With the end of the financial year coming up (5th April), now is the time when many landlords are getting their accounts in order, in readiness for submitting a tax return later in the year. If you’re new to being a landlord, you might not realise that one of your responsibilities is to declare your earnings and file a Self Assessment tax return. So, if you want more information to get you started, here’s the lowdown on landlord income tax.*
Do I need to submit a tax return?
According to the Gov.uk website, you need to submit a Self Assessment tax return as a landlord if your earnings from letting out property are above £2,500. You can earn up to £1,000 through property rental without paying any tax, and if you earn between £1,000 and £2,500 you should contact HMRC for more information.
If you do earn enough to need to submit a tax return, you must register as self-employed by 5th October in the financial year in which you earned that income. Don’t worry if being a landlord isn’t your full-time job – you can be both self-employed and employed, but you will have to fill out information about your regular employment on your Self Assessment tax return.
When submitting your tax return, you should report your income if it is between £2,500 and £9,999 after deducting allowable expenses, and if it’s £10,000 or more before deducting allowable expenses. (Read on to find out more about allowable expenses.)
What if I haven’t declared previous income?
If you don’t declare your rental property earnings when you are supposed to, you could be liable to pay interest and other financial penalties. Of course, you may have earned money from renting without realising that you needed to declare it, and if this is the case then you need to tell HMRC about those previous earnings right away.
You can do this through the government’s Let Property Campaign – this is a scheme that allows landlords to declare undisclosed earnings and get their taxes in order, with reduced rates on the penalties you will have to pay. So, whether you rented a room in your property, let out your house while you were travelling, or simply failed to declare earnings from residential property, then you should contact HMRC and tell them that you want to be part of the Let Property Campaign. They will then guide you through the process of getting your taxes fully up to date.
What can I claim on my tax return?
There are certain costs you can claim back on your Self Assessment return – these are known as ‘allowable expenses’, and they include many of the costs you incur as part and parcel of being a landlord. It’s important to note that there are different rules for tax on holiday lettings and commercial properties, so check the Gov.uk website to make sure you’re following the right rules for your situation.
For residential landlords, costs such as letting agents’ fees, council tax, property repairs and buildings insurance all count as allowable expenses, and you can subtract these from your rental profits to reduce your ‘taxable income’, and thus the amount of tax you pay overall.
You may also be able to claim tax relief for ‘replacement of domestic items’ if you are responsible for providing some of the furnishings in your rental property. Domestic items can include carpets, sofas and appliances such as fridges, so always keep your receipts if you buy any of these items throughout the year. Be aware that you can usually only claim tax relief for maintenance of a property, not improvement work.
Are you a landlord looking to rent property in Bristol? Gough Quarters can help put your property on the market, find tenants and even manage it for you once they’ve moved in. Contact us today to find out more.
* Disclaimer: The advice contained in this article is intended as general reference and not as financial advice. Always obtain professional advice before making any financial decision.