It’s really important to find a good accountant who specialises in property. The aim of a good accountant is to help you make more money and pay less tax on your property portfolio.
Your accountant should be knowledgeable in the latest tax rulings that will affect you as a property investor. They should be driven to reduce your tax and to structure your property purchases in the most tax efficient way.
Renting out your property and Tax
You are required to pay tax on any profits that you receive from your rental income. You can offset costs incurred from the rental income received; this will give your profit total.
Prospective New Tax rulings
At the time of writing though (February 2016) the government are trying to introduce new tax rules for the property investor.
The Chancellor wants to remove the landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax.
In effect, Mr Osborne wants to tax landlords on their turnover rather than their profit, meaning that tax will be payable on non-existent income. So, landlords will have to pay all of their profit in tax, and then pay more tax still.
Currently more than 55,000 property investors have signed a petition to have this debated in parliament.
Buy to Let Tax Calculator
Telegraph Money has developed a buy-to-let tax calculator that gives an indication of how your profits be affected by the new tax over the next five years.
Current Allowable Expenses
Current allowable expenses are things you need to spend money on in the day-to-day running of the property, like:
· letting agents’ fees
· legal fees for lets of a year or less, or for renewing a lease for less than 50 years
· accountants’ fees
· buildings and contents insurance
· interest on property loans
· maintenance and repairs to the property (but not improvements)
· utility bills, like gas, water and electricity
· rent, ground rent, service charges
· Council Tax
· services you pay for, like cleaning or gardening
· other direct costs of letting the property, like phone calls, stationery and advertising
It is therefore important to keep good records and accounts of these allowable expenses.
The tax you pay will depend on your personal circumstances and you should seek the advice of an accountant.
All the repair and maintenance work that you carry out on your properties can be written down as tax-deductible expenses, so for the sake of keeping decent records and filing receipts and paperwork, you could save yourself money on your tax bill.
Furnished residential lettings
You can claim 10% of the net rent as a ‘wear and tear allowance’ for furniture and equipment you provide with a furnished residential letting. Net rent is the rent received, less any costs you pay that a tenant would usually pay, eg Council Tax.