How buy-to-let investors can reduce tax due on their income

With buy-to-let changes on the horizon in 2022, you’ll need to be savvy to stay ahead of the game…

We’ve already experienced many changes in the world of buy-to-let and this year is no different. The recent increases in tax threaten to squeeze buy-to-let profits further - at a time when many landlords are still struggling with lost rents from void periods as a result of the pandemic. The buy-to-let sector narrowly avoided another stamp duty tax rise last year, with Rishi Sunak removing the investor surcharge increase (to 4%) at the last minute. Changes to income tax relief, such as Section 24 being withdrawn means that landlords can no longer offset their mortgage costs against their tax bill. This has led many investors and buy-to-let owners to wonder whether the numbers still add up. If you’re in a similar position, there are some things you can do…

We’re about to share these little-known expenses that you can claim back relating to the property…

Claim back expenses

Many landlords are unaware that they can claim back for expenses such as the petrol cost of travelling between their rental properties and phone calls or texts sent in connection with a property. It is also possible to claim back the cost of subscriptions to property investment magazines, plus money spent on advertising the property, as well as legal and accountancy fees connected to the buy-to-let.

As you can see, deducting these kinds of expenses from your income can make a big difference.

Claim back for void periods

Many landlords have struggled to find any occupants for their properties during the coronavirus pandemic. Normally when a property is occupied, the tenant will cover the cost of council tax and heating. Landlords who find themselves having to cover these bills during a void period may be able to claim the cost back on their self-assessment tax return.

Claim 20% tax relief on your mortgage 

There’s no doubt that the mortgage tax relief is less generous than it used to be. You can still offset up to 20% of your mortgage interest against your tax bill. Make sure you’re using this relief to your advantage. From April 2016 the wear and tear allowance was replaced by RDIR.

Replacement Domestic Items Relief allows landlords to claim for the net replacement costs of items of furniture and fittings after the cost of disposal of the originals.

Move properties into a company 

Another option for property investors would be to move their properties into a company structure, which could work out to be more tax efficient. They are essentially selling the home to their new company and so, as director of the latter, they would typically have to pay stamp duty at the higher rate on the purchase. 

Use all of the reliefs available to you when selling your buy-to-let

These could include estate agents’ and solicitors’ fees, stamp duty and also surveying and valuation costs. You can even claim back money spent on the property during the renovation. Someone who made £15,000 in capital gains and spent £5,000 on a loft conversion, for example, would not have to pay any tax as that would bring the total gain to £10,000 which is less than a person’s annual allowance of £12,300.

The information here is for guidance.  No responsibility is accepted by us for reliance on it.  You should always obtain professional advice before making any decision relating to property, taxation or financial planning.  Prices, numbers and projections are correct at time of press and are for illustration only. 

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*https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income