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

The buy-to-let landscape is ever changing – so you’ll need to be savvy to stay ahead of the game…

Kwasi Kwarteng, the former Chancellor, announced a reform of the tax system, including stamp duty, corporation and dividend tax. The tax cuts came as welcome news for many landlords who have shouldered years of tax and regulatory changes. Many of these changes have since been overturned by the current Chancellor of The Exchequer, Jeremy Hunt.

To make things clear, we thought we’d collate some of the biggest takeaways for you to be aware of, with information on how you can optimise your investments for tax. This is for guidence purposes only and any decisions should be discussed with your accountant or a tax specialist.

What tax changes came out of the mini-budget that have not been reversed?

Landlords will benefit from the increase to the nil-rate threshold for stamp duty tax, which has doubled from £125,000 to £250,000 in England, although the 3% surcharge on additional properties remains in place.

This means that if you're buying a buy-to-let property for £250,000, your stamp duty bill has been immediately cut from £10,000 to £7,500 – a potential saving of £2,500. 

What were the changes to corporation tax?

Unless the Chancellor makes any further changes, corporation tax will jump from 19% to 25% from April 2023 for those with annual profits of more than £250,000, while those with profits of between £50,000 and £250,000 will see their rate increase gradually. 

What can you do to protect your investor profits? Here are some little-known expenses that you can claim back relating to your buy-to-let 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.

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. The tax you pay on a limited company would be 19% until April 2023, rather than 40% or 45% for high rate income tax payers.

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. It's worth noting that the capital gains annual allowance is moving down from £12,300 to £6,000 in 2023-24 and then again to £3,000 in 2024-25. Maximise this relief whilst you still can.

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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