Over the past few decades, the UK property market has steadily grown, prompting many people to become involved in the rental sector. Landlords wanting to let second homes, rental businesses acquiring a portfolio, and property developers have all sought to benefit from the opportunities available.
However, with opportunity comes risk as property rental has attracted increasingly complex tax regulations and an extensive bureaucracy. Without understanding these unique requirements, a landlord can inadvertently forget one of the many tax requirements, affecting profits and potentially incurring steep penalties. More than almost any other sector, property rental businesses need an accountant for professional tax and financial advice.
What Can An Accountant Do For Me?
Running any business brings a complex tax burden that can include VAT, Corporation Tax, National Insurance, Capital Gains Tax, PAYE, and Self Assessment Income Tax liabilities. An accountant will give invaluable advice and, as part of normal business operations, can:
- Prepare and submit annual accounts
- Offer bookkeeping and payroll advice
- Help with VAT returns
- Ensure that you comply with the relevant PAYE and National Insurance requirements
- Help you prepare for HMRC audits
- Offer accounting software installation, support, and training
- Reduce the workload and help you run your business smoothly
Property Rental Taxes
A Property Lettings Accountant understands the complexities involved in the rental sector. Your accountant will help you navigate the layers of tax regulation involved with acquiring and disposing of property and taking rent. They will also unlock many of the tax opportunities presently available to landlords. A specialist accountant can help you:
- Develop the optimal tax structure for your business
- Ensure that your business benefits from available tax reliefs
- Unlock the tax opportunities specific to the property rental industry
- Guarantee that your business complies with all tax regulations
- Handle discussions with the relevant taxation authorities
Many taxes can apply to the property rental industry, including Income Tax, Corporation Tax, Capital Gains Tax, VAT, Stamp Duty, and future Inheritance Tax. Understanding these taxes, especially for long-term property investments, requires expertise and a detailed business plan.
Naturally, success involves developing a realistic business plan and seizing new opportunities as your property portfolio grows. Considering the volatility of the housing market, interest rates and property letting requires long-term planning and an awareness of potential future scenarios. As a result, a business plan should be financially viable, but incorporate flexibility and options.
An experienced accountant with industry-specific knowledge is an investment rather than a cost and will help you develop the right business structure to maximise profits and reduce liabilities. If you are thinking of becoming a landlord, or you want to grow an existing property business, a discussion with your accountant should be the first stage of developing a business plan. This gives you an objective viewpoint and helps you plan for the future.
Finally, the plan should include an exit strategy if, at some point in the future you want to retire or pass on/sell the property business. Advance planning will help you maximise tax-efficiency, especially for Inheritance Tax.
One of the most important decisions when becoming a landlord involves deciding on the optimal legal structure: are you better as a sole trader, a limited company, or a partnership? Should your business pay Income Tax or Capital Gains Tax? These questions are best handled by a specialist in the field, who will develop a strategic tax plan that can help to reduce the burden of tax and National Insurance.
Tax Relief and Deductions
Even for a sole trader, one of the most important aspects of running a business includes claiming eligible expenses. As a distinct sector, property management and letting has its own set of allowable expenses, including:
- Agent fees
- Legal expenses
- Accountant fees
- Mortgage/loan interest
- Insurance for property and contents
- Inspection, maintenance, and repairs
- Furniture wear and tear
- Council tax and utility rates if not paid by the tenant
- Service charges and ground rent
- Cleaning and gardening expenses
- Writing off bad debts
- Employee payments
- Other direct costs such as advertising, mileage, and stationery
VAT on Property
Your property business may be liable for VAT, this can be an extremely complex area for rental business and property transactions. Failing to account for VAT can be extremely expensive and leave you at risk of severe penalties for non-compliance. Before undertaking any property transaction or development, it is important to seek the advice of an accountant specialising in property.
Avoiding the Pitfalls
In recent years, legislation has focused on tax avoidance, with property owners and rental businesses attracting some particularly tough regulations. Penalties for non-compliance can be punitive and can destroy even the best run business. An accountant can help you navigate these complexities and avoid running foul of legislation.
Business and Personal
Business accounts and personal finances are closely linked, so an experienced accountant will help you manage these tax-efficiently. More importantly, given that property investment of any type usually involves long-term planning, an accountant can help you develop retirement strategies including pensions and maximise your future retirement income.
Using IT for Efficiency
We can help you select and use market leading software to simplify the bookkeeping and accounting process as well as modern IT solutions for payroll and business planning. Using an efficient Property IT solution allows you to spend more time promoting, running, and growing your property business.
Why Mercian Accountants?
At Mercian Accountants, we offer a full range of accounting services that will help your property business thrive, now and in the future. We can help you prepare your rental income statements, benefit from tax allowable expenses, and submit your Self-Assessment Tax Return through electronic filing. We specialise in every aspect of property, from mortgage financing and business structure, to planning for retirement.