Tax-efficient property investment: Landlord loopholes and potential savings

Tax efficient property investment

Does tax-efficient property investment exist? In short, yes. Investors have several options to consider including landlord loopholes and potential savings to be made, that continue to make property an attractive prospect.

It’s fair to say that property as an asset is highly regarded by investors. After all, property is a tangible asset, there’s a high demand for it versus low supply, and the cost of purchasing property along with its achievable rental income continues to scale to new heights. 

However, keeping your ear to the ground regarding aspects such as reducing tax or claiming allowable expenditure is still an essential component of any investment you make, especially in terms of property. That’s because if your financial affairs are not set up in the most efficient way, then you could be paying over the odds in tax and ultimately, your ROI will reduce. 

While we’d always recommend seeking independent financial advice, there are some common ways in which investors can reduce their taxes through various landlord loopholes that exist. Here just is a snapshot that we’d like to bring to your attention. 

Use Limited Companies To Invest In Property

If you’re subscribed to our YouTube channel, then you’ll know we like to bring you all the latest news regarding our investment opportunities. We also strive to inform our investors by interviewing trusted parties related to the property process as a whole. 

We had the pleasure of speaking to Conor Kilcoyne from GetGround, a company we’ve partnered with to help our clients to set up limited companies for their buy-to-let properties. Alongside company formation, GetGround also advises our clients on aspects such as accounting, tax returns, dividend admin, secretarial services and expenses management. 

For those unfamiliar with the process, when purchasing a buy-to-let property, you have two options at your disposal, the most common being registering the property in your personal name. Alternatively, you can set up a limited company to allow you to gain tax efficiency, limit any personal liability, buy and sell property more easily, and gain inheritance planning benefits. 

Setting up a limited company, extracting the income efficiently, and selling the property through a share transfer can vastly increase your ROI. So, this is definitely one avenue we’d encourage you to explore if you haven’t already.

Brush Up On Your Allowable Expenses

Similar to submitting a tax return for any personal or business income unrelated to your property investments, there are a number of allowable expenses that can help reduce the amount of tax you owe with your property portfolio too.

As a landlord, you may be unaware that everyday costs associated with managing your property may also count towards your expenses. This includes the cost of travelling between properties, the cost of making phone calls to tenants, money spent advertising the property and even legal fees. It may seem like a hassle to keep track of such expenditure, but if you’re looking to invest in property over the longer term, even smaller amounts can really begin to add up.

Property business accountancy

Alongside consulting our partners over at GetGround, we’d definitely suggest seeking advice from an accountant familiar with the property process to ensure you’re fully claiming all allowable expenditures.

For example, did you also know it’s possible to claim for void periods during the pandemic too? The last couple of years have been a challenging time across the board, and if you struggled to find tenants during the pandemic, then you may be able to claim for void periods on your self-assessment for aspects such as the cost of council tax or heating. 

Again, these kinds of loopholes are easy to miss, and with the end of the tax year now upon us, it’s essential you know what you can claim for in relation to your property portfolio. 

Consider Holiday Lets

We mentioned in a recent article on our website how the short-term let market is booming, especially in a city such as Liverpool, which has no restriction on the number of days landlords can let their apartments for as short term holiday lets. 

Quite simply, holiday lets help you maximise your returns and capitalise on a strong tourism market. Despite the name, holiday lets also appeal to professionals and students who are not looking to enter into a long term tenancy. 

Although the number of days a property can be let out for a holiday let will vary depending on where the property is based, it’s well worth looking into as the income could far exceed regular rental income with the right strategy.

Tax wise, running a property as a holiday let can allow you to offset the cost of your mortgage interest on your tax bill. In contrast, those running the property as a standard rental can only claim up to 20% of their mortgage interest. 

In addition, if HMRC considers your holiday let as a business, you may also benefit from reduced Capital Gains Tax of just 10%, compared with 28% for regular property sales. Profits from holiday lets can also be put into pension pots where tax relief can then be claimed. With income from regular buy-to-lets, the same benefits do not apply. 

Investing in UK property

It’s always worth keeping up with the latest tax or savings loopholes for landlords, especially since advice or measures may change on a regular basis.

Often, just a few simple steps can have a monumental impact on both your short term and long term gains. 

Get in touch to speak to our team about investing in property.