We talk to Darren Stone of Leon & Company Chartered Accountants who offers advice to those thinking about becoming private landlords.
With the property market booming, many investors are considering becoming first-time private landlords as a source of passive income. This comes with many questions and concerns about the best way to minimise taxation and maximise return. Darren addresses some of the key ones here.
Should investors buy the property through a limited company?
That heavily depends on the investor’s personal circumstances. If the investor is a higher rate taxpayer, it may mean that using a limited company is advisable because, among other things, the tax rates may be more favourable rather than owning the property in their own name. Generally, if the investor owns the property in their own name, then they would be taxed on all their income from property at whatever their prevailing tax rate is. In addition, there may be a restriction on how much of the mortgage interest they can claim against the rents.
Moreover, if you are a basic rate taxpayer and you’re only planning on buying one or two properties, it may not be worth using a limited company. This is due to both the administrative burden and that there may only be limited tax savings to be had. Another potential disadvantage is that the mortgage interest rate may be higher in a limited company, although you should speak to your mortgage broker about that aspect.
What kind of expenses can be put against the rent?
There are various expenses which can be claimed, including marketing, management fees and ground rents, landlord’s insurance, and gas and electrical checks and certifications.
Investors can also claim mortgage interest (notwithstanding my comments above). Finally, don’t forget that repairs and maintenance to the property may also be claimed.
If I buy a property and renovate it, can I claim the cost of renovation?
Not exactly. What you need to do is keep a record of all the costs, because if the property is sold in the future, the renovation costs may relieve any capital gains arising on the sale.
Buying a property is a big commitment, with both potential gains and losses which warrant seeking expert advice. Readers should not rely on this article alone when making decisions. Darren has made it his business to specialise in property tax and is always available for readers: “If anybody ever wants a chat, the kettle’s always on.”
Leonandcompany.co.uk