Keeping your buy to let investment tax efficient

by Charleston Financial

Tax Efficient Buy to let Mortgages

Buy to let mortgages are underwritten and assessed in a different manner to standard residential mortgages.

Lenders have specific criteria to assess the buy to let mortgage applications.

You need to consider factors such as income tax on rental income, submitting self-assessment tax returns to HMRC, stamp duty implications, and capital gains tax if applicable.

Personal buy to let mortgages are additionally assessed differently to limited company buy to let mortgages

How to understand the tax on rental income?

If you are planning to become a landlord in the future, it is important to understand the income tax implications on your rental income, as mortgage interest is now not a fully deductible tax benefit depending on your tax bracket.

Certain expenses are allowable to be deducted against rental income, and some are deductible for capital gain allowances, it is important to get advice from a qualified accountant in this respect.

If you are already a buy to let landlord, you may also want to consider incorporating your existing portfolio.


Do I need to plan for Capital Gains Tax?

If you are planning to sell a buy to let property, the gains made (if any) will be subject to capital gains tax, if the property is currently held in your personal name.

It is advisable to speak to a qualified accountant to fully understand the implications of capital gains tax and your tax-free allowance.

You should consider capital gains tax implications as it affects the sustainability of the a property portfolio in the long run.

If you are a landlord planning to buy and sell properties regularly, then it would also be worth considering operating this as a business under a limited company buy to let SPV company mortgage it would be an added benefit to understand this in advance, additionally if you own a buy to let in personal name which you are looking to incorporate, there are different tax treatments.

High-rate taxpayers and mortgage interest tax relief

As per the recent changes in tax legislation, you may not be able deduct any of your mortgage expenses from rental income when assessing the taxable profit. 

The new relief rules would be a tax credit of 20% of your mortgage interest payments. Unfortunately, this is not efficient for a high-rate taxpayer (see our comparison) and you would likely be better off purchasing your next investment property in a company name (SPV)

The rise of limited company buy to let purchases

Limited company buy to let mortgages are in huge demand in the mortgage market.

If you are a high-rate taxpayer and planning to build a portfolio of buy to let properties in the future, it would be the right time to discuss your plans with a specialist buy to let mortgage adviser.

They would help you to select the suitable route to own the property, whether in your name or limited company ownership. As discussed above, the high rate-tax payers would be able to deduct the full mortgage interest from the taxable amount if they own the BTL property via a limited company as the mortgage interest can be off set to reduce corporation tax, which is lower than higher rate tax in the first place.

What are my allowable expenses?

You can claim the expenses of running and maintaining your buy to let property. It effectively brings down your tax bill, whether that be income tax or capital gains tax. 

Some examples of allowable expenses you can claim are:

  • water rates, council tax, gas, and electricity
  • landlord insurance
  • costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
  • fees of the estate agent and accountant
  • legal fees
  • rents, ground rents, and service charges
  • direct costs such as phone calls, stationery, and advertising for new tenants

You should always check with your accountant to see what you can and cant offset against your rental income.

HMRC provide good guidance on their website to help you understand what can be deducted against income tax and capital gains tax

How to receive tax-efficient buy to let mortgage advice?

Tax-efficient buy to let mortgage advisers are the best people to help you with planning your current and future buy to let portfolio.

They will consider the return on investment in the long run to evaluate the suitable option for you. Further, they understand the cost of financing and the practical implications of buy to let property transactions. You should set an appointment with one of our tax-efficient mortgage adviser to get your journey started! 

Please note the above article should not be considered as tax advice, you should always speak to a qualified accountant before deciding how to purchase your buy to let

Go back

Request a call back

Please choose how you would like to receive future information, offers & other communications

Please add 6 and 2.