As the end of the tax year approaches, it’s a good time for landlords to review their tax affairs and take advantage of any available tax efficiencies while also preparing for the upcoming year. There are four things that should be top of the list to check: expenses, salary, dividends and pension. In this blog, we’ll explore each of these areas in more detail.
Whether you own property personally or in a limited company, the simple fact is that the more you spend the lower your profit, and the less tax you pay. If you have any planned expenses, then just before the end of the tax year or your company year end is a great time to maximise your company’s outgoings.
Here are some typical expenses that can be offset against your profits:
|Property repair, replacement & maintenance||Such as kitchen & bathroom fittings, windows, doors and boilers. (Must be like-for-like replacements. For example, any substantial upgrade in the kitchen or bathroom would be seen as a capital upgrade.) Also includes maintenance costs, such as cleaning and gardening.|
|Property business management costs||Including business insurance, accountancy fees, advertising, letting agent fees, membership charges of landlord/property associations, and stationery.|
|Furniture purchase||If replacing furniture already in the property when purchased.|
|Travel, hotel accommodation, food & drink||Whilst away on business/visiting properties. Mileage is 45p per mile for the first 10,000 miles per tax year and 25p per mile for all miles thereafter in a car. These expenses are only claimable for yourself and your employees.|
|Legal fees||Including those associated with mortgage/re-mortgage arrangement costs. Also includes extending leases of up to 50 years, preparing contracts and preparing deeds of trust.|
|Computer & mobile phone costs||If an expense, such as a mobile phone, laptop or tablet, is not used 100% of the time for running the property business, a proportion of the cost can be claimed.|
|Utility & Council tax costs||Utilities (water, electric and gas) and council tax can be claimed if the property is empty.|
Expenses paid for using personal money – Make sure any business expenses paid for using personal cash are recorded in your property accounting software and claimed back from your company. Every bit goes to saving tax so dig out any old receipts.
Home office allowance – If you run your property business from home, don’t forget that you can claim £6 per week for using your home as an office.
Company staff events – Each year a company can pay for annual staff events up to £150 (including VAT) per guest which is allowable for Corporation Tax relief. The rules are that all members of the company must be invited and a spouse or partner can attend provided the cost for the couple does not exceed £300 (including VAT). It will be tax free provided the limit is not exceeded. If you do go over the limit, the whole cost is taxable, not just the excess. This is not an allowance, you must include the actual cost of the event and have receipts to support this.
Stock up on office supplies – For example, printer cartridges, paper, stationery or other general office supplies.
Purchase assets for company use – Such as a new laptop or office chairs.
Mobile phones – If you need and use a mobile phone for running your property business and don’t yet have the contract in your business name, consider transferring it. For it to be an allowable expense the contract must be in the name of the business and paid for directly by the business. Don’t worry, HMRC consider personal use to be incidental.
Refurbishment - These expenses can be quite complex. As a general rule, if the expenditure is for maintenance, repairs or replacements, you can claim it as a revenue expense on your self assessment or company tax return. If the expense is for a new item or asset, or is an improvement, it is treated as a capital expense, which can be claimed when you sell the property. Learn more about the difference between revenue and capital expenses.
Other items – It’s also a good time to get any equipment repaired, updated or serviced and to ensure your insurances are up to date.
If you're taking an income from your company, the year end is a good time to pay yourself or your partner for any legitimate work that’s been done throughout the year.
If your spouse helps with company admin or project management, you may be able to pay them a salary or bonus which will reduce your Corporation Tax liability. Paying someone a salary will need them to be on the company payroll. If they’re not already an employee, you'll need to act now if you wish to pay a salary, as payroll can’t be back-dated.
Setting your salary for the year is your decision, but you should look at what you want to achieve (your aims) when you do it. That will mean setting an income that maximises tax and National Insurance efficiencies, meets the income tax threshold, and reflects the personal outgoings and financial commitments you have. You can operate under the tax threshold, as a basic earner or higher earner but you will need to look at the implications for dividends whatever you decide.
Make sure your annual salary aims have been met before the last payslips of the tax year are submitted to HMRC. It’s also a good idea to check that your tax code is right, because being on the wrong tax code could bring about unexpected tax bills. You can look up your tax code with HMRC but if you’re unsure of your position then speak to an accountant. It’s always worth double checking you are on the right code, so you don’t under or over-pay.
A deed of trust is a legal document which changes the beneficial ownership of a property. It can be used by married couples and civil partners to split rental income from personally owned property when declaring rental profits on your tax return.
A deed of trust allows you to flex the amount of profits between spouses, such as 60/40, 90/10, or even 99/1. It can be a good tool to save income tax, particularly in couples with a higher rate and basic rate taxpayer. A deed of trust also has benefits for capital gains tax and inheritance planning.
Deeds of trust can be complex and we always recommend getting professional advice from a tax advisor.
If you’re taking profit out of your company in the form of a salary and dividends, don’t miss out on the basic rate tax band. Most individuals can draw up to £50,270 in the tax year via salaries and dividends before reaching the higher rate tax threshold. You’ll need to account for any other income and benefits for the tax year when you review your dividends, but the most important thing is to take advantage of the threshold.
When paying dividends, remember to ensure that the dividends are covered by the profits net of expected corporation tax and that you leave enough cash within the business as operating capital to meet your future outgoings.
If your strategy is to leave most of your profit in your company saving for future investments and only taking minimal dividends, you may want to consider taking advantage of the dividend tax-free allowance before it is cut in the next tax year. Currently, every shareholder has a £2,000 tax-free dividend allowance. From 6 April 2023 this will be halved to £1,000, then from April 2024 halved again to £500.
If you're not seeking an income from your company or saving for your next property, you might be considering investing in a pension. A company pension is an easy way to reduce your tax liability, as well as building up a fund for the future. The end of your company’s year or the end of the tax year is a good time to take stock of your retirement planning and to top up your pension.
Directors of limited companies can contribute pre-taxed company income to a pension scheme. Subject to a few rules from HMRC, employer contributions count as an allowable business expense, which lowers the company profits and in turn means the company receives tax relief against corporation tax.
Most people can top up their pension by £40k tax-free each tax year. However, it’s worth noting the pensions allowance is restricted for those with an income exceeding £240,000 (this is inclusive of employer pension contributions). The allowance is reduced by £1 for each £2 of income above £240,000, subject to a minimum allowance of £4,000.
The good news is the £40k tax-free pension allowance isn’t a case of “use it or lose it”. Provided that you were a member of a pension scheme in the three previous tax years, and you didn’t use the full annual allowance, it is possible to roll this forward to make a higher contribution in a particular tax year.
Please keep in mind that pensions are a complicated subject and you should take advice from an Independent Financial Advisor to ensure that you follow the correct rules and for advice on how much can / should be invested.
If you plan to top up your pension, make sure that any payments are made and received by the pension company before the tax year end.
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