Tax Returns: Tips to Take you from Terror to Triumph

Landlord Tax: 3 Dos and 3 Don’ts you Can’t Afford to Miss

Anyone paying attention to the past six or so years knows this much: things change.

Yet, to paraphrase a very old saying, taxes aren’t going anywhere. 

Sometimes, you fall into being a landlord. Sometimes, you dip a toe in and your portfolio grows and grows. Sometimes you start with a masterplan and then change course.

If you haven’t given much thought to taxes lately, you’re not alone. Let’s face it, keeping up with the twists and turns of current events has kept us all pretty busy. 

But this is the thing: It’s important to revisit how you do taxes once in a while. Why? 

  • So that you don’t make any mistakes and then have to face penalties or catch-up payments as a result.
  • So you don’t end up paying more than you need to, or making it more complicated than it has to be.
  • So you know what options there are for planning for the future.

So, with 31st January looming, what should you do – and what shouldn’t you do – to maximise the benefits and minimise the pain of landlord taxes?

Chartered accountant and tax advisor Richard Cunningham has the answers right here for you. 

He really knows his way around landlord tax, so we invited him on to the Mashroom Show for a three-part tax special, covering Allowable Expenses, Holding Structures and Tax Planning. There’s a wealth of information to dive into, and we suggest you do just that!

Here, Richard runs through some of the biggest tax mishaps he sees, as well as sharing his best tax tips. 

3 Tax DON’Ts for Landlords

1. DON’T confuse capital expenditure with income tax deductible expenditure.

What’s the difference? In essence, the sorts of expenses you can write off against your annual income from rent are things that maintain your property’s value. In contrast, capital expenditure adds to your property’s value, and you can’t claim for these against your income tax. 

You can still get a deduction for capital expenditure, but only when you sell the property, not on an annual income tax return.

2. DON’T write off all your mortgage interest against your rental income.

Once upon a time, landlords could write off the entirety of their mortgage interest against the rent they got paid. The law has now changed, meaning landlords can only write off 20% of the interest instead.

Old habits die hard, though, and some landlords have been caught out by overclaiming interest, which makes for a hefty bill in order to put things right. And – even worse – some people have misunderstood the rules and written off their entire mortgage payments, storing up a lot of trouble down the line.

3. DON’T fail to declare all of your income.

It can be tempting, sure, but it will catch you out sooner or later. If you receive rent in cash or are renting a property out to friends or family it can seem harmless to count that as a little extra. 

But it’s a very risky game, and as financial technology advances you risk being caught out more and more. It’s just not worth it. 

3 tax DOs for landlords

1. DO consider setting up a limited company if you’re just starting out

Plenty of landlords (in fact 90%) don’t have one, but there are plenty of benefits for some. 

Why is the number of limited companies so low among landlords? Richard puts it down to the high number of landlords with only one or two properties; for them, it’s probably not worth the extra legwork.

But for larger portfolios, limited companies offer more flexible options for taxes thanks to shares, and they may also offer various kinds of relief that delay paying duties even if they don’t do away with them completely.

2. DO keep better records

It literally pays to be organised. How else can you add up all your allowable expenses and claim them against your income? 

Mashroom has developed two FREE landlord tools to make your life – and tax return – easier: 

  • Mashroom Landlord Expense Tracker: Make your expense tracking faster, easier and more accurate. No more complicated software, paper receipts or spreadsheets. Keep track of all of your income and expenses in one place.
  • Mashroom Rental Property Document Storage: Store all your property’s certificates and documents in one place, and even get SMS reminders when they’re due to expire. 

3. DO speak to an accountant

There is a huge amount of helpful information online, including everything from our private Mashroom Landlord Community on Facebook, to HMRC’s invaluable tax manuals, to, well, the Mashroom Show’s tax specials

BUT: None of this is a substitute for discussing your unique situation and your unique goals with a qualified, experienced chartered accountant or tax advisor. 

Most accountants offer a free initial consultation, and that might be all you need to confirm you’re doing everything right. Richard is keen to reassure readers that accountants can often save you more than they cost you. 

Just picking one thing from this list to focus on could mean the difference between tax terror and tax triumph. And when the next tax return comes around you’ll have peace of mind, knowing you’re doing it right and in the best way for you. 

Wishing you many happy (tax) returns!

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