Diversifying your sources of income is a healthy way to make more money and increase your wealth. The real estate industry has always proved to be a lucrative source of income for those looking to invest in homes and rent them out to people looking for a place to live. Many investors and individuals have built a robust property portfolio comprising several houses that provide them with hefty rents.
However, becoming a property landlord isn’t easy. You need to follow several rules and regulations regarding rental income and expenses to ensure that you are compliant and not doing anything illegal. Many landlords need property tax advice to help them stay on top of their rental income tax and expenses.
When renting out your property to a tenant, you will be receiving rental income. When filing taxes, you need to declare all sources of income, including those earned from rentals on your annual self-assessment income tax return. The figures are used by the HMRC for income tax calculation.
It’s always beneficial to hire the services of an expert tax advisor and chartered accountant who can help with your self-assessment tax return for rental property. They can explain the ins and out of rental income and expenses and legally suggest ways to reduce your tax bill. Let’s look at some of the expenses you can claim against your income and reduce the amount of tax you must pay to the HMRC.
As a landlord, you’ll need all the help you can to find suitable tenants for your home. You can’t do it all alone, and you’d require the assistance of a real estate agent to advertise the property and find tenants on your behalf. You can deduct the amount of money you pay to these agents from your rental income, potentially reducing your tax bill. You are also allowed to deduct the commission earned by the real estate agent from your income.
If any repairs are needed to ensure that the property is liveable, you can claim these expenses as a part of your deduction to income. However, you’re not allowed to include any capital expenditure or anything that improves your overall assets as a part of your deductible expenses.
For example, if you’re paying to get a door fixed in your home, it can be considered part of your deductible expense. On the other hand, if the contractor suggests making improvements to the roof as part of the work during the installation, that wouldn’t be counted as an allowable genuine repair expense as it would improve the property rather than repair it. Essential items installed within your homes, such as baths can be included genuine repairs for which you can claim a deduction.
Calculating repairs expense can be quite difficult, and you’d need the help of a chartered tax adviser specialising in rental income and expenses to help you understand the ins and outs of allowable genuine repair expenses. You can also read the HMRC guide to rental income and expenses to learn more about the different rules involved when calculating your rental income.
If you run a property business and rely on transportation to run it effectively, you can claim motor expenses against your income. There are some options that you can consider when claiming the expenses. The first option is to go with the HMRC’s mileage rates. These are set to be 45p per mile for the first 10,000 miles you drive for your business. The rate drops to 25p per mile after 10,000. However, you can’t claim fuel and repairs on top as the HMRC argues that these costs are already included when determining the deduction rates.
The other option is to declare a percentage of your overall costs as business expenses. The costs shouldn’t include anything personal related; therefore, you can’t claim the entire cost of transportation. It can be hard to determine the amount of travel that was used for business and personal use. Hire an expert chartered accountant who can help you claim the right expenses.
It is important to note that once you’ve decided on an option, you can’t switch it in between years unless you’ve bought a new vehicle or changed your mode of transportation. HMRC doesn’t allow switching the options in a particular year, as they prefer to keep things consistent.
You can also declare home expenses as part of your deductible business expenses if you work from home. However, you need to distinguish the amount you spent on business and your personal expenses.
Now you can calculate the business expense based on the floor space you use while working, combined with the percentage of time you spend working from home. The other alternative is to consider a flat home rate. To figure out the best option for your needs and requirements, it is important to work with a reliable accountant who can analyse your business and recommend you the best solution.
As a landlord, you have the option of claiming professional fees related to your rental property or real estate business. If you’ve hired an accountant, legal professional, surveyor or anyone related to your rental property, you’re allowed to claim a portion of their fees. However, you need to be careful with these costs as not all of them are deductible. It is important to get in touch with a reliable accountant who can help you understand the criteria for claiming such costs. The last thing you want is the HMRC getting involved in your books because of your mistake in claiming expense deductions.
Business Establishment Costs
When starting your real estate business, you’d have likely incurred some costs to get your business up and running. These expenses that would likely be considered deductible after your business starts can also be claimed against your rental income. However, you need to keep in mind that home improvements are not a part of these deductibles. An experienced accountant will help you understand the type of start-up costs that you can claim against your rental income.
