Follow these essential top ten tips to reduce your buy-to-let tax bill.
Speak to a tax expert Tax is a very complex area and it is worth paying to speak to an expert as they will have the most up-to-date information and may be able to point out tax mitigation tips you were not aware of.
Claim all the tax relief that is due to you While tax is charged on all rental income from your properties, you can claim tax relief on mortgage interest, repairs, insurance, letting agency fees, 10 per cent of all rental income each year to cover depreciation and professional advisory costs incurred after the purchase of the property.
Consider an interest-only mortgage Landlords can offset the interest they pay on their mortgage against their rental income to reduce the amount of tax they pay so it may pay to use a financing product, which has consistently high interest repayments.
Reduce stamp duty When choosing an investment, it is worth remembering that in certain disadvantaged areas properties worth less than £150,000 are exempt from stamp duty. A quick search to check which postcodes qualify can save you a considerable amount.
Consider setting up a Limited Company Holding your buy-to-let properties as a Limited Company has a wide variety of advantages including the fact that the first £10,000 profit a company makes is exempt from tax. However, there are disadvantages and you should discuss these implications with an expert before making a decision.
Make a will If you should die without a valid will, not only are you unable to decide who receives all your assets but they will not be disposed of in a tax efficient way which could have huge financial implications for your heirs.
Consider joint ownership of your properties to lower your capital gains tax (CGT) liability If a married couple holds a property jointly when it is sold, both spouses annual CGT allowances can be used (2 x £8,800)
Ensure your tax returns are honest and accurate The Inland Revenue investigates over 10,000 returns each year. If you are one of the unlucky few and have not filled in your returns accurately, you could end up with a substantial tax bill, a fine or even a prison sentence.
Make the most of your spouses personal income tax allowance If your spouse is in a lower income tax bracket than you are (and you trust them), it may be a good idea to transfer the buy-to-let property into their name in order to minimise the amount of tax you pay.
Consider your exit strategy Most landlords face huge capital gains tax liabilities when they decide to sell their properties so it is worth looking into how this bill can be minimised when you are setting up your portfolio.
Lee Grandin, managing director of Landlord Mortgages, said: We strongly suggest that all buy-to-let investors review their portfolio and speak to an expert about tax mitigation techniques.
The cost of several hours of an experts time is considerably less than the tax bill you could receive if you dont choose to.
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