how to avoid paying tax on rental income

How to Avoid Paying Tax on Rental Income?

16/04/2021Landlord , Tax Issues

Many of our customers (especially landlords) often ask this question. The answer of which is quite simple, there is no way to avoid paying tax on rental income. Yet you can reduce your income tax on the amount you received as rent.  To boost your net rental income there are multiple ways to save taxes. Here in this blog, we’ll talk about how to avoid paying tax on rental income.

You should first know the process of calculating your rental income. As commercial premises have different tax rates and residential areas have different.  In addition, you should also consider the capital gains in your property.


What is Rental Income?

Rental income is one of the most attractive types of income for real estate investors. Contrary to other incomes that fluctuate with time, rental income hikes with each passing day. That’s the reason, there are fewer buyers and fewer sellers of rental property.


How to Avoid Capital Gains Tax on Property?

Though real estate is a great option for investment, Capital Gains Tax eats away the increased amount of your asset at the time of its sale. Capital gain is the increased amount you get while selling a property or home. If the value of your property has increased from its date of purchase, you’re liable to pay capital gains tax on it.  While selling you need to authorize it to the government.

You may get tax exemptions on capital gains tax on the following factors:

  • Sold property is your primary residence
  • You do not use a part of a home for business
  • Your property size is less than 5000 square meters
  • Invest your entire capital gain into another asset
  • Do indexation to decrease capital gains
  • Use some other items for saving tax

Are you a landlord struggling to reduce your Capital Gains Tax, we’d love to help, do let us know!


How to Avoid Paying Tax on Rental Income?

You can minimize your rental tax through the following ways:


1. Own a property Jointly:

You can jointly own property to divide your rental income. Thus the tax on this income is also divided.  You can benefit from the lower tax slab if your wife is a working woman.


2. Municipal Taxes:

Municipal taxes reduce your rental earnings and tax respectively.


3. Standard Deductions:

You can claim up to 30% as a Standard Deduction without considering its renovation and maintenance.


4. Furnished Property:

Ask your tenants to pay small bills of wifi, capable, newspaper, gas, etc to reduce the amount of rent and rental liabilities.

uk tax on rental income

Key TakeAway:  The current threshold of property allowance is £ 1,000.

If you’re looking for an expert to reduce your tax liabilities, feel free to contact us.


Quick Sum Up:

Hopefully, you have got some information on how to avoid paying tax on rental income. This is not financial advice you should rush for, it is always advisable to avail the services of an accountant before taking any decision.

The best way to reduce your capital gains tax is to offset the earning received through declaring a house in the loss. Secondly, do the tax-loss deductions to bring down the risk of taxes levied on the gained amount. By doing proper accounting for both gain and loss, a trader can reduce the capital profit they are taxed for.

CruseBurke is a team of certified chartered accountants who’re willing to minimize your tax burden.

So reach out anytime!


Disclaimer:  This blog provides a general understanding on avoiding tax on rental income.

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