Filing Tax Each Year: Why Landlords Should Use an Accountant

Types of Taxes for Landlords

There are three main types of taxes that landlords need to be aware of:

• Stamp Duty Land Tax (SDLT): This is a purchase tax payable on any residential property bought in the UK over a certain value. The current threshold is £250,000, which will revert to £125,000 after 31 March 2025. Importantly, landlords pay an additional rate on buy-to-let properties and second homes.
• Income Tax on Rental Profits: If your annual rental profit exceeds £2,500, or your rental income before allowable expenses exceeds £10,000, you must complete a Self Assessment tax return. Your rental profits are added to your other income to calculate your total income tax liability.
• Capital Gains Tax (CGT): When you sell or transfer ownership of a rental property, any increase in value (capital gain) is potentially subject to CGT. The current annual tax-free allowance is £6,000 but will be reduced to £3,000 from 6 April 2024.

Landlord Tax Deductions

One of the key ways to minimise your rental property tax liability is to claim all allowable expenses. Some common landlord tax deductions include:

• Mortgage interest deduction for landlords: While you can no longer deduct all your mortgage interest, you can claim a tax credit equivalent to 20% of your mortgage interest payments.
• Property tax for landlords: You can deduct council tax and other property-related taxes.
• Repair and maintenance deductions for landlords: You can deduct the cost of repairs and maintenance but not improvements.
• Home office deduction for landlords: If you use a dedicated space in your home to manage your rental property, you can claim a portion of your household expenses.
• Other allowable expenses: These include letting agent fees, insurance, legal fees, and costs related to services like cleaning and gardening.

Maximising Tax Deductions and Avoiding Common Mistakes

You can unlock significant savings and optimise your rental income with the right approach. It all starts with detailed record-keeping. Think of every receipt, invoice, and bank statement as a piece of the puzzle—documenting every penny spent on your rental property is crucial.

Remember, every allowable expense you claim chips away at your tax liability. From mortgage interest to council tax, insurance premiums to essential repairs, ensure you claim everything you are entitled to. However, be mindful of the fine line between repairs and improvements. Replacing a broken boiler is a repair. Adding a fancy new conservatory is an improvement, and the rules are different.

You can explore the best tax software for landlords, designed to streamline record-keeping and simplify your tax calculations. And if it still seems overwhelming, feel free to seek the guidance of an experienced accountant. Their expertise can be invaluable in navigating the complexities and ensuring you are claiming every deduction you deserve.

Making Tax Digital (MTD)

The government is gradually moving towards a fully digital tax system under its Making Tax Digital (MTD) initiative. This requires businesses and landlords to submit quarterly returns to HMRC via MTD-compatible software. Landlords with annual property income above certain thresholds will be required to comply with MTD from April 2026 if they have an annual business or property income of more than £50,000 and from April 2027 if they have an annual business or property income of more than £30,000. It is advisable to consult with an accountant to ensure you have the right software and processes in place to meet these requirements.

Choosing the Right Accountant

While managing your rental properties, you would not trust just anyone to handle your tenants or repairs, would you? The same applies to your finances. Choosing the right accountant can make all the difference in optimising your tax position and ensuring a smooth financial journey as a landlord. But with so many options out there, how do you find the perfect fit?

• Experience is Key: First and foremost, seek out an accountant with a proven track record in property taxation. They should be well-versed in the nuances of rental income, allowable expenses, and the ever-changing landscape of property tax legislation.
• Qualifications and Credentials: Do not hesitate to inquire about their qualifications and professional memberships. Are they chartered accountants or members of esteemed organisations like the ICAEW or ACCA? These credentials provide assurance of their expertise and commitment to upholding professional standards.
• Word of Mouth and Reviews: Tap into the power of your network. Seek recommendations from fellow landlords or property investors. Online reviews can also offer valuable insights into an accountant’s reputation and client satisfaction.

The Right Questions to Ask

Schedule consultations with potential accountants before deciding. This is your opportunity to gauge their suitability and ensure they align with your needs. Don’t shy away from asking key questions such as:

• Fees: Transparency is crucial. Understand their fee structure and ensure it aligns with your budget.
• Services Offered: Do they offer a comprehensive range of services, from bookkeeping and tax filing to financial planning and advice?
• Tailored Approach: Can they adapt their services to your specific needs and property portfolio?
• Communication Style: How will they keep you informed and involved in managing your finances?

Choosing the right accountant is an investment in your financial well-being. Take the time to find a qualified and experienced professional who understands your needs, then you can rest assured that your tax affairs are in capable hands.

Conclusion

Navigating the complexities of landlord tax deductions and rental income tax can be challenging. By understanding your tax obligations, claiming all allowable expenses, and seeking professional advice from an accountant, you can ensure you meet your legal responsibilities and maximise your financial outcomes.

Seeking professional guidance can make all the difference. At Crown Luxury Homes, we understand the unique challenges faced by landlords. Our team of experienced property management specialists can provide expert advice and support tailored to your individual needs and portfolio.