With the 2021-2022 tax year coming to an end in April and rising mortgage rates denting the profitability of buy-to-lets, it is more important than ever that British landlords make full use of the tax reliefs available to them. For any landlords in doubt about what they can and cannot claim, seeking the advice of an experienced accountant should be the first port of call. That being said, it is still imperative that all landlords have a working understanding of their responsibilities and the support available to them.
Understanding private, company and buy-to-let taxation can be nothing short of a minefield. Unfortunately, the UK tax code is far from simple. This is why Landlord Vision has compiled a selection of resources and support to guide you.
Using The Right Legal Structure to Purchase Properties
One of the biggest determinants of your tax liabilities and the relief you can claim is the structure in which you hold your properties. Many longer-serving landlords will hold their properties under their own name and are therefore required to declare the income on their self-assessment tax return. However, with the changes to mortgage interest relief, the majority of landlords now hold their properties under a limited company umbrella. In short, the limited company owns the properties, and the landlord owns the limited company. Landlords operating with limited companies will need to assess their corporation tax liabilities and register their updated accounts with Companies House.
Choosing whether or not to operate your properties through a limited company can be quite a complex decision. The best course depends on how large you hope to grow your property empire and whether you already own your properties under your own name. Landlords looking for more information on the topic would be wise to read our recent post detailing the advantages and disadvantages of using limited companies:
Claiming The Property Income Allowance
Landlords operating properties under their own name can be eligible to claim the Property Income Allowance (PIA) for all income earned from building, land or property. If you earn less than £1,000 per year, then you are not required to inform HRMC of your property income or declare it on your tax return. However, if you earn more than £1,000 from property in a year then you will need to declare this on your self-assessment tax return.
The Property Income Allowance allows you to deduct up to £1,000 from your tax liabilities, but no more than the amount of your income. The tax-free allowance can be used instead of deducting any expenses or other allowances. This means that in cases where your expenses are more than your income, it may be more beneficial to claim the expenses than the tax-free allowance.
If you own the property jointly, both you and your partner can claim up to £1,000 each in Property Income Allowance. HMRC advises that, if you do claim the PIA, you should keep a record of the following, even if your gross income is less than £1,000:
- copies of your invoices, paper or electronic
- a spreadsheet of your income receipts
- emails confirming income received
- statements from the company who paid you which show the amount you received
- bank statements
- bank deposit pay-in records
More information on the Property Income Allowance can be found on the government website.
Deducting The Right Expenses
Allowable business expenses can be one of the more complex and ethically grey areas of the UK tax code. In short, you can and should only claim expenses that have been accrued in the day-to-day running of your properties. Examples of these expenses include:
- Interest and finance charges
- Accountancy, legal and professional fees
- Insurance and service charges
- Advertising and marketing
- Motor and travel expenses
- Repairs and renewals
- Office costs
- Rental property furnishings
Landlord Vision has produced a comprehensive guide on tax-deductible expenses, which looks into the topic in more detail.
Making Your Home an Office
If, like the majority of landlords, you use your own home to complete clerical and management tasks for your properties, then you may be eligible to claim back some of the costs of running your home. Working out the appropriate amount of tax that you might claim back on using your home for business can be quite a complex affair. As such, many landlords opt to rely on a flat rate to work out how much tax they should claim.
If you believe that you are working more than 25 hours per month from home, then you are eligible to claim a flat-rate tax relief on the property, with appropriate rates determined by how many hours per month you complete work at home:
|Hours of business use per month Flat rate:|
|25 to 50||£10|
|51 to 100||£18|
|101 or more||£26|
As an example, if you were to spend more than 100 hours per month working from home to manage your properties, then you could claim up to £312 per annum in home tax relief. This rate does not include telephone or internet costs, which can also be deducted based upon appropriate usage splits.
More detail on the topic can be found in the following Tax Insider article.
Claim Your Miles
Sole traders and landlords operating their properties through a limited company can claim simplified expenses back based on their annual business mileage. The flat-rate tax deduction is intended to cover the cost of fuel, insurance, repairs, servicing and depreciation on the vehicle.
A breakdown of the flat-rate vehicle costs can be found below:
|Type of Vehicle||First 10,000 business miles in the tax year||Each business mile over 10,000 in the tax year|
|Cars or Good Vehicles||45p per mile||25p per mile|
|Motorcycles||24p per mile||24p per mile|
|Bicycles||20p per mile||20p per mile|
If you operate your business alongside additional partners or colleagues, you can also claim an additional rate of 5p per mile per passenger. Hypothetically, if you and your two additional business partners made a journey, you would be able to claim back 55p per mile (45p + 5p + 5p).
Again, more detail on the topic can be found on the following Tax Insider article.
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