Current Taxation Rates:
Landlords don’t always think of themselves as self-employed or running a business, particularly if they have just one property let out. But HM Revenue and Customers think differently. Anyone making money from let property is legally required to complete a self-assessment tax return every year, or risk the possibility of a fine.
If you are employed and have never completed a self-assessment tax return it can be a bit daunting at first. Every year it’s something that you must do.
Tax rules change quite regularly so ideally using a tax accountant is best, to make sure you get it right. But for one or two buy-to-lets it might not be worth the expense, and you can do this yourself with a bit of application.
First off you need to record all the income and expenditure you have relating to the property over the tax year, usually 6th April to 5th of April of every year. Also, don’t forget to keep a record of all the capital expenditure you make on the property, including purchase costs, stamp duty and improvements – things can’t claim against income, which will be needed when you sell the property for claims against capital gains.
The self-assessment process is pretty much the same whether you’re a landlord, small business owner or a sole trader; the main difference being, you need to complete the property pages on your return when dealing with rental income. You should register* with HMRC by 31 October in the first year you start trading or letting and receiving income from this.
Once you’re registered you will receive your UTR (unique taxpayer reference) and you can complete and file a tax return, either online or on a paper tax form, though HMRC’s aim is to have all returns online eventually.
|Reregistering for self-assessment||By 31 October in the year first trading|
|Paper tax returns and to have your return checked by HMRC||31st October|
|Online tax returns||31st January|
Completing the Tax Return
You will need details of all items of income and expenditure from property as well as any other taxable income during the tax year. You will also need accurate and up-to-date information about expense items you are allowed to deduct from income on your tax return – see links below.
It’s very important to keep a record of all your income and expenses during the year, and for just one or two properties recording this on a simple spread sheet is usually sufficient. Keep all receipts and invoices in a lever arch file. Remember you must keep all tax records for at least 6 years.
When you pay the tax, if any is due, you will need your UTR number, which will have been assigned to you when you registered for self-assessment. HMRC will have this number on all correspondence it sends you.
Allowable expenses for landlords
There are a standard set of expenses allowed for landlords, but there are often changes in the budget which will have a bearing on this from year to year. Here are some of the main expenses you can usually claim:
- Certain property repair costs – not improvements
- Like-for-like renewals, for example furniture, carpets etc
- Landlord’s energy savings allowance
- Mortgage interest payments (on a reducing scale to 2020)
- Accountant’s fees
- Building & contents Insurance
- Running costs including utility bills
- Letting agent’s fees
- Light and heating costs
- Council Tax
- Service charges
- Ground rent
- Cleaning costs
- Advertising costs
Remember, rules about what you can and cannot claim for change for time to time, so if you are doing your own tax return make sure you have the latest information from HMRC – see links below.
Guide to UK Tax Rates – 2017/18 and 2018/19
This information for England and Wales is available as at 27 November 2017 following the latest budget announcement, but there can still be changes as the Finance Bill passes through Parliament.
|Basic Allowance – before tax is payable – Reducing by £1 for each £2 of income (less deductions) in excess of £100,000.||£11,500||£11,850|
|Married couple’s allowance (maximum) – only applies if at least one of the couple was born before April 6,1935. Restricted by £1 for every £2 of income in excess of the married couple’s allowance restriction threshold to the minimum allowance for the year. Tax relief is given at 10%.||£8,445||£8,695|
|Married couple’s allowance (minimum) – as above||£3,260||£3,360|
|Married couple’s allowance restriction threshold||£28,000||£28,900|
|Starting point for 20% income tax||£11,500||£11,850|
|Starting point for 40% income tax||£45,000||£46,350|
|Starting point for 45% income tax||£150,000||£150,000|
|Dividends – 7.5%, 32.5% and 38.1% – subject to tax free allowance:||£5,000||£2,000|
|Maximum additional relief for savings income -basic and higher rate taxpayers||£200||£200|
|Income earned before paying national insurance||£8,164||£8,424|
|-Starting point for 12% rate – Self-employed rate is 9% and 2% on the same limits||£8,164||£8,424|
|-Starting point for 2% rate – as above||£45,000||£46,350|
|Capital gains allowance before tax is charged||£11,300||£11,700|
|Capital gains tax lower rate||10%||10%|
|Capital gains tax higher rate||20%||20%|
|Capital gains tax second residential property sales||18%||28%|
|Inheritance tax allowance – before tax is charged||£325,000||£325,000|
|Additional amount – when house passed on to children||£100,000||£125,000|
|Inheritance tax rate – after allowance||40%||40%|
|Full state pension – pension age before 6th April 2016 – per week||£122.30||£125.95|
|Full state pension – pension age after 6th April 2016) – per week||£159.55||£164.35|
|Weekly child benefit: first child||£20.70||£20.70|
|Weekly child benefit: subsequent children||£13.70||£13.70|
*Register for Self-Assessment – here
Income Tax when you let property: work out your rental income – here
Self-Assessment: UK property (SA105) – here