allowable expense!
Here is an overview of the expenses you are currently allowed to claim for in order to reduce the amount of tax you need to pay:
• Repair Costs
You can claim costs such as repairs, but not capital items – such as more permanent home improvements
• Service Charges & Fees
You can claim any service charges, accountant’s fees, insurances and management agent fees
• Wear & Tear Replacements
Whilst you are technically able to claim ‘wear and tear’ the Wear & Tear Allowance was abolished from 6th April 2016 and substituted with Replacement Costs. The new rules include several exclusions for example, instead of claiming a flat rate allowance, you will be able to claim the cost of replacing the furnishings but not the initial cost.
The replacement has to be like-for-like or the nearest modern equivalent, and allowance also included for the costs incurred in disposing of the furnishings. This is NOT applicable to furnished holiday lets however.
This new scheme permits landlords to deduct the actual costs of replacing:
o furniture
o furnishings
o kitchenware
Selling your investment – what is allowable?
If you have an investment property that you have decided to sell, you will need to be aware of the following:
• You have a personal allowance (currently (2017) £11,300) that reduces your profit. If the property is owned jointly you are able to use both allowances
• You will pay a ‘top slice’ tax at (currently) 18 or 28%. This tax is looked at after all other income you receive.
• You can deduct costs e.g. estate agent fees (purchase and sale) and Stamp Duty on purchase etc. This when you would also deduct any capital improvements you have made (not repairs).
• There are often other complex reliefs available
NB: Unless you have a particularly large garden (over .5 hectares) you don’t pay tax when you sell your ‘main’ residence. This must be evidenced with paperwork, proof, election with HMRC.
Furnished Holiday Lets
These are not classed as an investment as far as HMRC are concerned. Instead, they are classed as a business. You can, therefore, claim different expenses including:
• Rates & Insurance
• Heat & Light
• Agents’ Fees
• Cleaning & Repairs
• Advertising
• Interest on mortgage or other loan used to purchase the property (but not the repayments) – subject to limitations
• General expenses – e.g. stationery / phone / insurance etc
• You may also be able to claim an allowance for travelling to the property, so make sure you keep a record of any visits you make.
However, Furnished Holiday Lets do come with certain restrictions depending on the number of days they are offered for let & the number of days they are actually let per year.
Asking an experienced tax accountant, who is up to date on the ever-changing rules and regulations for help, can not only save you the headaches but also a lot of money.
For help completing your property supplement within your tax return, contact Avanti Tax Accountants on 01473 558866.
Thank you to Victoria Sharp for providing this article:
Victoria Sharp FMAAT ICPA AFA MIPA, MD at Avanti Tax Accountants, part of The Avanti Group (UK) Ltd.
Qualified Tax Accountants assisting businesses and individuals throughout the UK with their bookkeeping & VAT, Payroll & CIS, Year End Accounts, Corporate and Personal Tax.