Landlord Tax: The Best Planning Opportunities for You
Landlord Tax: Are you wasting money, time and effort in your rental business?
Do you know what we really hate? It’s seeing landlords spending more time, money and effort than they need to on doing things right. Life’s hard enough already, right? So we want to take the load off landlords wherever we can.
This episode of the Mashroom Show is no exception! We’ve got:
- Tax megamind Richard Cunningham on the money-saving magic of planning ahead when it comes to taxes
- Time-saving FREE landlord tools you can start using today
- Hassle-dodging insurance heads-up – don’t delay taking action on this one!
The Mashroom Show is the place to come for landlords who need help and advice with insurance, tenant finding, mortgages, rent collection – and a whole lot more.
In our tax three-parter finale, we welcomed back Richard Cunningham to help landlords maximise their tax efficiency.
In case you missed it, so far Richard’s covered:
But now, Richard’s going to save you all some cash with some nifty tax-planning tips.
Tax planning wins, with Richard Cunningham
When it comes to tax planning, there are plenty of opportunities to save money. But what are they, and how do you know which ones will work for you? Richard tells us more.
What are tax planning opportunities?
Effectively it’s about arranging our affairs in such a way as to minimise tax liability. And about doing that within the bounds of the legislation of course.
Tax planning is more of a challenge than, say 15 years ago, but there are still lots of ways to minimise your tax exposure on your buy-to-let portfolio.
What’s Rule #1 for tax efficiency?
One thing Richard swears by is: get your basics right. By that he means:
- Get your allowable expenses sorted (covered in our dedicated allowable expenses show)
- And get the optimal split between income and capital (covered in our holding structures episode)
What’s income splitting?
Let’s use an example of a married couple here, because that’s usually who it is in this scenario. The couple can change the ownership ratio to make full use of the tax situation of whoever’s taxed less.
This means less tax paid on the portfolio income, and more cash in the couple’s pocket.
Limited companies can be useful when a landlord has a partner and kids.
For instance, your kids have a personal allowance, and the chances are they’re not using it, so getting some of that income into the kids’ hands means less tax exposure.
Share the wealth
You can give your kids shares, and give those a ‘right to growth’. Effectively you can freeze your own shares while your kids’ shares grow with the company. This reduces your exposure to inheritance tax.
Can tax planning ease the pain of expensive repairs?
Good news: yes! There are ways to accelerate the relief on expenses. It depends on how you’re taxed for your portfolio:
- Cash basis: This is what it sounds like. You’re taxed on what you receive in terms of your rent, and what you pay out in expenses.
- Accruals basis: Rather than what you get, this takes into account the future beyond that tax year. Let’s walk through an example.
The situation: You have to replace all of the windows and doors on one of your properties. You’ve entered into a contract with a window fitter and paid the 10% deposit, but the other 90% isn’t due until next tax year.
The solution: The fact you’ve made a commitment means you can accrue the 90% within the current tax year, so you get the tax relief on 100% of the expenditure much sooner than on a cash basis. And getting any benefits sooner is always going to be better.
We keep hearing about saving tax by using EIS – can you fill us in on what this means?
EIS stands for the government’s new Enterprise Investment Scheme. But what does it do?
The situation: You sell one of your portfolio properties and you’ve made £100K profit. That’s called a capital gain, and you’d be liable for paying 28% capital gains tax on it.
The solution: Instead of paying out the £28K tax, you opt to put that £100K in an EIS-qualifying investment. The capital gains tax is deferred for the length of that investment.
Furnished holiday lets – are they a cushy tax situation?
What makes a property a holiday let?
There are three hoops to jump through when it comes to being classed as a furnished holiday let:
- Availability condition: the property has to be available for let at least 210 days per year
- Letting condition: got to be let for more than 105 days a year, and shouldn’t be anyone letting for more than 31 days.
- Pattern of occupation condition: in simple terms, the pattern should be one of short term lets.
How are holiday lets taxed?
There are a few tax reliefs for owners of holiday lets.
- Mortgage interest relief: owners can write off all mortgage interest.
- Business asset disposal: 10% entrepreneur’s relief rather than 28% capital gains tax if you sell your property on.
- Inheritance tax: Some holiday lets are exempt from inheritance tax (though less and less as time goes on).
What’s your key message for landlords?
Get yourself a good accountant. There’s only so much you can take from going online as everyone’s situation is different. They’re the people who know the rules inside out and can give you sound advice.
Landlord News: Rental Property Wrapped for 2022
Zoopla’s December 2022 Rental Market Report is in. What does it tell us about where we’ve been, and where we’re going?
- The headline is that the UK average monthly rent has climbed by a staggering 12.1% (to £1,078) over the last year.
- London tops the list of the biggest rises, with rents up 17%, trailed by Manchester (+15.6%), Birmingham (+12.3%) and Glasgow (+14.1%).
