Buy-to-Let Tax Advice for New Landlords

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Posted on October 03, 2017

If you’re buying property to rent for the first time, you probably have lots of questions. To help, read our buy-to-let tax advice for new landlords.

If you have capital to spare, the private rental market is increasingly attractive to those wishing to benefit from an extra income stream. In a world of low interest rates and job insecurity, buy-to-let mortgages and rising house prices have ensured a growth in popularity of rental property as a secure nest egg.

However the taxation system is beginning to wake up to this, giving cause for concern on a number of fronts.

In light of this, here’s our buy-to-let advice for new landlords.

Buy-to-let tax advice for new landlords

  1. Be aware of impending tax increases

One of the most dramatic changes to the sector came in 2015 when then-chancellor George Osborne unveiled a surprise tax change of which the true effects haven’t yet been felt.

The fallout from this announcement could end up causing significant hardship for many landlords.

The aim was to tax landlords on their turnover instead of their profit. This, in essence, could result in landlords that are borrowing against their rental property paying tax on non-existent income. A study by Smith & Williamson found that higher-rate taxpayers that are landlords and have mortgage interest that equates to 75% or more of their rental income, could find that their buy-to-let investments suddenly become lossmaking. For additional-rate taxpayers, this figure could be 68% and even some basic rate taxpayers could be affected.

In short, tax will be applied to the rent received by the landlord rather than the profit they make, so if you’ve bought the property with a sizeable mortgage you could have a problem.

If you'd like advice on buy-to-let tax changes, our specialists can help.

2. Know what you can claim against tax

The big-ticket items such as purchase price, agent and legal fees can’t be offset. However, many of your smaller expenses can be, and these soon mount up.

For instance, your mortgage broker and arrangement fees are tax deductible, meaning you can claim them back at the end of the year in which you arranged the mortgage. But you need to act quickly on this, as it’s likely it will be restricted soon.

3. You can claim back agency fees for secure tenants

There’s good news on letting agent fees. If you’re using an agent to find your tenant and manage your property, they charge a fee of 10% or more of your rental income. This can be claimed against tax, giving you a substantial saving at the end of the year.

Likewise, other costs associated with securing the right tenant can be claimed back such as credit checks, referencing, deposit protection and professional inventory services. It can even be applied to advertising costs for the property.

4. Don’t overlook the value of insurance

Insurance can be pricey, but it’s usually worthwhile. Specialist landlord insurance is especially good, as it covers a range of eventualities such as legal expenses and loss of rent. Then there’s contents insurance, necessary if your property is furnished. Both of these can be offset through the tax system, as can any money you spend on essential repairs.

This doesn’t extend to wholesale renovations that increase the value of the property, but is applicable for correcting wear and tear. This includes damage to windows and doors or white goods, as well as more substantial repairs such as painting and decorating, or fixing the roof.

Where can I find out more?

The best buy-to-let tax advice for anyone stepping into the private rental sector, whether you’re just looking to augment your pension or simply want to hold onto a property you no longer need yourself, is not to panic.

Being a landlord comes with untold difficulties and opportunities, but at the end of the day it’s a way of making money that can be very rewarding. However getting it right is vital, as mistakes made with tax can end up being very costly.

If you’re still not sure how to proceed or you would like advice tailored to you, see our range of specialist Tax services.