Tax high five
In a difficult market it’s important to make sure that you’re not paying too much tax and that you are claiming everything to which you are entitled. Here Clare Gascoigne looks at five possibilities to consider
Clare Gascoigne
“Remember that you can claim wear and tear on furnishings — 10% of your annual rental income is the usual charge.”
1. Spend some money on energy efficiency
If you have any spare cash, consider spending it on proper insulation, whether in the loft, cavity walls, windows or lagging the boiler. Landlords can deduct up to £1,500 income tax relief if they insulate a rental property — and can bask in the warm glow that comes from having the highest rated Energy Performance Certificate, now a document that must be made available to tenants. It may not raise the rent, but a properly insulated property with low heating bills may well be more attractive and so help you avoid those dreaded void periods.
2. Consider setting up as a limited company
This doesn’t work for everyone, but if you have a significant rental income it can cut your tax bill. A limited company (which need have only one shareholder — you) will pay corporation tax at 21% on profits up to £300,000, instead of the 40% charged to the higher rate taxpayer. To take an income, the company pays you a dividend, which is then taxed as income; however, you can defer income by reducing the dividend.
3. Check you are claiming as much income tax relief as possible.
Expenses such as letting agents’ fees, insurance and maintenance costs can all be offset against rental income and therefore reduce your income tax. Remember to claim wear and tear on furnishings — 10% of annual rental income is the usual charge. Make sure you are clear what you can and can’t claim; improvements such as a new bathroom cannot be claimed, but you may be able to claim petrol and motor costs incurred in visiting the property.
4. Write your life cover in trust
Of course, you’ve taken out life cover on the mortgage for your buy-to-let — but have you written the policy in trust? If not, you could be leaving a nasty headache for your family after your death, as the policy proceeds will be counted as part of your estate and so could be liable for 40% inheritance tax. When a policy is written in trust (using standard documentation that is available through your broker), the money is paid directly to your beneficiaries.
5. Cash in on the stamp duty holiday
If you’re looking to adjust your property portfolio, remember the government has abolished stamp duty on properties worth up to £175,000. With properties now cheaper than before, it could be worth looking at the starter homes market. But the stamp duty holiday is only for the next year, so make sure you get your timing right.
