Tuesday, March 17, 2009

Five ways to slash your rental profits and reduce your tax bill

With interest rates having fallen again last week to 0.5%, landlords with discounted, variable or tracker rates will be benefiting from lower interest charges on their loans. This, of course, means more positive cash flow, but it also means much higher taxes in the future. Here are five ways to slash your landlord taxes:

1) Claim tax relief on ALL revenue expenditures Remember - If you have incurred a revenue expense for the purpose of your property, then you can offset it against the rental income. Most landlords remember to offset the mortgage interest against their rental income but they fail to offset other costs, such as insurance, utilities supplies, decorating/repairs and advertisement costs, along with letting agent fees and the cost of telephone calls etc.

2) Make sure you register any rental losses
If you have made losses in the previous tax years then by registering these losses with HMRC you will be able to carry them forward and offset them against future profits. Given that interest rates have fallen significantly since October 2008, if you have registered your losses then you could be making very good cash flow on your property now and still avoiding taxes in the future.

3) Switch property ownership with your spouse if they are lower rate taxpayers
If you have a spouse who is a lower rate (or even nil rate) taxpayer and you are a higher rate taxpayer, consider moving the greater portion of the property ownership into their name. This means that a greater part of the profit will be attributed to the lower (or nil rate) taxpayer, resulting in both your income and capital gains tax liability being significantly reduced.

4) Mix and match the 10% wear and tear allowance
If you are offering a fully furnished property then it may be tax beneficial to use the 10% wear and tear allowance. This is because you can start to claim the relief as soon as you start to receive income from the property.

5) Look to claim costs as 'Revenue' costs
If you can claim large costs as ‘revenue’ costs rather than ‘capital’ costs then you can reduce your annual property income tax bill in a big way. For example, the cost of replacing single glazed windows with double glazed windows can be claimed as a revenue expense.

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