Tax saving tips for landlords

Tax is a complex area and it is essential that landlords seek advice from a specialist taxation and accountancy adviser. This will ensure a strategy is devised which best suits your individual needs.

The list below aims to give you some top tips, and you can download our complete Buy-to-Let Tax Guide for Landlords. This information has been written by Taxwriter Ltd for Mortgage Advice Bureau.

Tip # 1 - Do not forget to exclude the deposits you receive from new tenants when you add up your property income for your tax return.

Tip # 2 - A married couple (or civil partners) who are living together can transfer a property from the sole ownership of the higher earner to the sole ownership of the lower earner, so that the property income is taxed at a lower rate. There is no Capital Gains Tax to pay on such a transfer, but some Stamp Duty Land Tax (SDLT) may be due if the property is mortgaged.

Tip # 3 - Keep a separate bank account for your property letting business and pay all the rents into this account and all the expenditure out of it. If the tax inspector ever asks you to prove the figures in your accounts, it makes answering his questions much easier if the property related costs are not mixed up with your personal expenditure.

Tip # 4 - If you use an internet-only bank account, remember to print off your bank statements regularly - at least once a quarter. The bank will only provide access to those statements for a limited period and the statements may contain the only record of the rents paid into that account.

Tip # 5 - Put aside about one quarter of your profit from your properties in a savings account each month, so when the income tax bill arrives you have the funds to hand. If you already have substantial earnings from other sources you may need to put aside 40% or 50% of your profits to pay the tax due.

Tip # 6 - If you have not reclaimed some repair costs in the past as you thought H&M Revenue & Customs (HMRC) would argue about them, you can go back and amend your own or your company's tax return up to one year after the deadline for submission.

Tip # 7 - Where a let property is owned by one spouse, a transfer into joint ownership can save income tax on the annual profits, and Capital Gains Tax on the eventual sale, as both spouses will be able to set their annual capital gains exemption against the capital profit made.

Tip # 8 - If you have let property as holiday accommodation in any European Economic Area (EEA) country before April 2010, and been taxed on the profits in the UK, you may be able to claim additional tax reliefs to reduce the taxable profits. However, there are tight deadlines for submitting such claims, so ask for advice on this matter without delay.

Tip # 9 - On death, all the assets, including any properties, should be valued on an 'as is basis' taking into account the tenancies in place. A property with a sitting tenant will normally sell for much less than a property sold with vacant possession. The lower the value at the date of death the less inheritance tax will be payable.

Tip # 10 - If you actually live in your foreign property for a while you can elect for it to be your Principle Private Residence (PPR) or Main Residence Release (MRR), which means it will protect a proportion of the gain from UK Capital Gains Tax that arises on the sale.

Tip # 11 - If you are dealing with a property transaction which is in anyway unusual, get expert VAT advice.

Tip # 12 - Take expert advice on VAT matters whenever you consider a lease or purchase of commercial property.

Tip # 13 - The formula for calculating SDLT due on rents payable under leases is complicated, but there are a number of interactive tools on the HMRC Stamp Office website to help you:

Tip # 14 - Collect evidence that the building was unoccupied for a least two years. A letter from the local council Empty Properties Officer may suffice.

Tip # 15 - Listed building consent can be very general so provide plans and estimates at the time it is applied for to prove that the consent covers the work in question. If the job expands or changes, apply for consent to cover the changed work.

For more details, download our free buy-to-let tax guide for landlords