The HMRC understands the fragility of the current economic conditions and knows that businesses can have a hard time sustaining themselves. Therefore, they have allowed landlords and those involved in the real estate business to claim a loss from one property from the income of another property. However, you need to remember that you can only offset losses against your rental income and not any other personal income that you might earn from other sources.
It is important to fill out your self-assessment tax return correctly and include your rental losses, as you can carry these forward and offset them against the next year’s income. An expert accountant will help you fill out your self-assessment returns with ease and minimise the amount you have to pay in taxes by including all possible expenses and losses that you can offset against your income.
As a landlord, you might have purchased a rental property by taking out a mortgage. It is essential to know that you can get relief on your interest payments against the income you earn from the house. If you own a property that operates as a furnished holiday home, you can claim the interest as an allowable expense.
On the other hand, you can’t claim the interest as an expense if you own a property that is used for residential purposes. In such instances, you need to include an income reduction when calculating your income tax. It is always better to hire an accountant to do your rental income calculation for you, as they’ll be able to maximise the expenses against your income to lower your tax bill. These professionals will help you understand the ins and outs and ensure you’re complying with the HMRC.
You can also claim several other expenses that will help you minimise your tax bill. Any transportation costs involved when travelling via plane, train, taxi, or other means of transport for business purposes can be claimed. Also, if you spend money on food and lodgings while doing business, those costs can also be a part of your deductible allowances. It is always important to keep your personal and business receipts separate to allow transparency and ease of filing in your return.
You can also claim expenses such as council tax and utility bills against your income if you’re the one paying them instead of your tenant. Ground rent and service charges are also tax-deductible, and so is insurance. There might be a lot of other costs that might be unique to your situation that is deductible. Therefore, it is always wise to speak to an accountant to help you with your rental income and expenses needs.
Why Choose an Accountant for Rental Income Self-Assessment?
As a landlord or a real estate business owner, you’d have a lot on your place and doing taxes might not be your strongest suit. Doing taxes properly requires experience and expertise, and you can only get that if you hire an accountant for your rental income self-assessment. Things can get complicated if you decide to do everything yourself and have a complicated tax structure.
Therefore, it’s always beneficial to hire an experienced tax accountant who can guide you in filing your tax returns and ensure that you maximise the benefits. Self-assessment tax returns must be completed once a year, indicating how much taxable income you’ve earned during the year. As a landlord, you’d need to declare all the rental income you’ve earned and should list any deductibles or expenses that you may be able to claim.
A chartered accountant specialising in rental incomes and capital gains tax can help you with all your real estate income and expenses needs. They are well-equipped to help you navigate the tax complexities involved in real estate income, help you legally maximise the reliefs you are eligible to claim and ensure that the whole process is efficient and smooth.
A primary reason for hiring a professional accountant for your tax returns is that they will bring in all the expertise and experience required to handle your self-assessment returns and minimise the errors in your case. Doing taxes requires undivided attention and focus. You are bound to make mistakes on your returns if you’re doing taxes yourself and are engaged with other aspects of your business.
Hire IBISS & CO For Your Rental Income Needs
If you’re looking for an experienced chartered accounting firm that can help you legally minimise your tax bill and optimise your real estate business, you’ve come to the right place. IBISS & CO are one of the best personal tax advisors in the UK. We have established ourselves as one of the leading accountancy firms in the country through our unwavering commitment to providing the very best accounting, tax and business advisory services.
We recently opened up an office in Walsall and are looking forward to serving the local community with the same zeal and enthusiasm that have propelled our clients to new heights. It is worth working with one of the best chartered tax advisers & accountants in Walsall.
Our team of highly experienced accountants are well-versed in several domains. They can help you with your landlord self-assessment tax return, inheritance tax planning, non-resident landlord self-assessment, etc. We have extensive experience dealing with some of the most complicated tax issues.
We have worked with businesses in several domains, leading and small businesses looking to get a foothold in the current economic climate. If you own a rental property or have a complex business tax structure, we help you out. Our expert services and focus on providing the best experience to our clientele will ensure that your business is in safe and secure hands!
Contact us today for more information.