Buy To Let Tax guide

While death and taxes may be the only certainties in life according to Benjamin Franklin, he made no mention of just how much tax you needed to pay. With this in mind, Landlord Mortgages, the UK’s largest specialist buy-to-let broker, has put together a list of top ten tips to mitigate the tax you need to pay on your buy-to-let property:

1. Speak to a Tax Expert – Tax is a very complex area and it is worth paying to speak to an expert as they will have the most up to date information and may be able to point out tax mitigation tips you were not aware of.

2. Claim all the Tax Relief that is due to you – While tax is charged on all rental income from your properties, you can claim tax relief on mortgage interest, repairs, insurance, letting agency fees, 10% of all rental income each year to cover depreciation and professional advisory costs incurred after the purchase of the property.

3. Consider an interest-only mortgage – Landlords can offset the interest they pay on their mortgage against their rental income to reduce the amount of tax they pay so it pays to use a financing product, which has consistently high interest repayments.

4. Reduce Stamp Duty – When choosing an investment, it is worth remembering that in certain ‘disadvantaged areas’ properties worth less than £150,000 are exempt from stamp duty. A quick search to check which postcodes qualify can save you a considerable amount.

5. Consider setting up a Limited Company – Holding your buy-to-let properties as a Limited Company has a wide variety of advantages including the fact that the first £10,000 profit a company makes is exempt from tax. However, there are disadvantages and you should discuss these implications with an expert before making a decision.

6. Make a will – If you should die without a valid will, not only are you unable to decide who receives all your assets but they will not be disposed of in a tax efficient way which could have huge financial implications for your heirs.

7. Consider joint ownership of your properties to lower your Capital Gains Tax liability – If a married couple holds a property jointly when it is sold, both spouses’ annual capital gains tax allowances can be used (2 x £8,800)

8. Ensure your tax returns are honest and accurate – The Inland Revenue investigates over 10,000 returns each year. If you are one of the unlucky few and have not filled in your returns accurately, you could end up with a substantial tax bill, a fine or even a prison sentence.

9. Make the most of your spouse’s personal income tax allowance – If your spouse is in a lower income tax bracket than you are (and you trust them), it may be a good idea to transfer the buy-to-let property into their name in order to minimise the amount of tax you pay.

10. Consider your ‘exit strategy’ – Most landlords face huge capital gains tax liabilities when they decide to sell their properties so it is worth looking into how this bill can be minimised when you are setting up your portfolio.

Lee Grandin, Managing Director of Landlord Mortgages comments:

“Paying tax is a fact of life. However, the amount of tax you pay can be reduced if you understand and take advantage of the tax breaks available to you. We strongly suggest that all buy-to-let investors review their portfolio and speak to an expert about tax mitigation techniques. The cost of several hours of an experts time is considerably less than the tax bill you could receive if you don’t choose to do so.”