1. Assess the feasibility of various property investments
If you want to invest in a new property but do not know which one to go ahead with, you have to look at which is the best option for you. For example, residential properties bring less hassle with them compared to commercial ones.
However, administrative complications may arise if tenants change continually – which is common with residential properties. Speaking strictly in terms of VAT, residential properties are tax-free.
2. Decide whether you want be an individual or a company
3. Keep yourself informed of changing tax rules
4. Maintain up-to-date records digitally for calculating the tax on rental income
In addition, bear in mind that under the MTD for ITSA rules, you will have to compulsorily use MTD-compatible accounting software if your property income exceeds £10,000.
5. Take advantage of family allowances
If you have a civil partner or spouse, you could save tax by “gifting” them some or all of your rental property. There are several legal considerations that you need to get right here, so study the requirements beforehand.
6. Do not forget about the benefits of the tax on rental income
Tax laws are not just about coughing up money for HMRC. If yours is a small property being let out for holidays, you could potentially get a 100% relief on business rates. Plus, if your property is being let to multiple tenants for less than 31 days each for a total of 105 days a year, your property counts as furnished holiday lettings, which means you can declare capital allowance on the cost of setting up furniture and interior decor and thus enjoy the relief of capital gains.
7. Plan with a future in mind
Do you want to pass on the property you hold to your descendants as inheritance? Do you want to sell it off when market prices are in your favour? Do you want your property income to be like a retirement fund for your later years? There are tax implications for each, so you are advised to decide on a plan in advance so you can start preparing the appropriate records.
8. Be aware of the laws around UK property disposal
9. If you have past omissions, correct them as soon as you can
The HMRC has shared a “Let Property Campaign” that allows landlords like yourself to voluntarily disclose their undeclared rental income from earlier years and get a lower penalty than you otherwise would for owed tax. So, if you have omitted to file returns for any reason, now is the time. Get your buy-to-let accountant to help you with calculating the tax on rental income!
10. Timely submit Annual Tax on Enveloped Dwellings (ATED)
Every year, an ATED relief claim must be completed if a company (not an individual) owns a residential property valued at more than £500,000. This claim begins on April 1 and has to be submitted to HMRC within the same year by April 30. Companies are subject to penalties if the deadlines are not met.