Simplified Buy-to-Let Tax Filing for LTD Landlords

This blog will guide you through the key procedures, with a focus on UK-specific tax legislation and accounting practices for LTD landlords.

Why Choose a Limited Company for Buy-to-Let?

There are several reasons why landlords choose to operate through a limited company:

• Tax Efficiency: Limited companies pay corporation tax on profits, which is often lower than higher personal income tax rates.
• Mortgage Interest Deduction: Unlike personal landlords, LTD landlords can deduct mortgage interest as a business expense.
• Limited Liability: Operating as an LTD protects your personal assets from financial risks tied to the property business.

Steps for Landlord Buy-to-let Tax Filling

Following are the six steps for buy-to-let tax filling:

Step 1: Maintain Accurate and Detailed Financial Records

As an LTD landlord, you are legally required to keep financial records for six years, including:

• Rental Income from all properties
• Mortgage Payments, including tax-deductible interest
• Property Management Fees, if applicable
• Maintenance and Repair Costs
• Insurance Premiums, including landlord coverage
• Utility and Council Tax Bills, if paid by the landlord

Step 2: Understanding the Allowable Expenses for LTD Landlords

For LTD landlords, acceptable costs include:

• Mortgage interest: Unlike individual landlords, LTDs can deduct the full mortgage interest as a business expense.
• Maintenance and repairs: Repair and maintenance costs are deductible. However, upgrades like expansions are considered capital costs and aren’t immediately deductible.
• Letting agency fees: Fees for hiring a letting agent to manage your property are deductible.
• Accountancy fees: Charges for hiring an accountant or tax expert are deductible.
• Travel expenses: Travel costs for managing or inspecting properties are deductible if they’re business-related.

Step 3: Compiling and Filing Company Accounts

Business accounts provide an overview of your finances and are used to calculate landlord tax. Key steps in preparing these accounts include:

• Balance sheet: Shows your company’s assets (like properties and cash) and liabilities (like debts and loans).
• Profit and loss statement: Summarises revenue and expenses for the fiscal year, showing profit or loss.
• Submit accounts to Companies House: Submit within nine months of your fiscal year-end through the Companies House website.

To simplify rental income tax filing, you can consider using Taxd, an online tax software.

Step 4: Corporation Tax for Buy-to-Let Ltd

A key benefit of operating as a limited company is paying corporation tax instead of income tax. In 2024, the UK corporation tax rate is:

• 25% for profits over £250,000
• 19% for profits of £50,000 or less

To calculate your corporation tax:

• Determine taxable profit: Subtract allowable expenses from total rental income.
• Calculate the tax: Apply the relevant corporation tax rate to the taxable profit. Past losses can be carried forward to reduce taxable profits this year.

Step 5: Filing a Corporate Tax Return

LTD landlords must submit annual accounts and file a corporation tax return (CT600) online with HMRC. This is due 12 months after the company’s fiscal year-end.

The tax return includes:

• Details of your company’s income and expenses
• The total corporation tax owed

Corporation tax payments are due nine months and one day after the fiscal year ends. For example, if your fiscal year ends on March 31, the tax is due by January 1 of the following year.

Step 6: Dividend Payments & Personal Tax

To withdraw money from your LTD, you’ll likely use dividend payments, which come from earnings after corporate tax.

Dividend tax rates for 2024:

• Dividend allowance: Up to £1,000 tax-free.
• Basic rate taxpayers (income up to £50,270): 8.75% on dividends above the allowance.
• Higher-rate taxpayers (income up to £125,140): 33.75% on dividends above the allowance.
• Additional-rate taxpayers: 39.35% on dividends above the allowance.

Dividends are reported on your self-assessment tax return, due by January 31 following the tax year.

How to do Buy-to-Let Tax Filing with Taxd in 4 Steps

Let’s see how you can do buy-to-let tax filing using Taxd, an online tax filing tool:

Step 1: Add Company Number to Taxd

Start by entering your company's unique registration number. This helps Taxd pull important information from Companies House, which saves you from having to enter data manually.

Step 2: Enter Buy-to-Let Property Information

Input details such as rental income, allowable costs (like mortgage interest), and capital expenditures. This step ensures accurate accounting and tax calculations.

Step 3: Review and Check the Data

Before submitting, carefully review all financial information, including profit and loss statements. Make sure you apply all allowable deductions correctly. Once everything is correct, submit your accounts directly to HMRC.

Step 4: Submit

Taxd will confirm submission, ensuring that your accounts are submitted accurately and on time!

Summary

Choosing a limited company has benefits, including lower corporation tax rates, the ability to deduct mortgage interest, and protection for personal assets. Landlords need to keep accurate financial records, understand allowable expenses, prepare business accounts, calculate corporation tax, file annual returns with HMRC, and report dividend payments.

FAQs

1. What are the costs involved in setting up a buy-to-let limited company?

The initial costs include registration fees (around £12 for online registration), legal fees for setting up the company structure, accounting fees for professional advice, and possible costs for opening a business bank account.

2. What should I do if my limited company makes a loss?

If your limited company makes a loss, you can carry that loss forward to offset against future profits, reducing the amount of corporation tax owed in profitable years. You can also potentially claim relief for losses in previous accounting periods, subject to certain rules.

3. Is it better to take a salary or dividends from my limited company?

Taking a combination of salary and dividends can be tax-efficient. A salary is subject to income tax and National Insurance contributions, while dividends have a lower tax rate after the tax-free allowance. It’s best to consult with a tax professional from Taxd to determine the most tax-efficient strategy for your situation.