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Ten Tax Tips for First-Time Landlords

Let Property Campaign

With the property industry on the rise, searches for ‘how to become a landlord’ have increased by 22%1, compared to the same time last year. To help budding property landlords navigate the industry, specialists from Chartered Accountancy practice, Sheards Accountants share ten tax tips for first-time landlords.

  1. Get expert advice

Tax Manager at Sheards Accountants, Jane Senior says: “Seeking expert advice before taking the leap as a landlord will help you find out the pitfalls and ensure you’re armed with the knowledge before undertaking a property purchase. Ultimately, whoever owns the property can have an impact on income and capital taxes.”

  1. Keep accurate records, MTD 2023

Making Tax Digital (MTD) for Self Assessment comes into effect from April 2024. Landlords with gross rental income in excess of £10,000 will need to file a digital return every quarter. The right software and record-keeping will be a lifesaver when MTD becomes necessary.

  1. Maximise your expenses

Experts from Sheards Accountants say maximising expenses is essential for first-time landlords. “Make sure that you are keeping a record of all your expenses in letting the property and know which expenses are deductible” adds Jane.

  1. Minimise tax

If you have a spouse, why not consider putting the property into joint names? This is a great way to maximise capital gains tax exemptions on future sales and minimise income tax if you’re in a different tax bracket or personal allowances for one spouse are not being totally used.

  1. Form a limited company

First-time landlords could look at potentially setting up a limited company if your intention is to acquire a property portfolio to hold your properties. “Be aware of added costs for preparing accounts and company costs. Expenses will be deductible against the rental income including mortgage interest which is only given as a 20% tax credit for individuals. The tax would be paid on withdrawing the profits but dividends benefit from a tax-free allowance and lower tax rates” explains Jane.

  1. Register for self-assessment

Registering for self-assessment is a must for new landlords. Ensure that you register with HMRC for self-assessment by 5 October following the end of the tax year in which you start to receive rental income.

  1. Managing agent

First-time landlords should consider using a managing agent. “Commission and management charges are all tax-deductible as well as accountancy fees for preparing your rental accounts and tax return. All tenant finding fees, gas/electricity checks and repairs are taken care of by agents and this can be a more efficient and stress-free way to handle your property if you don’t want to deal with it yourself” says Jane.

  1. Consider short-term lets

Letting a property as a holiday let has a different tax treatment (it’s treated as a business instead of an investment) and qualifies for business tax reliefs. Expenses are higher but tax-deductible and the rental income is higher if you want to run the property more as a business.

  1. Create a payment plan to avoid cash flow worries

Planning ahead to avoid cash flow is a great habit to get into as a first-time landlord. Jane says: “It’s important to get an idea of your potential tax liability and put a proportion of the rental money aside to pay your tax bill. Also, have some cash set aside for any essential repairs to your properties – storm damage and boiler breakdowns can happen at any time!”

  1. Work with a tax specialist

“The property sector can be tricky to navigate especially with changing legislation and a lot of considerations to be made. Working with a tax specialist is key for first-time landlords. So whether you already work with an accountant or not, I would recommend reaching out to see if you can speak to a tax specialist and make sure you are fully aware and up to date with everything that is required of you as a landlord” concludes Jane.