Buy to let property investments, if done properly, can give you two kinds of return – rental income and capital growth of the property itself. In this article we’ll look at some of the issues surrounding property investments.
Tracking income and expenses
To run profitable property investments, you’ll need to keep detailed records of your rental income, and allowable expenses. This is can be a complex, ongoing task so it’s important to find a way that works for you. You could use an old-fashioned spreadsheet, general accounting software, or specialist landlord software, depending on your situation and preferences.
What expenses can you claim as a landlord?
Allowable expenses can be offset against your rental income to reduce the amount of tax you pay. This may include:
Insurance
Utilities
Council tax
Service charges and ground rent
Letting agent, accountancy and legal fees
Repairs
You can’t claim expenses for anything that’s classed as capital expenditure, such as buying the property or doing work which adds to its value.
Landlords via FreeAgent
FreeAgent, the award-winning accounting software that we use for our accountancy clients, are launching a specialist platform for landlords of property that is not owned through a Limited company.
This will help unincorporated landlords manage their property finances and file Self-Assessment tax returns from January 2024. If you’re an Orange Genie client, please speak to your accountant for more information.
CGT filing when you sell a property
If you sell a buy to let property or second home in the UK you may need to pay Capital Gains Tax (CGT) on any profit you make.
For sales that complete on or after 27th October 2021, taxpayers are required to report and pay their estimated CGT liability within 60 days of completion. This is an increase from the 30-day deadline that was in force between 6th April 2020 and 26th October 2021.
What rate is your rental profit taxed at?
If your annual gross property income, is less than £1,000 you can use the tax-free property allowance of £1,000, instead of deducting any expenses or other allowances. You would then not need to declare this to HMRC or pay tax on the property income, this is called full relief.
You cannot make a loss if using full relief, therefore if your expenses are greater than your rental income, it would be more beneficial that you do not claim the property allowance full relief and instead declare the income and expenses incurred. Your losses can then be rolled over into future years where you might start making a profit.
If your property income is greater than £1,000 per tax year, then you may be able to elect for partial relief. You get to choose if you want to claim the £1,000 property allowance OR allowable expenses, it would depend on which is greater. Each tax year is treated separately so you can make an election each year on which is more beneficial to your circumstances.
Rental profit is “top slice” of income, which means if your employment income uses up the basic rate bracket, your rental income will be pushed into the higher rate.
Download our Tax Guide for Residential Landlords for more information.
If you have questions or if we can help in any way, please call our expert team on 012896 46843 or email info@orangegenie.com.