Landlords, Simply And Effectively Reduce Your Tax Liability!

If you are letting out a property you own, you will know only too well that you face an income tax liability on the money you earn from the letting. Significant rental income can lead to a significant tax bill.

However, HM Revenue and Customs treat residential lettings as a business, specifically a property business, even if you have just one house in your portfolio. This means that you are able to offset a number of expenses against your income tax bill. Our guide explains how you maximise your tax expenses for your rental property.

Allowance you can claim against your tax liability: No matter how many properties you let, there are a number of expenses that you can offset against your rental income. On your self assessment tax return you provide the details of your gross rental income (the total amount of rent that you receive) and then deduct your allowable tax expenses. You will then pay tax on any profits that you make after all your expenses have been deducted.

The Landlords Top Five Tax Expenses.

1. Your mortgage and your insurance payments: If you have obtained a loan, such as a commercial mortgage, or other form of commercial property finance, for the initial purchase of the property, you can claim back the interest as an expense. In addition to this, any contents insurance and building premiums can also be claimed as expenses. Any repayments made on the capital cannot be classed as an expense.

2. Power and Water Costs: If for any reason you pay water or power costs, or any of the other utility bills then can offset these as expenses. Normally these will be paid for by the people leasing the property though. You are likely to incur these costs between lets.

3. Payments to Professionals: What is classed as a professional fee? Any legal fees involving renewing the lease for no more than 50 years, or for lets lasting less than 1 year. If you hire an accountant to complete your tax returns, this expense can be claimed back from HMRC also, ironically.

4. Maintaining the property: Houses need maintaining and let properties often need more looking after. And these expenses are an allowable expense. However home improvements are not, the activity has to be a repair, so adding a conservatory would not be considered.

5. Management Costs: Whilst renting your property through a management company can hold various benefits, such as ensuring you are paid even if the tenant fails to pay rent, it can also be quite costly. Most agents will charge you for finding a tenant, not to mention a monthly charge for the privilege of having them manage your property. The best thing about these expenses though is that you can offset them against your rental income.

In addition to these main claimable offsets, there are various other allowances that you can claim. These include marketing for a tenants, gardening or cleaning, ground rent, and service charges (for example on flats).

Filing your tax return: So now it is the time to complete that dreaded tax return but hopefully taking into accounts the above points it should not be so heartbreaking! You will need to include total rental income and allowable expenditure.