- This means rent for a single person has now reached 35% of the average weekly salary, the highest it’s been in over a decade. Hardly surprising, then, that many experts are predicting more tenants will be turning to sharing with others, especially given the cost-of-living crisis.
- Demand is still outstripping supply in most cities, largely due to big student populations and employment opportunities.
- But the supply/demand imbalance has been worsened by the mortgage rate hikes keeping would-be homeowners in the private rental market.
- Still, despite these pressures, rent growth is predicted to slow during 2023.
- The rental figures don’t tell the whole story though: figures from the ONS suggest a continued increase in the number of young adults who’d love to rent but are having to stay at home with their parents for longer.
- And despite all of this pressure, rental home stock has not grown since 2016. It’s stuck at 5.5 million, causing Zoopla’s Executive Director Richard Donnell to call more investment in new rental supply to make for a “more sustainable private rental sector”.
Free Tools for Landlords
Free stuff is great at any time of year, but at Christmas time it’s especially welcome!
Did you know Mashroom offers all landlords handy free tools to make life much easier?
Document storage tool
This is our most popular free tool for sure. You can upload any documents you like here:
- Gas Safety Certificates
- Keep all of your old documents here when you renew them, to maintain that property paper trail
Even better, you can add reminders. So you’ll never again forget when it’s time to add the updated version.
So many landlords we speak to have a spreadsheet on their laptop, and inevitably they forget to update it, or maybe there’s a glitch and the dates aren’t working properly, there’s always some sort of problem. What we say to them is to give the Mashroom tool a try. You won’t look back.
This started life a few years ago as a Making Tax Digital tool, but it’s been developed extensively and it’s really indispensable now for so many of you.
Again, everyone has that spreadsheet, and every time you get an expense or some income, you’re supposed to fire up the laptop, open the spreadsheet and add the information. But how often does that actually happen? Mashroom’s expenses tracker makes it so much easier to keep track.
Ready to get started with these tools? All you need to do is log in to the website and they’ll be there waiting for you, like gifts under a sparkling tree!
All we want for Christmas is YOU
The reason these tools exist at all is because of you, our incredible community of landlords. In places like our private landlord community on Facebook, people talk about what they want, and it builds from there.
In fact, that’s where Mashroom’s recently launched Rent Collection plans came from, and they’re getting a great response.
If this is the first you’re reading about them, here are the plans in a nutshell.
- For 2% of the monthly rent, you get our superb rent collection service. That means Mashroom is your agent, looking after you, so that if any problems do arise, we’ve got your back and we will chase the rent. You also have legal cover, so if you do need to evict a tenant, you’ve got that protection.
- For 5% of the monthly rent, you get everything that’s in the 2% package, along with home emergency cover and rent guarantee insurance.
The response to these products has been really positive, which isn’t surprising as unlike other providers it’s a product shaped by the community and cheaper than a lot of others too!
Have you joined us? Head to Mashroom’s Landlord Community on Facebook now – a warm welcome and oodles of helpful advice are guaranteed.
And of course if you want to discuss getting your landlord life simplified right now with a Rent Collection Plan, just get in touch with George at firstname.lastname@example.org.
Winter insurance check-in
It’s the most wonderful time of the year, of course! But the weather is less than wonderful at times, and unfortunately some of us are in for things like:
- Losing roof tiles
- Water leaks
- Damage from falling trees
In those unenviable situations the last thing anyone wants is for their insurer to not pay out. So, now is the time to make sure you’re insured correctly and check that all your documents are in order.
Keep your insurer in the loop so they can keep paying out
Christmas is pretty distracting, so it’s easy to forget to keep your details up to date. However, this could cause you problems down the line.
For example, if you have a change in tenant – from a professional let to a DSS tenant – this could invalidate your policy, meaning the insurer might reject any claims down the line.
Isn’t a broker a bit of a hassle?
In my view it’s less hassle to go to a broker. Mashroom can quote up to 30 days before a policy is due, so if your policy’s due over Christmas let us help. It only takes a very short conversation to get the information we need. Then we can do the searching while you go out and enjoy your Christmas!
Is Christmas a popular time for break-ins and how do I claim for those?
Crime may go up at this time of year because thieves might see things through windows or simply expect there to be some tempting things sitting under the tree.
I don’t envy anyone who has their Christmas ruined in this way, but loss of presents is a contents insurance issue, so I always recommend that tenants get contents cover.
That said, it’ll be down to the landlord to get any broken windows or doors replaced. At this time of year especially, a smooth and swift buildings insurance claims process for this will help take the edge off for tenants and landlords alike.
If you’re looking for a better deal with your buildings insurance contact Matthew directly at email@example.com and let us do the rest while you get on with decking the halls, rocking around the Christmas tree, or just having a cheeky nap.
Don’t forget to join the Mashroom Landlord Community on Facebook, and you can find us on all the other socials too.
The Mashroom Show will be back in 2023 with plenty more unmissable info. In the meantime, have a fantastic festive season!