Buy-to-let tax advice
Investing in a residential property has become a popular choice in recent years,
as the stock market has remained stuck below previous highs, and people prefer
to take a more hands-on approach to investing for their retirement.
A good property investment should generate an ongoing rental income, and then a capital
gain when the property is eventually sold.
The Brighton and Hove housing market has lent itself well to such investment, as
its young population always needs affordable properties to rent, and of course
anyone living locally will know how much house prices have increased over the
last 10 years. As accountants in Brighton we help an increasing number of
local buy-to-let investors, and as a result we are particularly experienced in
saving both tax on ongoing rental income and capital gains tax on the sale of a property.
In particular, we can give advice on:
- What expenses can be claimed against tax
- Rent-a-room relief
- Claiming the 10% wear and tear allowance
- Claiming capital allowances
- Whether it is better to hold investment properties in a limited company
- Reliefs available against capital gains tax (CGT)
- Other ways of minimising capital gains tax.
When money needs to be borrowed to fund a buy-to-let investment, we can put
you in touch with a local firm of mortgage brokers with whom we have a close link. We can then work with them to get the best outcome for you, that
takes into account the cost of the borrowing as well as the tax relief available.
For advice on your property tax issues, give us a call on 01273 203003 or us.
Frequently asked questions - property tax
What expenses can I claim against my rental income?
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The main items are mortgage interest, maintenance and repairs, utilities, insurance and agency
fees. Accountancy fees are also an allowable deduction. However, we recommend that
you let us have full details of all the expenses you have incurred in letting out the property that you think might be allowable, so
that we can claim as many of those that are appropriate.
We tend to find that mortgage interest is often the largest single expense, but also the one for which there is the least information. So, please keep
and then let us have as much information as possible about your mortgage, so that we can claim the full interest expense. The
best information is usually an annual statement that most mortgage lenders send, particularly if this closely matches the tax year
(which ends on 5 April).
I have rental income from a property that is jointly owned. How much of the income do I pay tax on?
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Except in unusual cases where a partnership is established that owns and receives rent from the
property, then the income is split according to legal entitlement to the share of income. This is
usually based on the share of the property owned, but the owners can agree that they are each
entitled to a different profit share on which they will then be taxed.
Married couples (who live together) are a special case. For jointly owned property, each spouse
is taxed on 50% of the income, unless both the share of property owned and the share of income
are different from this, and each spouse requests in writing that this unequal share applies for tax
purposes.
What is the ‘rent a room’ scheme? Is it always best to use it?
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This relief is available when you provide furnished rental accommodation in your own home.
If it is claimed, it enables rent of £4,250 to be collected each year tax-free. If the annual rent is
more than that amount, only the excess is taxed, but no expenses can be deducted.
The relief is optional from one tax year to the next. It is not always best to claim it. For instance,
if you have a high rental income (say £10,000), claiming the relief would leave you with taxable
income of £5,750. If your expenses are over £5,000, then outside the scheme your taxable
income would be under £5,000. Thus, you are better off. We can help you to decide whether it is worth claiming the relief
each year.
Do I have to declare my buy-to-let income to the tax office? How do I pay the tax each year?
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Unless your property is held by a limited company, the tax on all profits from property is dealt
with under self assessment, along with all other types of income. This means you are obliged to tell
HM Revenue & Customs when you receive a new source of income, and you will probably have to start
completing a tax return every year. Full details on filling in the tax return and paying the tax are available on our
tax returns page.
I've made a loss from my rental property this year. Will I get tax relief on it?
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Unless the loss was from furnished holiday lettings (for which there are various conditions to meet),
in most cases you cannot offset your loss against other income, which is what might generate a tax refund.
The loss instead gets carried forward until the next year you make a rental profit, when it can be used to reduce that profit.
If you sell all your rental properties without ever making a profit, then tax relief on the losses is never achieved.
I've lived in one property, and also let it out at times. Will I have to pay capital gains tax if I sell it?
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This is a complicated and important area, and we recommend that you
speak to us, ideally before the transaction goes ahead.
The general rule is that if you lived in the property as your main home for all except the last 3 years of ownership, then you
will not have to pay any capital gains tax, unless the tax office can show that you bought the property just to
make a quick speculative profit. Other short periods of absence while the property was being residentially let, are similarly
likely not to incur any tax on sale.
In other cases there may be a chargeable gain, but we can work with you to
ensure that all available tax relief is claimed.
Will the price of my property go up, or would it be better to sell it now?
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Sorry, that's one question that we cannot answer! If we could, we would be very rich by now. Though there is no shortage of opinions
on this subject, very few people can confidently and reliably predict which way the housing market is heading. Whatever the market
does, we'll help you get the best tax advantage from it.
Got another question? Email us and we'll try to help.
Useful links
Buy-to-let property buying advice from rightmove.co.uk
HM Revenue & Customs' technical Property Income Manual
LandlordZONE
Comprehensive house price statistics and predictions
