Buy-to-Let Landlords and Tax
It’s that time of year again, and the 31st of January 2018 deadline draws near for the filing of tax returns and paying the tax due for the tax year 2016-2017. Inevitably, there are many landlords who still need to sit down, gather all of their receipts, invoices and numerous scraps of paper together, and put them into some sort of order before they can calculate the totals and the amount of tax payable.
If you earn income from rental property you are under a legal obligation to keep accurate records (for six years) and file an annual self-assessment tax return – HMRC Form SA100. If you have property income there is a supplementary form for this – HMRC Form SA105 – see the full list of Self-Assessment forms and instructions on how you can file your tax return online, from the links below.
Keeping records for rental properties is a simple process if you get yourself organised – simply file away all your receipts and invoices in a lever arch file in date order, and make a list of all other payments and receipts, those through the bank and credit cards etc.
We have produced a free Excel based spread sheet accounting system for up to 9 properties. Download it here
Use this tool to get yourself organised – it records and automatically calculates your rental property business financial information, Income, Expenses and gives you profit or loss.
Presenting information to your accountant in an organised state will significantly reduce your accountant’s bill, or it will assist you greatly in getting an accurate figure if you decide to do your own tax return.
You can minimise your tax bill as a landlord by making sure you deduct as many allowable expenses as you can, which must all be connected with your lettings business. Remember, these must be allowable expenses approved by HMRC, and they must be incurred “wholly and exclusively” for the business, and backed by paper evidence – paid invoices. No expenses claimed must be for personal use.
Unfortunately for buy-to-let landlords, they are seen by the general public as having had it far too good for too long, as far as taxation is concerned. And in these times or tight government finances, successive Chancellors have consequently been targeting landlords for new sources of revenue, as this has been seen as politically acceptable.
For those landlords with mortgages, the traditional business tax relief they claim on their mortgage interest is being reduced by 25% per annum from April 2017 until 2020, and the useful 10% per annum wear and tear allowance against rental income has been stopped. Now landlords must claim for selected replacement costs on an item-by-item and like-for-like basis.
Rental Income vs Trading Income
If landlords provide services not normally offered by a landlord, they may be able to claim that the whole of the income be treated as trading income as opposed to investment income. Examples include:
- providing a cleaning service
- a regular laundry service
- regular meals
Running a hotel, B&B guesthouse or holiday letting business means that your tax affairs will be treated differently from that of a conventicle buy-to-let landlord. If you take in a lodger (living with and sharing facilities with the landlord) you can claim rent-a-room relief even if you’re trading, providing you let with furnished accommodation within your own home.
Income, Expenses and Allowable Expenses
Given the complexity of our tax rules, working out the true profit on your rentals business (Income less Expenses) is not always that straightforward, and this is where a professional accountant comes in. Not all expenses are allowable against rental income; there is a distinction between repairs / replacements and improvements (capital items); and there are other rules that only apply when you are starting up. All these issues we will deal with in this series of articles but they are not advice and landlords are advised to seek professional help if in any doubt.
|Tax Return for the period:
6th April 2016 to 5th April 2017.
|Total the Income received from your rental business during this accounting period.||Deduct the total HMRC allowed Expenses paid wholly and exclusively for the property business.||This is your Taxable Income received from property, which must then be taken into account with your other income and allowances on your tax return.|
Over the next few days we will be publishing a series of articles to help you with your book keeping and self-assessment tax return for the tax year April 6th 2016 to April 5th 2017.
The Self-Assessment Tax Return, HMRC Form SA100, and Property income supplementary – HMRC Form SA105 – available here
Declaration of beneficial interests in joint property and income – HMRC Form 17
Filing your tax return online here
Free LandlordZONE Excel Tax workbook tool – download it here – https://www.landlordzone.co.uk/documents – go to Tax Tools & Documents
Articles in this series:
- Landlords’ Self-Assessment Tax Returns
- What is an Allowable Expense?
- What expenses can I actually claim?
HMRC is increasing its targeted compliance activity across the private rented sector through taskforce activity – see HMRC – Tackling the Hidden Economy
HMRC says it is encouraging those who have been non-compliant to come forward through activities such as the Let Property Campaign