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Taxing Time of Year

Summer holidays gone! Autumn’s in the air. It can mean only one thing.

The dreaded tax return looms large for landlords!

31st October: paper returns & HMRC will calculate the tax for you
30 December: online return (for tax to be collected through your tax code)
31st January: online return

Landlords should be warned.

This year the tax authorities are likely to be keener than ever to get their hands on every last piece of a landlords taxable income as the Government desperately tries to plug the gaping hole in its budget.

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There are recent examples of how hard the HMRC are cracking down on landlords and the professionals that they use who deliberately set out to defraud them of tax with a recent case where an accountant was sent to jail for 8 years.

This does not mean that landlords cannot save on their tax bill by careful and calculated measures that enable them to reduce tax.

The arrival of big rental profits

The very low interest rates that many landlords luckily enough to be on base rate trackers are experiencing means that many landlords are making record rental profits. This means that landlords are facing large tax bills on their rental profits, often for the first time.

The question for landlords is how do they minimise those potential rental profits?

One way is to potentially share the rental income

A landlord would assume that where they jointly owned a rental property that the rents would also be split in the same proportion. However, there are circumstances where the rents can be split in varying proportions to suite the owner’s tax circumstances.

A classic example would be where a parent who jointly owns a student property occupied by their daughter. The ownership is split 90% with your daughter owning 10%. It is perfectly possible for the income to be split 90:10 with your daughter receiving 90% of the income. This could be a tax efficient way of subsidising a landlord’s student off-spring whilst they work there way through university.

Equally the situation could work where the landlord’s partner was a non or lower rate tax payer.

The HMRC have already approved the principles of this arrangement in their guidance PIM 1030 jointly owned property and partnerships

It advisable to produce a written agreement between the parties to evidence the arrangement should the HMRC raise a query at a later date.

This is just one of many ways of saving tax on you letting business that we will return to over the coming months.

Importance of keeping records

The recent case involving the 8 year sentence handed out to the accountant shows how important it is for landlords to keep clear and well ordered records

Property Hawk has appreciated this need from the beginning which is why the PM2.0 allows landlords to record all the transactions they need to calculate their tax liability for their self assessment form under the UK property section.

This year Property Hawk will be looking to improve the tax aspect of the property management software to make it even easier for landlords to calculate their tax liabilities. One of the features that we are looking at adding in is the ability to produced detailed reports that can be sent to a landlord’s accountant. We are even looking at working with software development companies that will allow the direct submission of the tax information to the HMRC. Watch this space…..

The secret for landlords is to start early by keeping their records up to date.

Landlords can save tax but they will always need to evidence this to ensure that they don’t end up with an expensive and time consuming spat with the increasingly desperate tax authorities.

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