Tax Compliance for Landlords

Joint ownership allows the income and gains to be split utilising two sets of allowances, if one party is a higher rate tax payer however this may not be beneficial. Properties can be transferred between husband and wife before a sale to allow both CGT (Capital Gains Tax) allowances to be utilised with no gain or loss when the transfer between spouses is actioned. Property finance may initially determine ownership if both incomes are required to secure funding.

In the long term a limited company will allow all interest finance costs to be offset which in not allowable as an individual.  However in the event of any future property sales a “double tax” could occur as corporation tax will be paid on any profit of the limited company and the funds extracted would also be liable to possible dividend tax on the individual.

Second residency higher SDLT (Stamp Duty Land Tax) rate could apply, income tax on profits, CGT (Capital Gains Tax) on potential sales of the properties are all taxes to consider.  The limited company corporate rates are now increasing from 19% up to 25% for profits over £250,000 with a marginal rate relief being calculated on profits between £50,000 and £250,000.

You may require self-assessment registration or you may already submit a tax return. What other income do you already have and what could be the impact on your SA return?  You may require a limited company to be incorporated. All registrations can be done online, however professional advice from an accountant and tax advisor may be needed to allow you to set out your plan accordingly before anything is registered.

You will need to consider revenue and capital expenditure and the reliefs available.  The following HMRC guide explains more https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income

Have you considered making tax digital in the future?

Properties will be considered in your estate so professional Wills and tax planning advice will need to be taken if you are breaching the current IHT allowances.  Current individual allowance is £325,000 with your home adding a further £175,000 if left to your children etc and your total estate is under £2 million. For a married couple therefore this is effectively £1 million allowance each before IHT becomes an issue.

In some circumstances where property has been lived in before PPR reliefs may be available. This may apply where the first property in your portfolio has previously been your home and you then eventually sell the property.  A period of PPR ownership may reduce gains significantly.