Tax Efficient Strategies for Multi-Property Owners: Maximise Returns and Minimise Liabilities

Tax efficiency is important for multi-property owners because it protects the growth potential of their portfolios. It has a direct impact on your rental yields and if done strategically, you’ll get maximised returns and minimised liabilities.

Failure to comply with your tax obligations could compromise the earning potential of your real estate assets. It can lead to heavy penalties so make sure you have a strategy to pay all your taxes.

In this article, you’ll discover effective strategies to help you meet tax payments without compromising compliance and property investment ROI. You’ll get a list of the tax obligations that multi-property owners should pay for and the benefits of complying.

Different Tax Obligations of Multi-Property Owners

Before coming up with strategies, it’s best to familiarise yourself with the different tax obligations that you should meet. The knowledge will help you figure out the most efficient plan that can maximise your rental returns and minimise any liabilities.

Of all the tax terms that you’ll encounter, there are 4 that you should focus on as a multi-property owner.

Income tax

Whatever rental income is generated from your portfolio will be taxed. You can lower the taxable amount by declaring the allowable expenses that you can deduct from your rental income. These include repair and maintenance fees, utility bills, professional costs (including property management, cleaning services, etc), marketing expenses, insurance premiums, loan interest, etc.

For instance, you earned £10,000 in a month and your allowable expenses amount to £2,500. Your taxable income is £7,500.

Property tax

This tax payment is also referred to as council tax. These are levied on residential properties according to their current value. The local authorities will determine what the values are and whatever is recorded for your properties will be used to calculate your property taxes. You’re required to pay the correct amount to avoid penalties or legal complications. This could affect any license or permits that you may need to continue earning from a rental property.

Depending on how your properties are listed some of them may qualify for business rates. Make sure you determine what your properties are classified as so you can pay the right tax rate.

Capital Gains tax

This is payable when you decide to sell your property. It’s the tax you pay on the profit you make from the sale. So if you decide to liquidate some of your properties to make way for a new property investment, make sure you consider this tax payment. Some reliefs and exemptions can lower the tax payments - it’ll benefit you to get to know what these are.

Value Added tax

This is a bit tricky because not all property-related transactions have VAT. If your properties are registered for VAT, then this will be part of what you pay.

For instance, if you use a property management company that charges VAT on top of their commission rate, this may be something that you should include in your planning strategy. There’s a threshold you should meet to be able to use VAT in your transactions (e.g. £85,000 minimum income generated).

Efficient Tax Payment Strategies for Maximised Returns

Setting efficient tax payment strategies is crucial for multi-property owners. There are strategic approaches to managing your tax payments and these will minimise your liabilities while allowing you to unlock greater profitability for your portfolio.

Take a look at some of the strategies that you can implement to manage your tax obligations wisely.

Learn about taxes

The key to creating an efficient tax payment strategy is knowledge. Do your research so you understand what your tax obligations are. There are business structures that can qualify you to get tax breaks. There are also instances wherein you can get a higher deduction on your income - depending on the expenses your properties will incur.

As you can see, tax calculations will vary from one property to another. This is why you must know what’s involved. Not only that, tax laws change over time. You want to update yourself about this or hire someone to keep you updated on specific changes that can affect your tax payments.

Set up the right ownership structure

With a multi-property portfolio, you need to think about how you will set up the ownership for all your assets. Will you go for a solo ownership? This is the simplest structure but it can be risky because your name is attached to the property. If something happens to that property, you’ll be solely responsible for it - legally and financially. Not only that, the rental income will be added to your salary. This will increase your taxable income and might cost you more in terms of the tax rate.

You also have the option to do a joint ownership for your properties - or some of them. This will split the tax obligation between all the owners according to the percentage of ownership. So if 2 partners own 40%/60%, the obligations will be split accordingly.

Establishing a limited company for all your rental properties is also another option - and it may be the best one for multi-property owners. This structure will treat your rental properties separately from your personal assets. This means the rental income won’t be added to your salary. This could lower your taxable income and make you pay less. It’s also great for growing portfolios and even legacy planning.

