Maximising tax reliefs can significantly enhance your returns as a property investor. Understanding and utilising available tax reliefs helps reduce your taxable income and increase profitability. At Ecco Accountants, we specialise in providing expert property accounting advice to help property investors in the UK maximise their tax reliefs. Here’s a VERY brief guide to the key tax reliefs you should know about.
- Mortgage Interest Relief
Understanding Mortgage Interest Relief
Mortgage interest relief allows you to deduct interest paid on loans used to buy, build, or improve your property from your taxable income. If you are a limited company, you can deduct all mortgage interest.
Key Points
- Tax credit: A 20% tax credit on mortgage interest payments for personally owned properties.
- Transition: The relief has been fully transitioned to a tax credit since 2020.
- Impact: Particularly beneficial for basic rate taxpayers.
- Capital Allowances
What are Capital Allowances?
- Capital allowances allow you to deduct the cost of certain capital expenditures from your taxable income. This applies to commercial property owners and businesses investing in qualifying assets used in their trade or property business.
Eligible Expenditures
- Furnishings: Fixtures and fittings in commercial spaces, such as desks, shelving, and built-in storage, may qualify.
- Equipment: Tools, machinery, and office equipment used in the operation or maintenance of commercial properties.
- Structures: Structures and Buildings Allowance (SBA) may apply to qualifying non-residential construction or renovation costs.
- Replacement of Domestic Items Relief
Relief for Replacing Domestic Items
This relief allows you to deduct the cost of replacing domestic items such as furniture, appliances, and kitchenware in rental properties.
Key Details
- Eligible items: Includes sofas, beds, carpets, and white goods.
- Replacement only: Relief applies only to the replacement of existing items, not initial purchases and at the same standard and value of the replaced item.
- Deducting costs: Deduct the actual cost of replacement minus any proceeds from the old item.
- Rent-a-Room Relief
Tax-Free Income
Rent-a-room relief allows you to earn tax-free income from renting a furnished room in your home. This is particularly useful for those who rent out part of their primary residence.
How It Works
- Threshold: Up to £7,500 tax-free income per year.
- Eligibility: Applies to individuals renting a room in their main home.
- Opting in: You must opt into the scheme on your tax return.
- Private Residence Relief
Relief on Your Main Home
Private residence relief exempts any gain made from selling your main home from capital gains tax. This relief is crucial for those who have lived in the property at some point.
Key Points
- Exemption: Full exemption if the property has been your main home throughout the ownership period.
- Partial relief: Partial relief available if only part of the ownership period was spent living in the property.
- Letting relief: Additional relief if the property was let out during the ownership period.
- Property Allowable Expenses Relief
Deducting Day-to-Day Running Costs
Property allowable expenses relief allows you to deduct the day-to-day running costs of your rental property from your rental income, reducing your taxable profit.
Key Details
- Eligible expenses: Includes repairs, maintenance, insurance, letting agent fees, legal costs, and advertising for tenants.
- Revenue vs capital: Only revenue expenses qualify – improvements that add value to the property are capital expenses and not deductible.
- Record keeping: Maintain detailed records and receipts for all expenses claimed.
- Incorporation Relief
Relief for Incorporating a Business
Incorporation relief allows you to defer capital gains tax when transferring your property business to a limited company.
How to Qualify
- Asset transfer: Transfer the business and all its assets to the company.
- Shareholding: Receive shares in the company in exchange for the business.
- Deferral: Defer the capital gains tax until the shares are sold.
- Annual Tax-Free Allowance
Personal Allowance
Every individual has an annual tax-free allowance for capital gains. Utilising this allowance effectively can reduce your overall tax liability.
Key Points
- Allowance amount: £3,000 for the 2024/25 tax year.
- Utilising the allowance: Spread property sales over multiple years to maximise the use of the allowance.
- Joint ownership: Couples can combine allowances for greater tax efficiency.
- Consult with Ecco Accountants
Expert Tax Relief Advice
Maximising tax reliefs requires expert knowledge and strategic planning. The above are just key summaries of reliefs that are complex and can have tens of pages of HMRC guidance. At Ecco Accountants, we are expert property accountants and provide tailored advice to help property investors make the most of available tax reliefs.
Our Services
- Tax planning: Strategies to optimise your tax position.
- Finance office: Managing your Virtual Finance office to include everything from bookkeeping to accounts and tax.
- Relief claims: Assistance with claiming all eligible reliefs.
Maximising tax reliefs is crucial for property investors to enhance their returns and reduce their tax liabilities. At Ecco Accountants, we offer expert advice and comprehensive accounting services to support your property investment journey. Contact us today to learn more about how we can assist you.
