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TOP TAX BREAKS FOR LANDLORDS: WHAT YOU NEED TO KNOW IN 2023

In this blog post, we’ll cover some of the latest tax breaks available to London landlords in the UK in 2023.

With the current crisis, London landlords are also looking for ways to reduce their tax bill in 2023. And fortunately, there are some tax breaks and reliefs landlords can take advantage of. However, this is not financial advice and you should always seek the support of a professional. We’ll also give you some tips on how to claim them and what records you need to keep. But before we dive into the details, let’s review some of the basics of rental income tax.

WHAT IS RENTAL INCOME TAX?

Rental income tax is the income tax that you pay on the profits you make from renting out your property or properties. It’s calculated by subtracting your allowable expenses from your total rental income for the tax year.

Your allowable expenses are the costs that you incur for running and maintaining your rental property, such as:

Mortgage interest (up to 20%)
Council tax and utility bills (if paid by you)
Insurance premiums
Repairs and maintenance
Letting agent fees
Legal and professional fees
Advertising costs
Travel costs (for visiting your property)

If your rental income is less than £1,000 a year, for example if you let your property occasionally and short-term, you don’t have to report or pay tax on your rental income.

You can’t claim both the property allowance and the allowable expenses, so you must choose whichever one gives you the lower tax bill.

WHAT ARE THE RENTAL INCOME TAX RATES?

The rental income tax rates depend on your total taxable income for the year. This includes your rental income and any other sources such as salary, pension, dividends, etc.

The rental income tax rates for 2023/24 are:

0% for income up to £12,570 (personal allowance)
20% for income between £12,571 and £50,270 (basic rate)
40% for income between £50,271 and £150,000 (higher rate)
45% for income above £150,000 (additional rate)

If a significant percentage of your rental income comes from services such as cleaning, laundry, or catering, you may also have to pay National Insurance contributions as some of it will be classed as trading income.

WHAT ARE THE LATEST TAX BREAKS FOR LONDON LANDLORDS IN 2023?

Now that we’ve covered the basics of rental income tax, let’s look at some of the latest tax breaks that you can benefit from as a London landlord in 2023. These include:

Capital gains tax allowance reduction

Capital gains tax (CGT) is the tax that you pay when you sell an asset that has increased in value, such as a property. The amount of CGT that you pay depends on your taxable gain, your CGT allowance and your income tax rate.

The CGT allowance has reduced from £12,300 to £6,000 from 6 April 2023. This means that you can make a smaller profit before having to pay CGT on your property sale. If you’re planning to sell your property in 2023 and haven’t done so by April, you may want to hold on to your property until 6 April 2024, when the CGT allowance will be reduced further to £3,000. This way, you can defer paying CGT until then and potentially benefit from lower income tax rates or higher property prices.

Corporation tax reduction

If you own your rental property through a limited company, you may be able to benefit from a lower corporation tax rate in 2023. Corporation tax is the tax that companies pay on their profits, and it’s currently set at 19%. However, from 1 April 2023, the rate has been reduced to 18% for companies with profits up to £50,000. This means that you could save up to £500 in tax for every £10,000 of profit that your company makes.

Before you rush to incorporate your rental business, you should be aware that there are also some drawbacks and costs involved in operating through a limited company.

For example, you will have to:

Pay stamp duty land tax (SDLT) and capital gains tax (CGT) when you transfer your property from your personal name to your company name. This could be a significant amount depending on the value of your property and your personal CGT allowance.
File annual accounts and tax returns for your company, which may require hiring an accountant or using accounting software. This could add to your administrative burden and expenses.
Pay income tax and national insurance contributions when you withdraw money from your company, either as salary or dividends. This could reduce your net income and affect your personal tax position.

Hence, make sure you stay aware and weigh up the pros and cons of using a limited company for your rental property. Seek professional advice before making any decisions.

Green tax reduction or funds

Another way to save tax as a London landlord in 2023 and beyond, is to make improvements to your properties to make them greener or more energy efficient. It will help you reduce your carbon footprint and environmental impact, lower your energy bills, and increase the value & appeal of your properties.

There are various grants and schemes that you can apply for to help you fund these improvements, such as:

The Home Upgrade Grant (HUG): A new scheme aimed at tackling fuel poverty. It will provide energy efficiency measures and low-carbon heating to low-income households living in the worst-performing, off-gas grid homes in England. The scheme launched in 2022 and is estimated to run until March 2026. You may be eligible for a grant of up to £10,000 per property if you or your tenants meet certain criteria. You can find out more at gov.uk.
The Clean Heat Grant (CHG): Another new scheme that replaces the Domestic Renewable Heat Incentive (RHI) from April 2022. It offers a one-off grant of up to £4,000 per household to help with the installation of low-carbon heating systems, such as heat pumps or boilers. The scheme is estimated to run until March 2024 and is open to homeowners and landlords in England, Scotland and Wales. You can find out more at gov.uk.
The Energy Company Obligation (ECO): This is an existing scheme that obliges larger energy suppliers to help households with low incomes and vulnerable people improve their energy efficiency and reduce their fuel poverty. You may be eligible for free or subsidised measures, such as cavity wall insulation, loft insulation, boiler replacement, etc. The scheme is expected to run until March 2026 and you can find out more and check your eligibility at eco4.org.uk.

These grants and schemes can help you improve the energy performance of your properties and reduce your carbon emissions. However, they may also have some eligibility criteria and conditions that you need to meet. For example, you may need to obtain consent from your tenants, comply with building regulations, use approved installers, etc.

Therefore, you should do your research and seek professional advice before applying for any of these grants or schemes. You should also keep records of your applications and receipts for any work done.

HOW TO CLAIM LANDLORD TAX BREAKS?

To claim these tax breaks, you will need to keep accurate records of your rental income and expenses and report them to HM Revenue & Customs (HMRC) through a self-assessment tax return. You will also need to keep receipts, invoices, bank statements, contracts, and any other documents that support your claims.

You can file your tax return online or by post, but we recommend using the online service as it’s faster, easier, and more secure. You can also use online tools and calculators to help you work out your taxable income and tax liability.

The deadline for filing your online tax return for the 2023/24 tax year is 31 January 2024. If you file late or make any errors or omissions in your return, you may face penalties and interest charges from HMRC.

We hope this blog post has given you some useful information on how to save tax as a London landlord in 2023. However, please note that this is not a substitute for professional tax advice and you should always consult a qualified accountant before making any tax decisions.

If you have any questions or need any help with your rental property please feel free to contact us for a no-strings attached conversation.

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TOP TAX BREAKS FOR LANDLORDS: WHAT YOU NEED TO KNOW IN 2023

In this blog post, we’ll cover some of the latest tax breaks available to London landlords in the UK in 2023.

WHAT IS RENTAL INCOME TAX?

WHAT ARE THE RENTAL INCOME TAX RATES?