Consider all the ownership and structure options that you have and take note of your portfolio goals. Choose the best option that’ll leave room for your portfolio to expand.

Take advantage of losses and expenses

There’s a huge amount that you can deduct from your tax payments if you only learn to take advantage of your losses and expenses. Again, education is the key to maximising this.

Get to know all the allowable expenses that you can deduct from your rental income. Depending on the type of listing you have, you can deduct expenses for repairs, maintenance, cleaning, professional services, utility bills, etc. You can also leverage the depreciation allowances of the property.

Be careful about what you deduct because there are expenses that you can’t declare - like capital improvements. Generally, you can deduct renovation costs. But if you buy a run-down property and have it renovated, that can be considered capital improvement. This won’t be deducted from your taxable income.

Upgrade or reassess the property

Enhancing the value of your property is always a good step towards your portfolio’s growth. However, it’s important to focus on upgrades that can lead to tax relief. For instance, making energy-efficient improvements used to qualify for the Green Homes Grant - a form of tax relief enjoyed by property owners. Although the scheme has ended already, there have been calls for the government to provide landlords with environmental tax relief so more will be encouraged to upgrade their properties into more sustainable dwelling places.

Keep an eye out for these to capitalise on tax-efficient opportunities to improve your assets.

Plan your tax and financial obligations

Being proactive about your tax and financial plans will allow you to create and implement strategies that minimise payments and liabilities. Your goal is to have your plans aligned with the unique circumstances of your portfolio so it can achieve maximum ROI while staying compliant.

Set a regular schedule each year to sit down and review all your tax and financial obligations. Use this chance to look at changes in the tax laws so you can adjust existing strategies accordingly. This will allow you to stay ahead of any changes so you can optimise your tax position to ensure compliance.

Consult a professional

Seeking professional help is a wise move especially if you’re confused about the different tax laws and regulations that you should comply with. Experts monitor all these regulations so you can get valuable and timely insights from them. They can help you navigate the intricacies of the tax landscape in London. You can access personalised advice and guidance to help meet the specific needs of your portfolio.

It’s not just tax experts that you can work with. There are also other professionals like accountants, legal experts, property managers and letting agents that you can talk to for assistance.

Benefits of Complying with Tax Payments

Your compliance with tax obligations brings several benefits to your multi-property portfolio. It’s not just about adhering to the laws. It’s also about accessing financial advantages that you can use to grow your portfolio.

Here are the benefits that you can get from complying with your tax payments.

Paying your tax obligations acts as a protective shield on the revenue of your properties. It safeguards your profits against penalties and legal issues. While the tax penalties are often hefty, it also brings a stain to the integrity of your portfolio. This can compromise your ability to acquire new assets and achieve portfolio growth.

That means your tax records speak about your financial reputation. It shows how responsible you are. This is a good thing because it’ll tell lenders that you can be trusted. If you want to apply for another buy-to-let mortgage, there’s a higher chance that you’ll get approved. The same is true for any partnerships that you want to enter in the future.

Tax compliance will also help you track your finances so you can maintain comprehensive records of your tax filings. This will make it easy to submit documents for auditing and compliance checks.

As mentioned, there are tax breaks that you can enjoy if you meet your tax obligations. Businesses enjoy most of these tax relief schemes. You can check with tax experts to see if the structure of your portfolio lets you qualify for any of these. This will allow you to minimise your payments so your profitability increases.

All these will lead to financial stability and long-term success for your portfolio. You’ll be setting yourself up for future opportunities and partnerships. Tax compliance is a sign of financial responsibility - something that will open doors for you and grow your portfolio significantly.

Work with Property Experts to Meet Tax Obligations

Tax efficiency is crucial in growing a multi-property portfolio. Failure to comply with your obligations can lead to loss of income and legal issues. Make sure you protect your revenue and profits by staying compliant with your tax payments. This will help you maintain good financial records and allow you to enjoy tax benefits. If you do it right, you’ll set your portfolio up for long-term growth and success.

Are you in need of guidance when it comes to property compliance? Opago offers an all-around compliance service for rental properties. We use state-of-the-art technology to automate reminders and monitor compliance schedules.