Investing in property and earning rental income means you fall into a particularly complicated area of tax. Of course, you want to keep hold of as much of your profit as possible, and that means taking certain steps to ensure you don’t pay any more tax than you need to.
Here are the most common mistakes we see landlords make when it comes to accounting for their property finances:
Not consulting a property tax specialist early enough
The way in which you earn income and take profit from your property can affect the amount of tax you pay, as does the way you own the property. But, you aren’t taxed purely on your property returns, these are added to any other earnings and assets and means you could end up in a higher tax bracket and/or lose existing benefits. And once your rental is up and running, it’s not necessarily easy to change the financial set-up, so it’s important to talk through your plans with a property tax specialist and/or a wealth manager who understands buy to let as early in the process as possible – ideally before you take ownership of a property. That way, you can make sure your rental business is set up in the most tax-efficient way possible, according to your own personal circumstances.
Not properly tracking rental payments
A key step in ensuring the financial success of your rental is checking every month that the tenant has paid their rent on time and in full. If you are a Reeds Rains Fully Managed or Rent Collect landlord then you can check this in your RR//Online account - Landlord Portal, but we know some self-managing landlords don’t always have the time to make the checks. Even if a tenant has been an excellent payer for years, their financial situation could change at any time, and they may not let you know in advance if they’re having problems affording the rent. Checking your bank on the day the rent is due means that if it’s not received, you, or your agent can get in touch with the tenant right away to resolve the issue and avoid the risk of them falling into serious arrears.
Not regularly reviewing expenditure
Once you’ve found suppliers and services for your property, it’s all too easy to leave things as they are. However, with costs increasing all the time – particularly in the current economic climate – it’s well worth reviewing your expenditure every 6 months or so to make sure your outgoings are as cost-effective as possible.
If you have a Buy to Let mortgage, that’s likely to be your biggest monthly expense, so review that at least once a year with a broker to make sure you’re still on the most suitable deal. If you’d like to chat through what options might be available to you right now, just get in touch with our partners at Embrace Financial Services for a free initial consultation.
Not claiming all allowable expenses
As a landlord, you can claim any expenses that directly relate to the running of your property business – including mileage to and from your property, phone calls and your managing agent’s fee. While some might be small individual costs, they can add up to a substantial amount over the course of a year, so make sure you keep a careful note of your expenditure and file all your receipts.
Our management team at Reeds Rains log all income, expenditure and paperwork on a dedicated Landlord Portal that our landlords can access 24/7. Having all the information related to their property in one place makes it much easier for landlords to track the financial performance of their property or portfolio and is also incredibly helpful when it comes to completing tax returns. If you’d like to know more about how the portal works, just call into your local branch and one of the team will be happy to talk you through it.
Not having a bookkeeper or accountant
Finally, if you’re confident with bookkeeping software packages and have some experience with financial admin, you may be able to take care of your own bookkeeping and filing tax returns. However, given how complicated property tax can be – particularly the rules around what can be claimed as a ‘revenue’ item and what is classed as ‘capital’ expenditure – it could be well worth engaging an accountant and/or bookkeeper that are familiar with buy to let and can ensure your rental remains as profitable as possible.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Your initial mortgage appointment is without obligation. Embrace Financial Services normally charge a fee for their services; however, it is payable only on the submission of your mortgage application. The fee will depend on your circumstances but the standard fee is £549. Complex cases usually attract a higher fee. Embrace Financial Services will discuss and agree the fee with you prior to submitting any mortgage application.
Please be aware that the information provided within these archives has been pre-published, as of the date published on each article. The information contained within, including references to taxation, legislation, regulation, or any other issues or concerns may no longer apply.