Landlords are responsible for a variety of different taxes. Not all will be relevant, but it’s at least important to be aware of them. It’s also recommended to stay on top of any changes in tax procedures since they do change from time to time. In general, though, the main taxes are as follows:
- Stamp Duty
- Land Tax
- Capital Gains
- Income Tax and NIC
You’ll need to register for and complete a tax return in order to pay your income tax and NIC.
When you need to submit your Landlord Self Assessment tax return will depend on the format that you used to fill it in. If it’s paper, then you’ll need to submit them by October 31. If you’re using an online form, then it’ll be January 31. For example, for the 2019/2020 tax year, you’ll have until October 31, 2020 if you’re submitting them via paper, and until January 31, 2021 if you’re submitting online.
Once you’ve submitted your tax returns, the next step will be to pay the money that you owe. Unless you hear otherwise, assume the deadline to pay is the same as the final date for submitting your forms, which for 2019/2020 tax return year would be January 31, 2021.
The losses you take on a rental property will typically be lost, as they can’t be offset against any income. If within the next three years, you begin renting out property again, you should be able to deduct any earlier losses against your new profits.
You usually have to pay stamp duty on any properties that you buy as a second property, providing the property costs more than £40,000. You’ll pay an extra 3% on the normal stamp duty tax rate.
Yes. Property values are generally lower than what you would expect, and there are also low-interest rates available.
The stamp duty holiday applies to all properties, including buy-to-let investors. The bill begins at 3% on properties up to £500,000.
If you’re using the rent a room scheme, then you won’t need to keep a record of expenses if you don’t intend to claim them as part of the scheme.
If your rental income exceeds £7,500, you can pay tax in the usual way.
The costs associated with this will be capital expenses rather than allowable expenses. It doesn’t matter if the property was a “fixer upper.”
This is because they are not repairs; they’re capital expenses as they’re aimed at improving the property. As such, they’re not considered to be allowable expenses.
If you have to decide to buy an item to improve the one you currently have, then remember that the allowable deduction is reflected by the cost of replacing the original item. For example: let’s say you buy a sofa bed to replace your sofa. A new sofa would have cost £500, but the sofa bed was £700. Under this rule, you can only deduct £500.
Where the new item is an improvement on the old item, for example, replacing a sofa with a sofa bed, the allowable deduction is limited to the cost of purchasing an equivalent of the original item.
You’ll need to make a judgement call whether the new item is better than the one that you’re replacing. If it’s the exact same function (say, one stove top for another), then it’s the same item. It depends on functionality. The sofa bed you buy has a different function to just the sofa that it’s replacing, so that won’t apply.
Later on, if you decide to replace that sofa bed with a new one, then you can claim the full cost because it’s the same function. This only applies if the item is replacing will no longer be used in the property.
Note that you’re allowed to make upgrades that bring them in line with modern standards and claim the full amount.
Step One: Register for self assessment
If you haven’t registered for self assessment, then that’s the first thing you’ll need to do. Once you have, you’ll be able to file your tax return. You’ll need to fill out the self assessment tax return form. They’re available both online and in paper formats, though it’s likely that in the near future, it’ll be online only, as the government is trying to transition to a digital future.
How To File Self Assessment
To calculate how much tax you owe, you’ll need to fill in information about the income you’ve acquired throughout the year. You’ll balance that against the expenses that you want to deduct from your bill.
For this reason, it’s important that you set up a system throughout the year that’ll make it easy for you to retrieve your income/expenses when it’s time to fill out the form.
Your UTR (Unique Taxpayer Reference) is another key detail. This is a number that was assigned to you when you first registered for self assessment. It’s best to keep it written down for your own convenience, but it will usually be printed on any communications you receive from HMRC.
Allowable Expenses for landlords and rental property owners
You’re allowed to deduct certain expenses that’ll help to reduce the amount of tax you need to pay. Examples of allowable expenses are as follows:
- Landlord insurance
- Costs of services (for example, a weekly cleaner, if it’s included in the rental agreement).
- Water rates, council tax, the cost of electricity, and gas.
- Direct costs (for example, calls and advertisements related to finding new tenants).
- Accountant’s fees
Property and Rental Income
If you’re a buy-to-let landlord, then there are some things you’ll need to know about your taxes. There have been changes to the mortgage interest tax relief scheme, and there are also some expenses that you can deduct too.
To begin, you’ll need to determine whether you need to file a self assessment tax return. Whether that’s the case will depend on how much income you received from your rentals in the 2018-2019 tax year.
You don’t pay tax on your first £1,000 of rental income.
income you received from your rentals in the 2018-2019 tax year.
Those with rental income between £1,000 and £2,500 should contact HMRC. They may use your tax code to collect the money rather than through self assessment options.
income you received from your rentals in the 2018-2019 tax year.
Those with a rental income that exceeds £2,500 should file a tax return form.
income you received from your rentals in the 2018-2019 tax year.
To determine how much tax you need to pay, you need to determine which income tax band you’re in. They are as follows:
- Up to £12, 500: 0%
- £12,501 to £50,000: 20%
- £50,001 to £150,000: 40%
- £150,001 or above: 45%
You will add any other income you’ve earned throughout the year to your rental income. Be mindful as this could push you into a higher tax bracket.
Assess your property portfolio as one business
It doesn’t matter how many properties you own, at least when it comes to tax. Whether it’s two or twenty-five properties, they’ll all be grouped together. All of your profits and expenses from all your properties will be used to tally a final figure.
Examples of properties include:
- Work out your property income
- Furnished holiday homes.
- Airbnb.
- Residential properties rented out.
- Commercial properties rented out.
If you’ve lost money on one of your properties, then you can offset some of the losses against the financial profits you’ve made on others. Though be aware that this will only apply to properties within the UK.
income you received from your rentals in the 2018-2019 tax year.
5 tips for buy-to-let landlords filing a tax return
If you’re looking for a little help filling out a tax return, try the following:
01. Start early
02. Keep a good record of your incomes and expenses
03. You can deduct money through the Mortgage Interest Tax Relief program, which allows landlords to deduct money on the interest they’ve paid on a mortgage throughout the tax year.
04. If you use money to improve your property or as part of your business operations, you can claim that money as part of Capital Expenditure.
05. Remember that you’ll need to pay tax on any properties that you sell. This is called capital gains tax.
Property jointly owned but not with a spouse or civil partner.
You’ll figure out your rental income profits based on the percentage of the property that you own. This only applies if the person with whom you own the property is not a spouse or civil partner
If you need advice on your property or help to file your Landlord Self Assessment tax return, then get in touch.
