Alongside your general landlord duties, you’ll know that you also need to pay the right amount of tax on your rental income. And as the January tax return deadline nears, here’s your reminder.
Whether you’re a professional buy-to-let or an ‘accidental’ landlord, you will have registered for Self Assessment by 5 October following the end of tax year in which you first started to earn a rental income; as any profits from this are also subject to income tax.
Since you’re letting your property to residential tenants, you’re entitled to offset allowable expenses against your rental income to reduce your tax bill. To work out your profits, deduct the following common allowable expenses from your overall rental income:
- Utility bills;
- Maintenance and repair costs (but not improvements)*;
- Interest on a buy-to-let mortgage**;
- Lettings agents fees;
- Legal fees for lets of a year or less;
- Accountant’s fees;
- Buildings and contents insurance;
- Council tax;
- Rent, ground rent, and service charges;
- Travel costs to collect rent;
- Costs of services, including cleaners and gardeners;
- Other direct business costs such as phone calls, stationary, and advertising.
* If your buy-to-let property is furnished, you can claim the Wear and Tear allowance which lets you deduct 10% of the annual net rent. To calculate this, take any costs that you pay – otherwise paid by a tenant – away from the amount of rent you receive. You can only claim this allowance until 5 April 2016. From 6 April, landlords of furnished properties can claim replacement relief to cover the costs of actual replacements.
** Starting from April 2017, higher mortgage interest rates of relief will be phased out and capped at 20% for all landlords over a four-year period.
What to do next
With all this information in mind, the next step is to submit your online tax return by 31 January. Failure to do so may result in a penalty and as Marian Wilson, head of HMRC Campaigns, explains: “It is always cheaper to come forward voluntarily and pay the tax you owe, rather than await for HMRC to come calling.” For more information, please visit HMRC’s website or call them on the Self Assessment Helpline. The number to call is 0300 200 3310.
If you’re a landlord with buy-to-let properties, our sister company K&B Accountancy Group can assist with your tax and accountancy requirements. And if you want to let a property, call Kingsley Hamilton Estates on 020 7078 0214 to talk to a member of our expert team.