Tax – Day of Reckoning

New Year celebrations are well and truly over, so it’s back to work, and for many landlords, small or large, this means their tax return.
Most landlords will know that their Self Assessment return needs to be returned by the end of January. Failure to do so, will be met with an automatic, £100 late filing fine.
I have been filing my tax return online for many years, and generally it’s a pain free way of sorting out your finances. The downside, is that it involves a little bit of organization, as you will need a UTR (Unique Tax Reference) from the Inland Revenue.

The system allows you to complete your tax return in stages, thereby spreading the pain. I can see what I’m going to be doing, over these long dark January evenings – not fun…but it’s all part of running your own letting business.

Property Hawks Free Tax Software

Landlords that visit Property Hawk, may not know that our free software, Property Manager 3.0, which allows you to download Assured Shorthold Tenancy Agreement; also enables landlords to calculate their tax liability. Having done this, you can then email the details to your accountant, or just use the figures to fill out the Land and Property section, in your Self Assessment Tax Return. It is now also possible to file a landlords tax return direct with the HMRC through the SimpleTax website.

Can I Use A Company To Save Tax Opportunities to save tax?

There are a number of steps that a landlord can take to mitigate their tax liabilities. One question that many landlords frequently ask me is – Am I better off setting up my rental business as a company.

Now, this will largely depend on each individual landlord personal financial circumstances, (I’m afraid I can’t really give personalized tax advice – you will need a good accountant for that). However, what I can say, is that for most landlords there are really no significant advantages of holding their property portfolio in a company. This is particularly the case when you take the extra administrative and regulatory burden that comes with having your own company. I know from personal experience, that this is considerable : annual returns, company accounts, filing dates and corporation tax. Not to mention the associated accountant fees, which can be considerable. I did once read a book that showed that a landlord who used their profits and cash flow to purchase additional property could find it to be a tax efficient way of operating in the long term. But for the majority of landlords – probably not.

There are numerous other ways that a landlord can reduce their tax bill. I’ll now run through my 5 favourite income tax saving strategies:

1. Claim all your expenses.

Remember many expenses are allowable but make sure that you stay the right line of what is legitimate and legally tax avoidance and what is classed as tax evasion. The tax man is particularly vigilant at the moment and is clearly trying to pull in every tax pound he can get hold of. (however, that said don’t believe some of the hype about crackdowns on landlords). Legitimate expenses include: travel costs back-and-to the investment property
; advertisement costs
; telephone calls made (or text messages sent) in connection with the property
; cost of gas safety certificates or other insurance or inspection costs
; cost of bank charges (i.e. overdraft)
, advisory fees e.g. legal and accountancy
; subscription to property investment related magazines, products and services


. A key part of maximizing the amount you can claim is understanding and applying the principle of apportionment to your expenses claim.

2. Void period.

This is very pertinent for me this year. I’ve had a particularly difficult time letting one of my properties this year. As a result it remained empty for October and November. This means that effectively I will have been paying out for the property but obtaining no rent.

3. Home office

Every landlord who has rental property has a home office. Therefore, make sure you make a deduction in your expenses.
The home office allowance from the 6/4/12 is £4 per week equating to £208 a year. Some accounting professionals would recommend a minimum allowance
It is possible to claim more but a landlord would have to provide evidence of apportioned costs for the revenue.

4. Finance costs

Landlord can off set the costs of financing their buy-to-let portfolio; however the loan costs are limited to the interest charged on any loan. Interest charged on loans from friends, family or credit cards would also qualify as a legitimate deduction.

5. Losses carried forward

This is something that many landlords over look. That is the fact that if they have racked up rental losses in previous years these can be carried forward and offset against rental profits. This is why it is so important that landlords file a tax return even when they think that they are making losses. Even if you sell a property it is possible to carry the rental losses from this property forward as it is the rental loss of your letting business that is being accounted for. Remember not to get income and capital losses and gains mixed up.

Recent tax saving articles

5 ways to slash tax
Taxing time of the year
Avoid tax return errors

Discounted landlord insurance with Alan Boswell