5 tax deductibles every property investor should be claiming
Since the Chancellor (My pet name for him was #evilgeorge) made a number of changes to the property tax rules that affect the property investor, we’ve had a lot of clients ask about how the changes affect them in particular. That’s one reason we put together an easy-to-use Tax Calculator for buy-to-let property investors it even includes 100 of our clients portfolios profiled.
Perhaps the biggest change made to the way that a property investment is taxed is the erosion of mortgage interest tax relief over the next three years. If you’re a higher rate taxpayer, this will hit you particularly hard. It might even be worth setting up a limited company for your property investment.
However, even with the changes to the property investment tax rules, there are still a number of tax deductibles that you can use to reduce your tax bill on property investment. Whether or not you pay tax at the higher or additional rate, you should be maximising these and claiming everything you can because, as a property investor, while investing in the best property will ensure long-term profitability, tax relief is the cream on top.
Apart from claiming as much mortgage interest tax relief as possible, here are the tax deductibles allowed by the property tax rules that will give your property investment that extra lift:
1. The cost of property management
I always leave the management of my properties to a professional. Now, of course, this costs a few quid, but it’s a price worth paying for the effortless property management it gives. I don’t get involved in any of the day-to-day business of property management, concentrating only on strategy and portfolio building.
But best of all, I claim the property management fees as a tax deductible. In effect, the government is paying part of my property management costs!
2. The property investor’s insurance premiums
As a buy-to-let property investor, never make the mistake of not insuring your investment property or allowing your insurance to lapse. Your landlord's insurance could include contents, emergency, legal expenses, and rental income guarantees. With this type of insurance costing around £200 to £400 per year, it’s a good thing that you can offset this expense against your profits and reduce your tax bill.
3. Maintenance and repairs on your property investment
There will always be some maintenance and repair costs associated with a property investment. Under the property tax rules, you can claim any wear and tear maintenance costs against your profits. So repairing broken windows, replacing a hot water boiler, general decoration costs and roof repairs, for example, are all costs you should be claiming.
4. Council tax and utility bills
When the property is untenanted, the property investor is still liable to pay council tax and utility bills. Some property investors I know include council tax (and even utility bills) within the rent they charge. If you pay any of these on your property investment, you can claim the cost as a tax deductible.
5. Your accountant’s bill
While you can complete a self-assessment yourself when you can get the government to pay part of the bill, why wouldn’t you use an accountant to make sure your numbers are correct and that you’re not paying taxes you shouldn’t? The cost of an accountant is another cost that can be deducted before tax is calculated.
Use the property tax rules to your advantage
While reducing your tax bill shouldn’t be the way in which you ensure a profitable property investment, claiming everything that is allowed under the property tax rules is essential. You won’t be able to backdate any deductions either, so my advice is to run through your income and costs with an expert now, as soon as you finish reading this. (Remember, too, that the above list isn’t exhaustive – there are plenty of other deductions you can make that will reduce the tax you pay.)
Reducing your tax bill is like getting the government to help pay for your property investment. And that is a wonderful feeling, afterall you are entitled to do so be sure to use it.
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