Tax and your property

15 When you next move house, instead of selling your old home you could let it, so that the rent covers the mortgage interest and other expenses. Then when you eventually sell the first property, its increase in value for the time you occupied it as your main home will be exempt from tax. The last three years’ worth of gain will also be exempt. In addition, you can claim a further tax exemption of up to £40,000 per owner because the property has been let. With the benefit of all these reliefs, you might find the gain on the let property is more or less tax free.

16 Put your next buy-to-let property into the joint names of yourself and your spouse/registered civil partner as tenants-in-common. The rental income can then be divided between you according to the proportion of the property you each own, eg 70%: 30%. The lower earning spouse/partner can take the bigger share and use their starting and basic tax bands against the majority of the profits from the property. You must declare your actual shares in the property to the Revenue on Form 17.

17 Check whether the property you are buying is exempt from stamp duty land tax. It might possibly lie within one of the 1,997 designated disadvantaged areas. Some of them are in surprising places. A residential property in one of these areas is exempt from Stamp Duty Land Tax if it is worth £150,000 or less. Simply enter the postcode of the property in the Stamp Office website, (http://www.hmrc.gov.uk/so/pcode_search.htm).

18 Make sure you let your commercial property to a tenant who operates a trading business rather than just arranging investments, or doing nothing at all. The tenant could be a company, a partnership or a sole trader. The property will then be treated as a business asset for taper relief purposes, which means you get up to 75% discount on your taxable gain when you sell the property, ie potentially an effective rate of tax on the gain of 10%.

19 Get 100% tax relief for converting a flat over retail premises. Many older commercial properties were originally built with residential accommodation on the upper floors, such as a flat over a shop, or the landlord’s living quarters above a pub. If this area has been unused for at least a year, you can claim a 100% tax allowance for the capital costs of converting the space into a flat with a separate entrance or renovating an existing flat. The finished flat must be let for a fairly modest rent; so this allowance may not be available for high-cost areas.

20 Invest in furnished holiday lettings (FHL). They qualify for many tax advantages. A residential property situated anywhere in the UK can qualify as an FHL if it is let to the general public for at least 70 days a year in short periods of up to 31 days. So even a city flat can qualify. If your property qualifies as an FHL, you will benefit from business taper relief after two years. What is more, any losses you make on running the FHL business can be set against your other income, unlike losses on other let property.

21 Keep your tenants warm and save tax. As a landlord, you can claim a special tax allowance of up to £1,500 per property, giving you immediate tax relief for your expenditure on energy saving insulation. This includes loft, wall or hot-water system insulation installed in residential properties. This is a one-off allowance for expenditure before 6 April 2009.

22 Do not forget to claim for the costs of your travel to your investment property. HMRC will allow you a mileage allowance for the costs you incur to carry out inspections, repairs, or any other tasks your managing agent does not perform.

23 Be your own business tenant. If you own the property from which your company or partnership trades, the business can pay you rent for using the building. The rent does not carry a national insurance charge, so both you and the business make tax savings compared to paying you the equivalent salary or profit share. But beware the impact of Stamp Duty Land Tax.

24 Remortgage your let property and release funds to use for other purposes – and still get tax relief on the interest. This can make commercial sense if the rental income will comfortably cover the interest payments with a margin for repairs and administration. You may only get tax relief on the interest payments if the total borrowings are not more than the value of your property when it was first let. This must be structured correctly.

25 Let rooms in your own home. The income is completely tax free up to £4,250, though above that level the rent is taxable. But if the rent is much higher than this, check whether the normal approach of paying tax on the income after deducting allowable expenses is more tax efficient.

26 Do not ignore any losses you make on letting property (which is not a furnished holiday let). Even though you cannot use such a loss to reduce the tax you pay on your other income for the same tax year, you should include the income, expenses and resultant loss on the property income pages on your tax return, so the loss can be carried forward. Then when you make a profit from letting your properties in the future, you can use that brought forward loss to reduce the tax payable.