Tax: Getting it right
Growing Your Portfolio
A property portfolio can provide you with a good combination of capital growth and regular income. However, no investment is without risk. Property investment could have more potential pitfalls than traditional financial investment. This can be countered by a sensible approach and proper planning.
Being a private landlord is all about making the most of your hard earned money, and you need to make sure that you minimize your exposure to unnecessary costs.
There has been a lot in the press in recent years about wealthy individuals and companies avoiding paying their dues. In some cases this has even extended to accusing landlords of having unfair tax advantages which allow them to profit at others’ expense. However, these stories fail to recognize the basic fact that letting property is a business and like other businesses landlords are entitled to deduct valid expenses from their taxable income. One of the NLA’s top lobbying priorities is to negotiate with the Treasury to obtain a fair and equitable tax settlement for private landlords trying to invest for their futures.
There are two types of expenditure landlords must be aware of when establishing their costs.
- Revenue expenses.
- Capital Expenses.
It is important to understand the difference, so as to understand what may be deducted from your tax liability and when.
Broadly speaking capital expenses are those associated with purchase, sale, improvements or additions and may be deducted from any capital gain made when you sell a rental property. Although you may have to wait some years to claim these deductions, they often represent significant investment so it is important to keep all relevant records.
More immediately revenue expenses, i.e. those incurred running the business, can usually be offset against income tax. These include, but are not necessarily limited to:
- Mortgage interest (not capital repayments) on BTL loans (provided the funds released are used for the business). Changes to be introduced from 2017.
- Letting agent fees
- Legal Fees
- NLA Membership
- Training and professional development costs
Landlords offering furnished property may also take advantage of a ‘renewals allowance’ of 15 per cent intended to cover the cost of maintaining furnishings. Changes to be introduced from April 2016.
Remember, landlords need to complete a tax return regarding their lettings activities – even if a loss has been made. NLA Members benefit from FREE Tax Investigation Insurance to protect them if they are subject to an HMRC enquiry.