Print PageNot to be outdone, Nick Braun, founder of Taxcafe, presents his ‘Top Ten Tax Deductions for Property Landlords'.
1) Claim Your Office Costs!
Most property investors do their admin at home and can therefore claim some of their household bills as a tax deduction. How much you can claim depends on the number of rooms in your home, excluding bathrooms and kitchens.
Let's say Gerald runs his property business from a small room in his house. The house also contains a living room, a kitchen, a bathroom and two bedrooms. Gerald's house therefore has four rooms which count for this calculation.
He can therefore claim one quarter of his bills as a tax deduction. Expenses which can be claimed include gas and electricity, council tax, repairs to the property and insurance.
2) Claim All Your Mortgage Interest!
Remember to claim all the mortgage interest from your buy-to-let properties.
Contrary to popular belief, it does not matter which property the loan is secured against. If you re-mortgage your home for £25,000 and use the money as a deposit on a buy-to-let flat, you can claim all the interest as a tax deduction. What matters is how you use the money, not where it comes from.
And here's an interesting tax tip. If you intend to rent out your old home, consider re-mortgaging it beforehand because all the interest will probably be tax deductible.
For example, let's say Catherine's home has an outstanding mortgage of £100,000. She remortgages the property for a further £125,000 and uses the money to buy a new place to live. If she rents out her old home all the interest (on the original £100,000 and the latest £125,000) will be allowed as a tax deduction.
3) Claim Your Motor Expenses!
The cost of running a car (or more than one for that matter) in your property business can be claimed as a tax deduction. Most people also use their cars for private non-business purposes as well, so an appropriate proportion should be claimed. The percentage will vary from investor to investor but could be in the region of 25% to 50%.
4) Claim Your Travel Costs!
Money you spend visiting your existing properties or scouting for new ones should be claimable. If your trip requires an overnight stay you will also be able to claim hotel costs and meals in restaurants.
However, these costs will only be allowable if your trip is purely for ‘business purposes'. If you travel to Brighton to view some properties, the fact that you spend a spare hour sunbathing does not alter the fact that this was a business trip.
If you take the whole family to Brighton for a week and spend just one afternoon viewing properties, the whole trip will be private and not be allowed as a property tax deduction.
5) Claim Your Research Costs!
Many investors spend a lot of money on seminars, courses, books and magazines. The rule is that money you spend updating or expanding your existing knowledge can be claimed as a property tax deduction but any costs relating to entirely new areas of knowledge are not allowed.
This can be a difficult distinction to draw, however in most cases property research expenses should be tax deductible.
6) Claim Your Furniture Costs!
Most landlords rent out their properties fully furnished. You can claim either the ‘wear and tear allowance' or ‘renewal and replacement expenditure'. Most people are better off with the wear and tear allowance. This generally allows you to claim 10% of your rents as a tax deduction.
7) Claim Your Losses!
All your UK properties are treated as a single UK property business. Hence, the loss on any one property is automatically set off against profits on others. Any overall loss cannot generally be set off against your other income but will be carried forward and set off against future rental profits. Losses arising on furnished holiday lettings may, however, be set off against other income and can sometimes lead to useful tax repayments.
8) Claim Your Repairs!
You could write pages about this so here's a quickie: Did you know that you can make provision for certain future costs, that you have not yet actually incurred, and still claim a tax deduction? The key requirement is that you are legally obliged to incur the expenditure.
Let's say Kylie owns three flats in Hutchence Towers. In February 2006 she receives a statutory notice telling her and other owners to carry out roof repairs. On 4th April 2006 a quotation from a local builder is approved and Kylie's share of the cost is £3,000.
Kylie can make a provision for her £3,000 share of the cost in her accounts for the year ended 5th April 2006, even though the work has not even started yet.
9) Claim Your Professional Fees!
Fees incurred buying a property cannot be claimed against your income tax - they are generally only allowed as a capital gains tax deduction when you eventually sell your property. Costs incurred year in, year out in earning rental profits can be claimed, for example the cost of preparing leases, collecting debts and preparing your tax return.
10) Claim Your Pre-trading Expenditure
You may incur some expenses before you even start to rent out any properties. Those incurred within seven years before the commencement of your business may still be allowable if they would normally be tax deductible. In such cases, the expenses may be claimed as if they were incurred on the first day of the business.
You'll find more tax tips for landlords in the book How to Avoid Property Tax, available from www.taxcafe.co.uk
