Following on from our incredibly popular 7 Tax Saving Strategies For Landlords article, we thought it would be good to revisit the subject to see how the landscape has changed and explore one or two new avenues landlords can take in 2022.
Landlords have been hit pretty hard of late, not least by the gradual withdrawal of the ability to offset mortgage costs against their tax bills and the ongoing coronavirus pandemic that has left many tenants struggling to pay their rent. With this in mind, we’re guessing that any guidance on how to save a bob or two will be welcome, so here we are.
Let’s get started, shall we?
Counterbalance COVID losses
As we mentioned above, UK landlords have had a tough time of things since the first lockdown back in March 2020. Many tenants suffered terribly as we were all told to ‘stay at home’ and the knock-on effect for landlords was often brutal. Just like their tenants, their income was taken away overnight.
While many granted payment holidays to their tenants, some were left with unpaid arrears. Not the tenant’s fault, but not the landlord’s fault either. Just another example of how strange things have become since the pandemic took hold.
With tax returns for the year 2020/21 literally days away, it’s important to remember that losses can be offset against future tax bills, which basically means you can carry losses forward. So, if your buy-to-let business shows a loss in any given tax year, you should declare it and deduct it from the following year’s profits.
For those lucky enough to hold a portfolio of properties, you’ll need to calculate profit and losses across the whole of your business, not individual dwellings. If the entire portfolio shows a loss, the above rules apply.
If not, you’ll be liable to pay tax on the profit you have made as usual, regardless of whether or not it’s less than you ordinarily would have made in a non-pandemic world.
Consider joint ownership
Although this won’t be a viable option for some, for those who can it is something well worth thinking about. Switching from sole ownership to a jointly owned agreement will allow you to split the rent and pay tax on the resulting income in the most efficient way available to you and your partner.
By the very nature of the arrangement, this avenue is usually restricted to couples, as giving away half of your income to a friend isn’t really a good way to save money! If your significant other’s taxable income allows it, though, this could lessen your overall bill to HMRC considerably. Run the numbers to see how it works for you.
Running cost reimbursements
Many buy-to-let business owners, especially accidental landlords, fail to claim the full amount when it comes to the running costs of their businesses.
Things such as home offices (and their associated costs), business calls, broadband charges, petrol or other travelling expenses incurred when visiting your different buy-to-let properties, advertising new lets, legal fees, accountant charges, and more can all be claimed for…so why not keep track of them all?
These may seem like minor expenses when taken individually, but add them up over the course of 12 months and it can be surprising (often shocking) at how much you lay out on your business during the course of each tax year.
Replacement of Domestic Items relief
Although the wear and tear allowance for furnished rentals was removed back in 2016, that doesn’t mean you are no longer able to claim for legitimate costs associated with replacing certain items of furniture and fittings found in most lettings.
The Replacement of Domestic Items relief means landlords can indeed be reimbursed for net replacement costs. You will, however, have to take into account the disposal of existing items and allow for any recuperation of monies made from said disposal of the original pieces of furniture or fittings you intend to replace.
Keep check of void period expenses
Many landlords consider void periods to be a total write-off in terms of money lost, but that isn’t strictly true. You can, in fact, claim for expenses on certain ongoing bills, such as utilities and council tax whenever your property is left empty. This is commonly referred to as a letting expense.
So, although void periods really should be avoided at all costs, if you do find yourself with an empty rental you can at least draw some money back. Phew!
Switch to a furnished holiday let
While this may seem drastic, and won’t suit those with rentals situated in ‘non-touristy’ areas, switching from a standard residential let to a furnished holiday let can result in significant tax reliefs for the landlord, especially in terms of capital gains and inheritance taxation.
For a detailed look at landlord tax on property investments, take a look at this article from PropertyMark.
That’s all we have for you this week. If you’re a landlord with property based in or around the capital and are looking for a reputable, trustworthy letting agent, give Petty’s a call. We’ve been in the property business for well over a century, and that experience shows in how we deal with landlords in one of the UK’s busiest markets.
So, give our friendly team a call to find out exactly how we can help you and benefit your buy-to-let business as a whole.
As Petty’s MD, John steers the ship. He is, however, first to admit that the team around him run the show, and he’s incredibly proud of each and every one of them. Sporty and studious, caring and loyal, John is a father of two wonderful children (and Cooper the dog).
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