As a landlord with an investment property, you’ll likely face taxes at various stages of the property’s life cycle: when you purchase the property, while you’re letting it, and later when you sell or transfer ownership. In order to maximise the value of your investment, how many of these tax-saving strategies are you aware of?  

1. Maximise Allowable Deductions 

First, it’s important to maximise allowable deductions. Landlords should ensure they claim all expenses related to the management and maintenance of their rental property. These expenses, which can reduce taxable rental income, include property repairs, letting agent fees, landlord insurance, utility bills (if the landlord pays them), and professional services like legal or accounting fees. It’s crucial to differentiate between repairs, which are immediately deductible, and improvements, which are not deductible right away but can help reduce Capital Gains Tax when the property is sold. 

2. Use the Replacement of Domestic Items Relief  

Landlords with furnished rental properties can benefit from the Replacement of Domestic Items Relief. This allows you to deduct the actual cost of replacing items such as furniture, appliances, or carpets. It applies only to replacements, not to the initial purchase of these items, making it an important tax-saving tool for those who regularly update furnishings.  

3. Leverage the £1,000 Property Allowance 

Landlords with small-scale rental income should consider the £1,000 property allowance. This allowance lets you earn up to £1,000 tax-free from property income. If your expenses are less than £1,000, it might be more beneficial than claiming each expense individually. This is especially helpful for landlords renting out holiday lets or earning occasional rental income.  

4. Hold Property in a Limited Company

For higher-rate taxpayers, incorporating a property portfolio can offer significant tax advantages. Corporation tax is lower than the personal income tax rates of 40% or 45%. Additionally, profits can be reinvested in the company without incurring higher personal tax rates, and mortgage interest is fully deductible for limited companies, unlike the restricted 20% tax credit available to individual landlords. However, withdrawing income or selling properties through a company can have tax implications, so please do come and speak to us. 

5. Plan for Capital Gains Tax

Lastly, careful planning for Capital Gains Tax (CGT) can save you money when selling a property. Utilise your CGT allowance, which in the 2024-25 tax year allows individuals to offset up to £3,000 in capital gains before paying tax. You can also offset losses from other investments to reduce your CGT liability. Joint ownership with a spouse is another effective strategy, as both individuals can claim the CGT allowance, effectively doubling the tax-free amount. 

How Bracey’s Accountants Can Help

Whether you’re renting out, selling a property, dealing with property in a divorce, or facing potential inheritance tax (IHT) liabilities, the Bracey’s team is ready to assist with expert guidance tailored to your situation.  

Book a free 30 minute consultation now to understand our full suite of accountancy services