Do Landlords Really Need An Accountant?

PHS Team

21 Dec, 2024

If you're a landlord, you must ask yourself, "Do I need an accountant?" The short answer is yes, mainly if you want to maximise your profits and minimise your stress. Managing rental properties involves more than just collecting rent, it includes understanding complex tax regulations, keeping accurate financial records, and ensuring compliance with legal requirements. An accountant can help you navigate these challenges effectively.

You can obtain professional guidance on tax deductions, including permitted expenses and capital gains relief, by working with an accountant. To help you meet deadlines and stay out of trouble, they can also help with the preparation of your yearly tax returns. 

An accountant can also assist you in creating a financial plan that complements your investment objectives. We'll go over the main benefits of having an accountant for landlords in this blog, as well as how it can improve your experience managing properties.

Importance of Accounting for Landlords

Accounting is important for landlords, as it helps them manage their finances effectively and stay compliant with tax regulations. One of the key reasons landlords need accounting is to maintain accurate records of income and expenses related to their rental properties. This includes tracking rent received, maintenance costs, property management fees, and other expenditures. By keeping detailed financial records, landlords can gain a clear understanding of their cash flow and overall profitability.

Tax fulfilment is another important aspect of accounting for landlords. The tax system governing rental income can be complex, with specific rules about allowable expenses and capital gains tax. An accountant can help landlords navigate these regulations, ensuring that they report their income accurately and claim all eligible deductions. This not only reduces tax liabilities but also minimises the risk of audits or penalties from HMRC.

Furthermore, accountants provide valuable insights into financial planning and investment strategies. They can assist landlords in evaluating the performance of their properties and identifying growth opportunities. Ultimately, effective accounting allows landlords to focus on managing their properties while ensuring their financial health is secure, leading to long-term success in the rental market.

The Complexity of Landlord Taxation

Landlord taxation in the UK can be quite complex, with various tax rules that require careful navigation. Here are some specific tax rules:

1. Income Tax on Rental Income: Landlords must pay income tax on their rental earnings, which can be taxed at rates ranging from 20% to 45%, depending on total income. If your rental income exceeds £1,000, you must inform HMRC, and if it goes back £2,500, a self-assessment tax return is required.
2. Capital Gains Tax (CGT): When selling a buy-to-let property, landlords may suffer CGT on profits made from the sale. The tax rate is 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. Each individual has an annual exemption of £3,000 for gains.
3. Stamp Duty Land Tax (SDLT): Landlords are subject to SDLT when purchasing properties. An additional 3% applies to buy-to-let purchases over £40,000, significantly increasing the tax burden.
4. Restrictions on Mortgage Interest Relief: Since April 2020, landlords can only claim relief on mortgage interest at the basic rate of tax (20%), limiting the deductions available for finance costs.

Benefits of Property Accountant

A property accountant offers several advantages for landlords, making it a valuable investment. One of the basic benefits is their expertise in navigating the complexities of property taxation. With their knowledge, they can help landlords maximise tax reliefs and deductions, ultimately saving money. 

Expertise in Tax Reliefs and Deductions

• Maximising Allowable Expenses: Property accountants are known with what expenses can be claimed, such as maintenance costs, repairs, and management fees.
• Capital Gains Tax Relief: They can advise on strategies to minimise capital gains tax when selling a property.
• Understanding Tax Changes: Accountants stay updated on tax law changes, ensuring landlords benefit from new reliefs and deductions.

Ensuring Compliance with HMRC Regulations

• Accurate Record-Keeping: They help maintain precise financial records, which is important for tax reporting.
• Timely Tax Returns: Property accountants ensure that tax returns are filed on time, avoiding late fees and penalties.
• Audit Preparedness: With professional guidance, landlords can be better prepared for any potential audits by HMRC.

Starting as a New Landlord

Being a first-time landlord may be both exciting and difficult. Although investing in real property offers the chance to increase wealth and produce income, it also necessitates careful preparation and adherence to legal responsibility. Understanding the many facts of being a landlord, from financial management to legal responsibilities, is important before you rent out your property. You may steer clear of typical mistakes and create the conditions for a positive rental experience by taking the time to prepare.

Key Considerations Before Renting Out Property

• Research Local Laws: Understand the landlord-tenant laws in your area to ensure compliance with regulations.
• Set Competitive Rent: Analyse the local rental market to determine a fair rental price that attracts residents while covering your costs.
• Screen residents Carefully: Conduct detailed background checks and reference checks to find reliable residents who will pay rent on time.
• Prepare a Tenancy Agreement: Draft a clear and complete resident agreement that outlines the rights and responsibilities of both parties.

Importance of Proper Record-Keeping

• Track Income and Expenses: Maintain detailed records of all rental income and expenses to monitor your property's financial performance.
• Simplify Tax Filing: Accurate records make it easier to prepare tax returns and claim allowable deductions.
• Stay Organised: Good record-keeping helps you respond fast to tenant inquiries and resolve discussions.
• Facilitate Financial Planning: Organised records allow you to analyse cash flow and make informed decisions about future investments.

Managing Existing Properties

Managing existing rental properties requires ongoing attention to financial, legal, and tenant-related matters. Effective management not only increases tenant satisfaction but also maximises your investment returns. As a landlord, it's important to stay alert and informed about various aspects of property management.

Navigating the Let Property Campaign

The Let Property Campaign is an initiative by HMRC point at encourage landlords to declare previously undeclared rental income. If you have not reported your rental income, this campaign provides an opportunity to come forward and pay any owed taxes without facing hard penalties. 

Staying Updated on Regulatory Changes

The rental market is subject to frequent changes in laws and regulations, including safety standards, resident rights, and tax responsibility. Staying updated on these changes is important for compliance and effective property management. Regularly review government guidelines and consider joining landlord associations or forums for the latest information.

Seeking professional assistance, especially from accountants with expertise in property management, can be quite beneficial for landlords. For people who are new to the rental market, the difficulty of rental revenue, tax laws, and legal responsibilities can be alarming. To maximise tax reliefs and deductions while maintaining compliance with HMRC requirements, an accountant offers important knowledge in navigating these issues.

Moreover, professional accountants help landlords maintain accurate records, complete tax filings and reduce the risk of costly mistakes. They also offer valuable insights into financial planning and investment strategies, enabling landlords to make informed decisions that enhance profitability. 

PHS Associates helps landlords deal with the challenges of property management by offering them specialised accounting services. We provide knowledgeable guidance on tax deductions, guaranteeing that landlords minimise their tax responsibility and maximise permissible expenses. Additionally, We help with precise record-keeping, which facilitates landlords' ability to monitor revenue and expenses.

Additionally, we prepare annual tax returns and ensure compliance with HMRC regulations, reducing the risk of penalties. By leveraging their expertise, landlords can focus on managing their properties while we handle the financial details, ultimately leading to greater peace of mind and economic success. Book our Free consultation service to learn more.

Disclaimer:
This content is for general information for Landlords and accountants. Please speak with PHS associates for professional advice specific to your situation.