10 ways to cut your tax bill
Every landlord must submit a tax return, even those who don’t make a profit. Your return for each tax year must be filed by the end of the following September, or by the end of the following January if you want to do it online.
If you are new to this game, you really ought to speak to an accountant to get some specific advice for your business, but if you want to wing it and have a go at filling in your tax return yourself, you can register on the HMRC self-assessment website.
You’ll need to tell HMRC how much rent you’ve earned and how much your expenses come to, then it will work out how much tax you’ll have to pay.
So what expenses can you claim to reduce your bill? Well, funny you should ask. Here are our top 10.
you can include all of the interest you pay on your buy-to-let mortgage plus any interest you pay on other loans taken out for the purpose of your BTL business. For example, if you re-mortgaged your own home to release equity for a deposit for your rental property, you can deduct the interest on the extra money you borrowed. However, you mustn’t deduct any of the repayment part of any loan.
Note that from April this year, landlords will no longer be able to deduct loan interest payments from their taxable profits. Instead, they will be taxed on their rental income, then they will receive a tax credit for their loan interest payments, but for higher-rate tax payers the tax credit will be only 35% for 2017/2018 and this will be reduced by 5 percentage points a year until 2020 when it will be 20%, the basic rate of tax.
Letting agents’ commission:
You can deduct all of your letting agents’ fees plus any other marketing, advertising or management costs. These include charges to online letting agents.
these include the cost of protecting your tenant’s deposit and preparing a tenancy agreement.
such as accountancy costs, legal fees for the any advice regarding your rental business (but not legal fees you incurred when buying the property – these can be deducted from your capital gains tax when you sell), charges for referencing tenants and the cost of preparing an inventory and check in and check out reports.
the cost of any repairs can be deducted from your pre-tax income, but not the cost of any improvements to your property, which must be deducted from your capital gains instead. So, if you replace an old kitchen with like for like (ie the same standard of appliances, the same number of units of the same specification) you can deduct the cost from your income tax, however, if you replace the old kitchen with a higher spec kitchen or add more appliances or units, this is considered an improvement and can’t be deducted from your income tax.
Note that if you replace old or broken single-glazed windows with double-glazed windows, the cost can be deducted from your income tax as HMRC accepts double-glazing is the modern equivalent of single-glazed windows.
this includes your landlord insurance, rent guarantee protection and your buildings and contents insurance.
Service charges & ground rent:
plus any cleaning costs and management charges.
Furniture & appliance replacement:
for rental income earned up to April 2016, landlords have a 10% ‘wear and tear’ allowance, in other words, you can deduct 10% from your total rental income for the notional cost of replacing furniture, appliances and kitchenware. If you are filling in your tax return now for rental income earned up to last April, this will be your last chance to claim the wear and tear allowance.
For rental income earned after April 2016, landlords can only claim back the actual cost of replacing old or damaged furniture, appliances and kitchenware. You can also claim the cost of disposing of the old items and delivery and installation of the new ones. However, you cannot claim back the cost of furnishing a property in the first place, only the cost of replacement items.
gas, electricity, water bills, and the cost of providing broadband can be deducted along with council tax, assuming you pick up these costs, not the tenant.
this includes any expenditure you incur related to letting your property, such as train fares, mileage costs, stationary, phone calls and office costs. If you run your rental business from home, you can claim a small portion of your household bills, but you must be careful not to deduct too much otherwise you could incur capital gains tax on the sale of your home.
This article is intended for advice only as we are not accountants or legally trained. You are strongly advised to seek professional advice regarding your tax return.