- Get advice from specialist
It is important to seek guidance before you become a landlord. This will allow you to avoid the risk and make sure you are fully prepared before you purchase a property. The property owner can have an effect both on income and capital taxes.
- Maintain accurate records, MTD2023
Starting 6 April 2023, Making Tax Digital (MTD for Self Assessment) will be in effect. Every quarter, landlords who have Rental income (gross) exceeding £10,000 will be required to submit a digital tax return. For MTD, the appropriate software and record-keeping is most important.
- Optimise your expenses
New landlords should maximize their expenses. Ensure that you keep a detailed record of each of expenses related to renting out the property. Also make sure you know what expenses are allowed.
- Optimise tax
You might consider owning the property jointly if you have a spouse. This is a significant way of maximising capital gains tax savings on future sale and minimizing tax on income if one spouse is not in the highest tax bracket or personal allowances.
- Incorporating a limited company
If looking to purchase a portfolio of properties to hold, new landlords might consider incorporating a limited company. Be conscious of additional costs associated with accounting and running a company. The rental income, including mortgage interest, will be deductible from expenses. Individuals are only eligible for a 20% tax credit. While the tax would be charged on any profits, dividends are exempted from tax and subject to lower tax rates.
- Self-assessment registration
New landlords must register for self-assessment. Register with HMRC to self-assess your rental income by October 5, following the close of your tax year.
- Managing agent
A managing agent is recommended for new landlords. All management and commission fees are allowed to be deducted from rental income, as well as accounting fees to prepare your tax return and relevant accounts. agents handle all tenant finding fees, repairs and utilities checks. This can make it easier and more stress-free to manage your property if this is not something you want to do.
- Think about short-term rentals
A holiday rental property is subject to a separate tax treatment. It’s considered a business and not an investment. You can also qualify for tax reliefs. If you plan to operate the property as a business, the expenses will be higher but they are tax-deductible. The income from rent will also be higher.
- To avoid cash flow problems, make a payment plan
As a new landlord, it is important to plan ahead in order to restrict cash outflow. It is important to determine your tax dues and set aside a portion of the rent receipts to pay your due taxes. You should also have cash available for repairs and maintenance to your property – anything can happen, including storm damage or boiler failures.
- Get in touch with a tax expert
It can be tough to navigate the property sector, especially with fluctuating legislation and many considerations. For new landlords, it is important to work with a tax expert. It doesn’t matter if you have an accountant, but I recommend speaking to one to ensure you are completely informed about all the requirements of being a landlord.