Accounting and Tax Planning for Landlords

There’s simply no way around the fact that if you’re receiving income from a property, you have to declare it. We explain in detail about Accounting and Tax Planning for Landlords.

Most Landlords don’t have the time to sift through tonnes of regulations and statutory requirements in order to meet their tax obligations. They would much rather spend their time, tending to their business and growing their portfolios. There are very few business people that are able to completely manage their own tax affairs without help from a professional tax accountant and those who try the DIY route often find themselves paying more than they would have when a tax investigation starts.

Professional Tax Advice By Professional Accountants

What’s more, tax rules change with alarming frequency and its best to pay for the services to someone whose job it is to stay on top of the latest changes than to try and do it yourself as well as manage the world in which your business operates. Whether you are looking for accountants in Birmingham or accountants in London, don’t let your location distract you from actually appointing a specialist accountant. It could cost you dearly in tax penalties.

Your accountant should not be looked upon as an expense; after all, they’re there to save you money. Good accountants for landlords will usually save you money particularly where you have multiple properties and your business becomes complex. It’s not just the tax you pay on income from property that may need attention, but also all the deductions that you probably aren’t aware of that will reduce your tax bill. Quite often the reduction in a tax bill will be considerably more than it cost to pay the accountant.

So how exactly is a tax accountant going to help you with your tax planning? To begin with, a landlord has to travel to and from his properties, that’s business miles, a perfectly legitimate deductible expense. Do you know the formula that HMRC uses? we, the accountants do. While the sales of properties that are not your main residence are not subject to capital gains tax, did you know that capital losses on property investment can be carried forward to reduce the capital gains tax in the future? Your accountant knows exactly how to do this too.

Your properties can be taxed collectively in one year, so if you’ve suffered losses on one or more properties those losses can be set against profits made from other properties bringing yet another reduction.

Tax Changes Post 2017 – Restricting finance cost relief

The big bugbear post-April 2017 are the changes relating to tax relief on Mortgage Interest for buy to let landlords. Restricting finance cost relief for individual landlords, this change has also been called by other names, such as the Alice in Wonderland Tax and the Tenant Tax. What makes these changes complex is that the new rules apply to individuals only. If the property is owned by a company the old rules still apply.

Now whether it makes sense to form a limited company to avoid these changes is something that will depend on your personal circumstances and yes you guessed it – you’ll need a competent accountant well versed in tax for landlords to be able to tell you how to go about dealing with the changes, what to do and what not to do. Remember selling your properties to a company that you set up will trigger Capital gains Tax and stamp duties, so it may be more expensive to change the financial structure of your investments. A real headache, of course, will be for those individuals that have larger property portfolios.

If you haven’t done anything about it, it’s not too late. The full effects of these changes won’t take place until 2020, so instructing an accountant now to deal with these changes will equip you in preparation for when the entire change has been effected.

About to Become a Landlord?

So, what do if you haven’t invested in property yet but are thinking about it? Before you rush into setting up a company for the sole purpose of saving money on mortgage interest relief, there are other issues that come with owning accompany to consider. It is best to consider this in the context of how you want to manage the relevant tax issues and whether it will really be worthwhile in the long run.

Aside from the sleepless nights that are triggered by a change in legislation and statutory instruments, there are a number of other valid reasons to keep an accountant on your books. Perhaps the single greatest practical reason is because your accountant structures their working diary around deadlines and in particular tax return deadlines. It’s easy to lose track of these deadlines, and suffer the consequential fines or possibly have your tax liability doubled. That risk alone justifies the cost of an accountant that is an expert in your industry and well organised.

There are so many additional deductions that all add up, such as stamp duty relief that can be set against capital gains tax, accountancy fees for self-employed people, wear and tear allowance on furnished properties and also a renewals allowance when replacing items. It’s imperative that you remember to keep every last receipt relating to your properties, you’d be surprised you’re your accountant can write off tax, but without the receipts, you’d be shooting yourself in the foot.

Don’t forget that while you may be a landlord and have to worry about the related taxes, there are other taxes that may be affected by the structure of your business, whether or not you have formed a company. These include Income Tax, VAT, PAYE, Tax Credits, R&D Tax and Inheritance tax to name but a few.

No Two Landlords are The Same

A landlord isn’t just another landlord to your accountant. Some landlords don’t even live in the UK. They may not be liable for certain taxes but will still have to declare their income. If you’re a non-resident landlord you’re still going to need good tax advice to make sure you’re not being taxed twice on the same income and your accountant may need to establish whether there are reciprocal tax agreements depending on where you are resident.

You may not be a residential landlord. What about your obligations as a commercial landlord? Along with the different types of property ownership, there are different laws surrounding letting the property which almost always has a knock-on effect in respect of your tax bill. Property ownership simply isn’t a one size fits all investment.

Landlords that rent out rooms in their home can claim the first £7500 annually tax-free, under the Rent a Room Scheme. But remember if you rent out more than one room in your home, chances are that you’ll exceed that threshold and will need the requisite tax advice to avoid paying unnecessary tax on the difference.

Don’t Hesitate Instruct Your Tax Accountant Now

One of the biggest issues that you may face as a landlord is whether your investments place you dangerously close to the threshold between paying tax at the basic or higher rate. To ensure that your accountant can preserve your status to your advantage, make sure you seem them sooner rather than later.

The Accountancy solutions offer excellent advice to landlords and have offices based both in Birmingham and London. Contact us today to discuss your present and future tax plans.


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