It’s that time of year when we return to the Benjamin Franklin quote: “in this world, nothing is certain except death and taxes.” For LandlordBuyer and property investors across the UK, our preoccupation is with the tax element, with the end of the current tax year on 5th April 2025.
End-of-year tax planning is essential for landlords who want their property investments to be as fiscally efficient as possible. There is greater emphasis on small details since Section 24 – the restriction of tax relief on mortgage interest – with a meticulous approach needed.
With challenges ahead – such as the introduction of the Renters’ Rights Bill, stamp duty increases and higher EPC standards for landlords to achieve – planning for the end of this tax year is critical.
As a professional landlord and property investor, LandlordBuyer has the following tax planning advice:
- Decide whether to make repairs imminently: day-to-day maintenance and repairs can be classed as revenue expenditure, meaning they can be deducted from the rental profit before it’s taxed. Landlords will need to decide in what tax year the repairs would be most beneficial – this tax year or next. Offsetting such work will reduce a tax bill but it’s a hugely grey area, with many projects straying into capital expenditure, non-deductible territory.
- Tot up allowable expenses: allowable property expense can be deducted from a buy-to-let’s profits and will help reduce how much tax is paid. Allowable property expenses can include business costs, insurance policies, fees to managers and agents, ground rent, service charges, training and landlord education, bad debt and costs accumulated during void periods.
- Consider if it’s beneficial to switch to tenants in common ownership: if a buy-to-let is held by a sole owner, the tax paid on the profit will be at their tax rate. When a buy-to-let is held as tenants in common and the co-owner pays less tax, there may be a financial benefit. With the end of year deadline looming, it’s wise to take advice from a solicitor regarding whether a change of ownership would take effect before 5th April 2025.
- Investigate transferring some of your personal allowance: it may also be possible to transfer some personal tax allowance via marriage allowance. As above, we advise you to consult with a tax advisor to see if transferring some personal allowance is possible and if so, if it could be achieved before 5th April 2025.
- Reposition investments or dispose of furnished holiday lets: until 5th April 2025, furnished holiday lets still benefit from a number of tax breaks and it’s worth qualifying if a particular buy-to-let can fall into this category for the current tax year. If the future intention is to simplify an investment portfolio, a tax advisor may suggest disposing of furnished holiday lets now to benefit from the special 10% capital gains tax rate, which is being withdrawn in April 2025.
- Be prepared to evidence a Rent a Room arrangement: when an owner-occupier becomes a landlord by renting out a room in their main residence, they gain a tax break worth up to £7,500 for the 2023/24 tax year. If this applies, gather evidence of this arrangement before the tax form needs completing.
- Complete donations and contributions: redistributing any profit can be a good pre-year end planning tool. Donations to charity and contributions to pensions may help reduce the end of year tax bill but be sure to complete them in good time.
- Check the exchange/completion date for any multiple dwelling purchases: multiple dwellings stamp duty relief was applicable on completions that were made before 1st June 2024. It will also still apply if contracts were exchanged on or before 6th March 2024, regardless of when the transaction completes. Have the completion date and property details of any multiple purchases to hand.
- Calculate whether you have made a loss: in the current market, it is quite possible for landlords to make a loss, especially if the cost of their allowable expenses is greater than the rental income. For example, if the allowable expenses total £13,000 but the rental income totals £10,000, there will be no tax to pay and a £3,000 loss will be carried forward to the next tax year for offsetting against available profits.
LandlordBuyer is here to advise property investors on planning matters ahead of the tax year end. Our advice covers all those with a buy-to-let interest, from small private landlords to investors who own portfolios via Ltd companies.
Our area of specialism is asset disposal. With a number of tax thresholds changing and benefits being abolished in early 2025, we will make you a cash offer for a tenanted or empty rental property now. Contact LandlordBuyer for a bespoke buy-to-let plan and sales advice.