by Ed Firmin
Posted on Thursday, October 22nd, 2015 at 10:00
Changes announced in the Budget this year were a big shock to landlords.
They’re facing a significant increase on the amount of tax they are paying, as mortgage interest is no longer deductible – or in other words, tax calculated on the rent received, rather than what’s left after the mortgage interest has already been paid.
It’s taken a few months to fully understand what these changes mean, and for some, this can mean that their profit will be completely wiped out by the tax bill, and they may still have to pay more on top.
These changes are due to be phased in from 2017, so there’s a while yet before this will affect you, but it’s important to understand the implications of this announcement, as it’s huge.
In the meantime, how can landlords look to increase their profits and reduce the amount of tax they have to pay?
Now, I’m not claiming to be an accountant, or tax expert, so below is just a guide, and not every option will be for you. I advise you to seek professional advice for your circumstances, and just to use the information below as an example of what you could consider.
Letting agent fees
Another good reason for using a letting agent! You can claim the tax back on any fees paid to a letting agent.
At the moment, you can also claim back any tax paid on broker and/or arrangement fees when securing a mortgage. This has to be claimed back in the same year as the mortgage was arranged.
Repairs to the property
Any money spent on maintaining your property is tax deductible. This can’t be used to improve the property, simply the money spent on wear and tear.
Get this one while you can. Currently, you can claim for 10% of your annual rent on wear and tear, regardless of whether or not you actually do buy replacement furniture. This is changing from April 2016, as you’ll only be allowed to claim for any costs you actually incur.
Council tax and other utility bills
If you pay any bills for the tenant, you can claim back the tax on those bills. Even if you don’t, you can claim for any periods that the property lies empty, as you are paying the bills to cover these periods.
You can claim tax back for your landlord insurance, contents, home emergency, legal expenses and rent guarantee insurance.
So it’s not all bad news! Remember to seek professional advice from your accountant, as they will help you compile all your deductibles on your self-assessment tax return.
If you have any other queries, please get in touch, and I’ll help you out!