The Essential Role of a Specialised Landlord Accountant
Introduction to Property Management Challenges
Managing properties involves more than finding the right tenants. It requires a deep understanding of financial complexities, particularly in taxation and compliance. This is where the expertise of a specialised landlord accountant becomes invaluable.
Navigating Property Markets
Whether dealing with residential, commercial, or industrial properties, each market presents unique financial challenges. A landlord accountant guides you through these, ensuring efficient management of your rental properties.
Simplifying Taxation and Compliance
Property-related taxes can be intricate. A specialised accountant demystifies these complexities, helping you understand rental income deductions, capital gains, and local tax regulations. This guidance ensures compliance and optimises your investments.
Common Issues for Residential Property Landlords
- Income Tax on Rental Income
Landlords must declare their rental income on a Self-Assessment tax return and are taxed according to their income tax band (20%, 40%, or 45%). Expenses can be deducted, but only those exclusively for renting out the property. A skilled accountant ensures you deduct as many expenses as possible while complying with HMRC rules.
- Restriction on Mortgage Interest Relief:
The ability to deduct mortgage interest from rental income before calculating tax liability has been phased out. Landlords now receive a tax credit based on 20% of their mortgage interest payments, which can be less beneficial for higher or additional rate taxpayers.
- Stamp Duty Land Tax (SDLT):
When purchasing additional properties, landlords must pay an extra 3% SDLT on top of the standard rate for properties costing more than £40,000. This significantly increases the initial cost of investment.
- Capital Gains Tax (CGT):
When selling a property that has increased in value, landlords are liable to pay CGT on the profit. There are some reliefs and allowances available, but careful planning is necessary to minimise the CGT liability. Capital Gains on the sale of residential property must be reported within 60 days.
- Non-Resident Landlord Scheme
Landlords living outside the UK for more than 6 months in a tax year are considered non-resident landlords and are subject to special tax rules. They must either pay tax on their rental income via Self-Assessment or have the tax deducted at source by their letting agent or tenants.
Some common issues for individuals renting out residential property
- Taxation of Profits
Operating through a limited company means profits are subject to Corporation Tax, which is currently lower than the higher personal Income Tax rates. However, extracting profits from the company, for example through dividends, will attract additional personal tax.
- Mortgage Interest Relief
As of April 2020, private landlords can no longer deduct mortgage interest from their rental income before calculating their tax bill. Instead, they receive a 20% tax credit. Companies, however, can still deduct mortgage interest as an expense before calculating their taxable profit, which could be more tax-efficient, especially for higher-rate taxpayers.
- Capital Gains Tax (CGT)
Individuals have an annual allowance (currently £6,000) before any Capital Gains Tax is charged but companies do not have this allowance. Also, the rate at which CGT is charged on the sale of residential property is different for companies; 19%-25% compared to 18%-28% for individuals. Depending on your circumstances, a company could be beneficial.
- Dividend Taxation
If you take profits out of your company as dividends, they will be taxed (beyond the dividend allowance) at the dividend tax rates, which might be lower than personal Income Tax rates on rental income, depending on your total income.
Getting a mortgage as a limited company can be more complex and may come with higher interest rates compared to individual buy-to-let mortgages. Lenders often see limited companies as higher-risk, and there may be fewer financial products available.
- Regulation and Compliance
Companies are subject to more regulatory requirements, including filing annual accounts and reports, completing Confirmation Statements, and maintaining accurate records. This can increase administrative duties and costs.
- Flexibility in Tax Planning
Through a company, there’s potential for tax planning, such as timing dividend withdrawals to minimise tax liabilities or splitting ownership with a spouse to utilise tax allowances.
- Potential Exit Strategies
Selling a company that holds property might be more attractive to a buyer, as it could allow them to acquire the shares in the company rather than the property itself.
- Profit Retention for Reinvestment
If you plan to reinvest profits to grow your portfolio, doing so within a company can be more tax-efficient, as the lower Corporation Tax rate leaves more funds available for investment.
Adapting to Regulatory Changes
Property regulations constantly evolve. A landlord accountant ensures you’re financially prepared for any regulatory shifts.
Why Choose Nichols & Co?
Nichols & Co specialises in property accounting, offering tailored solutions for landlords. We equip you to handle the financial aspects of property management efficiently.
Visit our blog for insights on property regulations, financial best practices, and more. Our resources provide clarity for landlords considering an accountant.
Frequently asked questions
A professional focused on the financial management of rental properties, covering rental income, property-related expenses, and specific tax deductions.
They ensure compliance with regulations, maximise tax benefits, and offer property-specific financial guidance.
They identify allowable expenses to reduce taxable income, including mortgage interest, maintenance, and insurance.
Yes, they offer guidance on financial management and tax implications specific to buy-to-let properties.
Regular consultations are advisable, especially during tax season or significant property portfolio changes.
In property management, a specialised landlord accountant is essential. For a streamlined financial approach in property management, reach out to Nichols & Co.