Landlords Tax Planning Check List 2020-21

This year landlords have seen significant reductions in rental income. Those who have substantial loan commitments have been faced with selling a property to reduce their exposure.

Below, you’ll find a list highlighting some potential tax planning opportunities that you could take advantage of before the end of the current tax year, which ends 5th April 2021.

  • Finance charges and mortgage interest are no longer treated as a deduction for tax purposes – they now qualify for a basic rate tax credit – and now, because of COVID-19 disruption, this could be the perfect time to look at reducing finance costs, mainly if your income coming in from rent is subject to income tax at the higher rates.
  • If you buy a buy-to-let residential property, consider allocating a nominal amount in the contract for any second-hand furniture still at your property. If you ever have to replace the furniture, doing this will allow you to write off all the expenditure under the RFR. If you don’t allocate sums in the initial contract, you’ll have no legal claim to the furniture. You won’t be able to claim RFR when it is subsequently replaced. This will also save you stamp duty as this is not applied to the cost of furniture.
  • Consider a joint property election with your spouse – if you jointly own the let property – to divide the split of any rental income in a way that’s not 50:50. This will allow you to allocate income to the spouse with spare allowances, or that is taxed at lower income tax rates.
  • If you have disposed of or acquired rental properties since you last reviewed your Will, ensure your Will is amended to reflect this.
  • Is it viable to employ family members to help with managing the interests of your property? If there are viable commercial reasons for you doing this, it’s possible to make a successful claim against your tax. Doing this provides your family with additional income subject to tax deduction at lower rates. It reduces your exposure to higher rates of tax.
  • Transferring part interest or an entire property between spouses are usually free of IHT and CGT charges. This enables you to direct your rental profits into the hands of your spouse, who is taxed at lower rates. Planning is crucial, as you could trigger a stamp duty charge in certain circumstances.
  • Suppose you’re declaring rental profits on your self-assessment tax return. In that case, you will be subject to income tax on any profits declared. You would have made your first payment on account for 2020-21, which was due 31st January 2021. This payment would have been estimated based on your profits earned in 2019-20 on the property. In the current tax year, 2020-21, the majority of landlords will have suffered a reduction, allowing them to reduce the payments on their account for that year. Payments are due 31st January and 31st July 2021. If your rental profits have decreased this year compared against 2019-20, you should contact An Accounting Gem today. We will then make a formal application on your behalf to reduce the payments on your account for 2020-21. To apply, we will need to provide any costs associated with the property, and a realistic estimate of rents received.
  • If you do decide to sell a residential property that forms part of your portfolio and by doing so, you make a chargeable gain, this will be subject to a capital gains tax charge in the tax year you make the disposal. Usually, the gains form part of your self-assessment. But, disposal of any residential property which isn’t your private residence is subject to newly enforced rules. It is now a requirement to declare any disposal of property online within 30 days of the sale completion. You must also pay any capital gains tax in the same period. These rules start after the 5th April 2020.

If you’re a landlord and need to discuss any of the points raised in this blog, call An Accounting Gem today on 01473 744 700, send an email to contactus@accountinggem.co.uk, or visit our website www.aag-accountants.co.uk. We’re here to help you every step of the way.