Earnings from property rental are, in essence, treated like any other form of income, though you are granted a ‘property allowance’ of £1,000 (meaning that the first £1,000 you earn is tax free). Once you’ve crossed this threshold, the relevant income tax rate will be payable.
There are other landlord tax liabilities that may be incurred. For example, if you’re running a property business and make more than £5,965 a year, you will also be required to pay ‘class 2’ national insurance contributions (NICs). In addition, should you purchase a second home or buy-to-let investment, you will be charged an extra 3 in stamp duty land tax; and, if you are a landlord and go on to sell a property that is not your main residence but which has increased in value, a capital gains tax payment will also be due.
*Note that the information above relates to property rentals as opposed to hosting at a private residence – i.e. via the ‘Rent-a-Room Scheme’ – for which different rules apply.
How can we help?
The property tax landscape is complex and ever-changing. An experienced chartered certified accountant or tax consultant will ensure that you are kept apprised of any recent or upcoming changes, working with you to maximise use of all available reliefs and allowable expenses. If you are an IBISS & Co client, we will:
Make sure that you are up to date with all the latest legislation
The Summer 2015 Budget spelled big changes for landlord tax arrangements, with George Osborne announcing plans to restrict tax-relief with the aim of creating ‘a more level playing field between those buying a home to let and those buying a home to live in”.
In essence, these changes have capped the amount of expenses that can be deducted from property income to arrive at profit totals. The new property tax scheme is being introduced in stages, as follows:
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- 2017-2018: landlords will be able to deduct 75 of finance costs, with the remaining 25 given as a basic rate tax reduction.
- 2018-2019: landlords will be able to deduct 50 of finance costs, with the remaining 50 given as a basic rate tax reduction.
- 2018-2019: landlords will be able to deduct 25 of finance costs, with the remaining 75 given as a basic rate tax reduction.
- 2020-2021: 100 of financing costs will be given as a basic rate tax reduction.
As your advisers, we would keep on top of these – and any further – changes to relief and taxation, and ensure that we have a strategy in place to reduce your landlord tax liability.
Reduce the amount of tax payable by:
- Making use of all available reliefs. You may be able to claim income tax reliefs, for instance, or make use of the recent ‘domestic items’ relief (which replaces the existing ‘wear and tear’ scheme).
- Help you calculate ‘allowable’ expenses. Many of the general costs incurred through day-to-day and general landlord duties can be offset against your profits, significantly impacting on your property tax. Such expenses include: legal fees (for up to a year); buildings and contents insurance; cleaning and gardening services; and general business costs, like advertisements or stationery. We will help manage your accounts to ensure these adequately reflect your costs.
- Advising on expenses that are not allowable, such as mortgage payment elements (keeping abreast of recent changes) and personal expenses (such as telephone calls not related to the business).
The last thing that any landlord needs is to be hindered by unexpected property tax liabilities. If you instruct an IBISS & Co chartered certified accountant to handle your affairs, our top priority will be ensuring that your business is both profitable and enjoyable to run – and that tax is no cause for concern. To find out more about our services or to book a free conference with an expert tax consultant, please contact IBISS & Co today.