A good record-keeping system can save you money and make you a better investor
Property has proven to be a great long-term investment, with values doubling on average every seven to ten years. Unfortunately, where there’s profit, there’s usually a taxman waiting to nab some of it. Income and capital gains from property investment are not out of the taxman’s reach.
Savvy investors will make sure they reduce their tax liabilities to the minimum by claiming the maximum amount of tax deductibles. To do this, you need to know what records you should keep, how to keep them, and for how long.
Five reasons to keep property investment records
Record-keeping is an integral part of a property investor’s routine. Keeping records will help you to:
- Complete your Self Assessment accurately, ensuring your tax position is correct
- Submit your assessment on time, avoiding fines and penalties
- Ensure that you claim all your deductions, saving money
- Provide the evidence needed if asked by the taxman, saving time, embarrassment, and money
But keeping records isn’t all about tax. The most successful property investors use their records to:
- Look back on their property investment and help identify where they made mistakes and why. This helps to make you a better and more profitable investor and makes an assessment of property investment opportunities easier. It’s part of the reason why some property investors appear to be able to merely look at a property and decide if it will be profitable on the spot.
What records should you keep?
There are two types of records that you should keep: permanent and temporary. You’ll need to provide proof of expenses and costs if asked for it, and records will be used to make an accurate calculation of any tax liabilities.
Permanent records you must keep
Permanent records are those that you will want to keep for the duration of your property investment, until after you sell your property. They’ll help you claim deductions against any capital gain you make, as well as track your cash flow over the lifetime of your investment. The permanent property investment records you should keep include:
- Your purchase contract
- Solicitor’s letters and documents
- Mortgage documents
- Repair and improvement bills and receipts
- Communication notes, letters, emails, and other records (between you and the tenant, you and your investment property manager, and your investment property manager and the tenant) – these will help you should there be any dispute at any time
- Tenancy agreements and appendages
- Tenancy application forms
- Sale contract
We’d recommend keeping these files for between three and seven years. These will help you to reduce your income tax bill, as well as keep on top of the day-to-day management of your property.
Many of these records relate to property tax-reducing deductibles, which can be offset against your rental income to reduce annual income tax liabilities. Some of these records will transfer from temporary to permanent after you have submitted your annual Self Assessment to HMRC. The temporary records you should keep include:
- All receipts and invoices relating to your property:
- Property management charges
- Accountant’s fees
- Solicitor’s fees
- Landlords’ insurance
- Repair and maintenance
- Cleaning costs
- Gardening and landscaping
- Service charges
- Gas and electricity safety checks
- Mortgage interest payments
- Council tax and utility bills
- Telephone bills
- Stationary cost
- Other documentation:
- Tenancy agreements
- Rental statements
- Property inspection reports
- Bank statements
How should you keep your records?
In this day and age of computerisation, it’s tempting to keep all your records digitally. While this makes it easier to retrieve records, you should also keep originals in hard copy format. If you are running your accounts on a computerised system, you should be able to scan all your invoices and receipts and attach them to your entries. Do this as soon as invoices and receipts are received.
Some accounting programs, like FreeAgent and QuickBooks, will link directly to your bank account, letting you reconcile in real time. And you can send the records electronically to your accountant to smooth the process of making up your final accounts.
Store all your hard copy records in a fireproof safe. Keep them in date order, by year, and then within each year’s records in order of the type of record, it is (for example rental receipts; maintenance costs; etc.).
You should also keep all your records on a per property basis. Even though your income and expenses will be amalgamated for tax purposes, you’ll want to be on top of your property portfolio on a per property basis. This will make it easier to identify your most profitable properties, and decide which properties to sell if needed.
Get organised to be more profitable
When you’re organised, you are less likely to make mistakes, and more likely to do things promptly. And when it comes to dealing with the taxman, these two qualities are essential. Having your paperwork organised will also help to make you a better and more successful property investor. For more tips and tricks, and to learn the habits of the best property investors, contact one of the Gladfish team today on +44 207 923 6100.
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