Tax Advice for Landlords

Looking for ways to make your buy-to-let property more tax efficient? These 20 tips will help you prepare for your property tax and make the most of your rental income.

  • Check your tax code each year to avoid paying undue taxes. If the numbers and letters don’t match your situation or if your income tax information is incorrect then you may need to call HMRC to correct your tax code.

  • Keep records of all your property expenses and receipts for the past six years, in case HMRC requests to see them.

  • You can deduct Allowable Expenses from your rental income before declaring taxable income. Plus, if you own multiple properties, you can claim one property’s expenses against another’s receipts from the same year.

  • Your rental income excludes the deposits you receive from new tenants.

  • Put aside at least 1/4 of your rental profits each month, so you have the funds on hand when taxes are due.

  • If you incurred annual losses in the last tax year, you could forward these to offset the current year’s profits.

  • Keeping a separate bank account exclusively for your property letting business makes it easy to prove figures to your tax inspector and to calculate net rental profit or loss.

  • Landlords have an Annual Investment Allowance up to £200,000 for capital expenditures on their properties. This includes most plant and machinery, such as water heating systems, air-conditioning, bathroom suites, and fire alarms.

  • You can claim business mileage that pertains to your property (e.g. bank trips, trips to property, trips for maintenance supplies, etc.). Current rates are 45p per mile for the first 10,000 miles and 25p per mile after the first 10,000 miles. Different rates apply for motorcycles and bikes.

  • If you let furnished property, remember to deduct a ‘Wear and Tear’ Allowance equal to 10% of the net rent.

  • If you forgot or consciously omitted some property repair costs from last year’s income tax, you can reclaim these costs up to one year after the HMRC’s deadline for submission.

  • If you let furnished accommodations in your home, the Rent a Room Scheme allows you to earn up to £7,500 per year tax-free (up from £4,250 as of 6 April 2016).

  • In the 2016–2017 tax year you can claim tax relief on mortgage interest payments at your marginal tax rate. Beginning April 2017 this relief will be reduced to a flat rate of 20%.

  • Married couples and civil partners can transfer £1,100 of personal allowance from the lower-earning partner to the higher earner, reducing your tax by up to £220. The lower earner’s income must be below £11,000, and the higher earner’s income must be between £11,001 and £43,000.

  • If married or civil partners live together, and only the higher earner owns property, transferring sole ownership to the lower earner of one or more properties will result in lower rates (assuming the transfer doesn’t push the lower earner into a higher tax band).

  • You can claim Capital Gains Tax (CGT) reliefs on your furnished holiday lettings located within the European Economic Area (EEA). You may also qualify for additional relief if you let your property before April 2010 and you were taxed on the profits in the UK.

  • In the 2016–2017 tax year, you only have to pay tax on capital gains that exceed £11,100. If you own a property jointly with your live-in spouse or partner, you can double this allowance to £22,200.

  • You’re liable for CGT when you sell a property, but you can claim CGT relief for the last 18 months of ownership if the property was used as your primary residence at any point of ownership.

  • Pension contributions up to £40,000 per year attract tax relief at your marginal rate. When you sell your BTL property, a lump contribution to your pension could save you up to £4,000 on your CGT.

  • You should seek out expert advice any time you’re about to deal with a new property transaction or when you’re considering leasing or purchasing commercial property.

The 2015 – 2016 tax year ended 5 April 2016 and the deadlines for self-assessment are almost upon us. Remember to register for self-assessment before 5 October 2016. Paper tax returns are due by 31 October 2016 at midnight, and electronic tax returns and tax payments are due 31 January 2017.


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