"By checking your portfolio size with your current accountants, they should be able to advise the best ownership structure for you that will mean you don’t have to pay as much tax"
- Lee Murphy - The Accountancy Partnership
With tighter margins and frequent changes in tax rules, property investors are increasingly looking for legal ways to improve their profit margins.
One effective approach is reducing tax bills and maximising returns while complying fully with the law.
Lee Murphy, managing director of The Accountancy Partnership, an online accountancy firm specialising in affordable services for UK property investors, outlines five key tips for staying tax-efficient without breaking any regulations.
“Paying less tax isn’t about dodging any current tax laws and rules, but it's about understanding them and using them to your maximum advantage,” Murphy explained. “Many investors don’t fully understand tax laws, making it incredibly easy for them to be paying over and above when it comes to tax. The right strategies for property investors can make a massive difference and could save you thousands of pounds a year.”
Choose the right ownership structure
“Whether you own properties personally or through a limited company can have a big impact on your annual tax bill,” Murphy noted. “Limited companies might benefit from lower corporation tax rates and still offset mortgage interest, while owning a property personally can be more efficient if you have a smaller portfolio. By checking your portfolio size with your current accountants, they should be able to advise the best ownership structure for you that will mean you don’t have to pay as much tax.”
Claim every allowable expense
“Too many landlords and investors fail to deduct legitimate costs such as maintenance, cleaning fees, letting agent fees and so on,” Murphy said. “One of the things that gets forgotten about the most is putting through travel expenses. While you do have to track your mileage and it can be a bit fiddly with receipts, you can claim back travel costs both to and from your investment properties. While some people may only have rental properties in the area, those pennies of petrol can quickly turn into pounds.”
Use capital allowances where possible
“Some landlords, such as those with commercial properties, can also claim capital allowances on items such as fixtures, fittings and equipment,” Murphy commented. “This can hugely reduce your taxable profits and is another one that can be hugely overlooked by investors.”
Make full use of allowances and exemptions
“The personal allowance, CGT exemption and even the marriage allowance can all reduce the amount of tax you owe,” Murphy pointed out. “When it comes to the marriage tax, if your partner isn’t earning their full tax-free allowance from another job, then you can transfer allowances over to them to make better use, reducing your tax bill. Timing your property sales to fall across multiple tax years can also really help reduce your CGT bills.”
Plan for the long term
“Tax rules are forever changing, so you need to ensure that your investment strategy can be flexible,” Murphy advised. “You need to keep on top of predictions for the likes of spring and autumn statements, as well as potential CGT rate changes, inheritance tax planning and potential changes to property tax reliefs. Having a long-term plan is far more effective than having short-term fixes.”
