Becoming a Landlord: What You Need to Know
Landlords come from all walks of life, with some actively investing in property portfolios while others become landlords by chance—perhaps by moving in with a partner or inheriting a property. Regardless of how you become a landlord, it’s crucial to understand the tax responsibilities that come with it.
Understanding Self-Assessment Tax Returns
A Self-Assessment tax return is a method used by HM Revenue and Customs (HMRC) to collect Income Tax, National Insurance, and other payments from income that hasn’t been taxed at the source. This is particularly relevant for self-employed individuals, those in business partnerships, and anyone earning untaxed income, such as rental income. If you’re receiving untaxed income from your property, submitting a Self-Assessment tax return is mandatory.
Do Landlords Need to File a Self-Assessment Tax Return?
In most cases, the answer is yes. As a landlord, you’re required to file a Self-Assessment tax return if:
- Your rental income exceeds £1,000 a year, or
- You have other taxable income, such as self-employed income or investment income, in addition to your rental income.
How Much Tax Do Landlords Pay?
The amount of tax you’ll pay as a landlord depends on your overall income. Rental income is included in your total income and is taxed according to the current income tax rates. However, like any business, landlords only pay tax on the profits made, not on the total income received from the property. It’s important to deduct allowable expenses, such as maintenance costs, property repairs, and management fees, to reduce your tax bill.
Maximizing Tax Deductions for Landlords
The good news for landlords is that there are ways to reduce your Self-Assessment tax bill. You can claim certain allowable expenses that were incurred “wholly and exclusively” for the purpose of letting your property. Examples of these expenses include:
- Maintenance and repairs
- Professional fees (e.g., accountancy and legal fees)
- Agency fees
- Insurance premiums
- Service costs (e.g., gardening and cleaning)
- Service charges and ground rent
- Utility bills (e.g., water, gas, electricity)
- Council tax
If you own furnished holiday accommodation, you may also be able to claim capital allowances on the cost of items purchased for the property.
Claiming Tax Relief on Previous Repairs for Future Holiday Lets
If you’ve made repairs to a property that you plan to use as Furnished Holiday Letting (FHL) in the future, you might be able to claim tax relief on those repair costs in the year they were incurred. Expenses that are “wholly and exclusively” for trade or business activities are typically allowable as tax deductions. To claim tax relief, make sure to declare these expenses on your Self-Assessment tax return and keep detailed records of all repairs.
Can Landlords Claim Tax Relief on Mortgage Interest Payments?
Whether you can claim tax relief on mortgage interest payments depends on how you manage your landlord business. If you own and let the property as a sole trader, you cannot claim mortgage interest as an expense. However, if you own and let the property through a limited company, you may be eligible to do so.
Filing Your Self-Assessment Tax Return
Most landlords register for Self-Assessment and submit their tax returns online. However, if you prefer, you can fill out a paper SA1 form. When signing up for Self-Assessment, you’ll need to select the option indicating that you receive income from land and property in the UK. You’ll also need to enter the date your tenancy started, as stated in your tenancy agreement.
Once registered, HMRC will provide you with a Unique Taxpayer Reference (UTR) number, which you’ll need to submit your tax returns. If you hire an accountant or tax advisor, they will require your UTR number and an “authorising your agent” form to handle your tax affairs with HMRC on your behalf.
Get Expert Help with Your Tax Return
If you’re a landlord, navigating tax obligations can be overwhelming. Our team offers a range of online accountancy services tailored to landlords. For personalized assistance, call us at 020 35765107 or get an instant online quote today.
you are looking for an accountant to help you with your queries related to your business accounts, Call at 020 35765107 or send a message to book a free consultation. Learn more about our online accounting services and pricing.
Note: It must be noted that the information provided in all our blogs are solely for the awareness purposes and are designed with the intention to create an ease for the reader to understand the rules and their importance. However, it should never be considered as an ultimate replication of rules. RezEx Accountants (RezEx Ltd) does not own any responsibility for any unpleasant event that may arise due to misinterpretation of a specific part or whole of the information.
