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Property Investment and Renting (landlording) is normally a long-term project, so there are long-term implications for your property's income and capital gains taxation.
To make the most of your investment as a landlord and property investor you need to be aware of all the tax implications and keep abreast of these as time goes by.
Ideally, you should do some tax planning even before you purchase your properties, perhaps with some specialist advice - taxation in the UK is highly complex, so it's unlikely, unless you are an accountant yourself, you will know all ins and outs of property taxation.
The property market goes through cycles - through good times and bad - so you need to plan for all types of eventuality.
Also, your property may be sold by you in some years' time, or it may form part of your estate for your heirs, when you’re gone.
In any event you want to minimise your exposure to tax liabilities and the only way you can do that is to spend time planning your strategy regarding tax.
Owning rental property or portfolio of properties means, in effect, you are running a business. You need to learn to manage in the most cost effective and tax efficient way.
Financing and the mortgage deals you arrange are very important - getting competitive rates and fees and claiming the interest against rental income.
When you purchase you will incur buying costs, all of which are deemed to be capital costs, not revenue costs. You won't be able to deduct these from any rental income you may earn. You can, however, record these costs and add them to the property cost in calculating the capital gain on the property when you eventually sell.
Renovation or refurbishment costs - cost which make an improvement to the property - are also classed as capital costs and as such are not deductible against income, though some capital costs, such as insulation, are allowed. The Inland Revenue (HMRC) draw a distinction between repairs or improvements – as a rule repairs can be offset against income, but an improvement, except in special circumstances cannot.
The distinction between the two can sometime be contentious, so it's worth doing your homework and very carefully constructing your tax claim, especially on a big refurbishment project where some allowable expenses will save you thousands and improve your cash-flow no end. – See deductible expenditure
On a big refurbish project it is sometimes possible to have a building temporarily removed from the local authority's rating list - which can save you a lot of money if the work drags on for months.
Commercial landlord need to be aware that building may be subject to full business rates when empty.
Rental income is taxable income, but you can deduct a long list of expenses - See deductible expenditure
Considerable savings can be made by letting properties as furnished holiday lets – see Holiday lettings & Tax
Capital Gains Tax - On disposal, any gain will be subject to Capital Gains Tax (CGT)
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