If you’re a landlord in the UK, you have a number of tax obligations that you need to be aware of. From income tax on your rental income to capital gains tax when you sell a property, understanding the tax rules and regulations can be complex and confusing.
In this article, we’ll provide an in-depth guide to the UK landlord tax return, covering everything you need to know about how to file your tax return, what expenses you can claim, and how to minimize your tax liability. Whether you’re a new landlord just starting out or an experienced landlord with multiple properties, this guide will provide you with the information you need to stay on top of your tax obligations and maximize your rental income.
We’ll start by explaining the basics of the UK landlord tax return, including who needs to file a tax return and when, as well as the penalties for failing to file on time. We’ll then move on to the expenses you can claim as a landlord, including both revenue expenses and capital expenses, as well as the wear and tear allowance and the Landlord’s Energy Saving Allowance.
We’ll also cover some additional tax reliefs and allowances that are available to landlords, such as the cash basis accounting method and the rules for furnished holiday lettings. Finally, we’ll provide some tips for staying on top of your tax obligations and ensuring that you file your tax return correctly and on time.
By the end of this article, you should have a clear understanding of the UK landlord tax return and the steps you can take to minimize your tax liability and maximize your rental income. So, let’s get started!
What is a landlord UK tax return?
A landlord UK tax return is a form that landlords in the UK need to complete and submit to HM Revenue and Customs (HMRC) each year in order to report their rental income and expenses. The tax return is used to calculate how much tax a landlord needs to pay on their rental income, as well as to claim any allowable expenses and tax reliefs.
Landlords in the UK are subject to income tax on their rental income, which is the income they receive from renting out their property or properties. This income needs to be reported to HMRC each year on a self-assessment tax return, which is a form that allows individuals to report their income and expenses to HMRC.
The deadline for filing a self-assessment tax return is 31st January each year for the previous tax year, which runs from 6th April to 5th April. For example, the deadline for filing a tax return for the 2022/23 tax year would be 31st January 2024.
If you’re a landlord in the UK, you need to file a tax return if you meet certain criteria. You must file a tax return if:
- Your rental income before expenses is £10,000 or more
- Your rental income after expenses is £2,500 or more
- You have other income of £100,000 or more
It’s important to note that even if you don’t meet the above criteria, you may still need to file a tax return if HMRC sends you a notice to file a tax return.
Failing to file a tax return on time can result in penalties from HMRC. The penalty for filing a tax return up to three months late is £100, with additional penalties for later filings. It’s important to make sure that you
file your tax return on time to avoid penalties and interest charges.
How to complete a landlord UK tax return?
Completing a landlord UK tax return can be a complex and time-consuming process. However, there are some steps you can take to make the process easier.
Step 1: Register for self-assessment
The first step in completing your landlord UK tax return is to register for self-assessment. You can do this online at the HMRC website. Once you have registered, you will receive a Unique Taxpayer Reference (UTR) and a password for accessing your online account.
Step 2: Gather your financial records
The next step is to gather all the financial records that you will need to complete your tax return. This includes records of your rental income, expenses, and any other income you have earned during the year. You will also need to keep records of any capital gains or losses you have made on the sale of any property during the year.
Step 3: Complete the tax return
Once you have gathered all your financial records, you can start completing your tax return. The tax return is divided into different sections, each of which relates to a different aspect of your income and expenses.
- Section A: Personal details
This section requires you to enter your personal details, including your name, address, and UTR.
- Section B: Income from property
This section requires you to enter details of your rental income and any other income you have earned from property during the year. You will also need to enter details of any expenses you have incurred in relation to your property, such as mortgage interest, repairs and maintenance, and letting agent fees.
- Section C: Other income
This section requires you to enter details of any other income you have earned during the year, such as employment income, pensions, and savings interest.
- Section D: Capital gains
This section requires you to enter details of any capital gains or losses you have made on the sale of any property during the year.
Step 4: Submit the tax return
Once you have completed your tax return, you will need to submit it to HMRC. You can do this online through your self-assessment account. You will also need to pay any tax that you owe by the due date, which is usually 31 January following the end of the tax year.
What expenses you can claim as a landlord?
As a landlord, you are allowed to deduct certain expenses from your rental income to reduce your tax liability. These expenses can be divided into two categories: revenue expenses and capital expenses.
Revenue expenses are expenses that are incurred in the day-to-day running of your rental business. Examples of revenue expenses that can be claimed include:
- Mortgage interest: You can claim the interest paid on your mortgage for the rental property.
- Repairs and maintenance: You can claim the cost of repairs and maintenance carried out on the property.
- Letting agent fees: You can claim the fees charged by letting agents for finding tenants and managing the property.
- Insurance: You can claim the cost of insuring the property.
- Advertising: You can claim the cost of advertising the property for rent.
- Council tax: You can claim the council tax paid for the rental property.
- Utilities: You can claim the cost of utilities, such as gas, electricity, and water, for the rental property.
- Accountancy fees: fees you paid to your accountant to look after your landlord tax return.
It’s important to note that you can only claim expenses that are directly related to the rental property. You cannot claim expenses that are personal or unrelated to the rental property.
Capital expenses are expenses that are incurred when purchasing or improving a property. These expenses cannot be deducted in full in the year they are incurred, but are instead deducted over a number of years through depreciation. Examples of capital expenses that can be claimed include:
- Buying a property
- Improvements to the property such as extensions or loft conversions
- Replacing a kitchen or bathroom
- Replacing a roof
Claim wear and tear allowance
In addition to the above expenses, landlords can also claim a wear and tear allowance. This allowance is available to landlords who let furnished properties. The wear and tear allowance allows you to claim a percentage of the value of the furniture, appliances, and other items in the property each year.
The wear and tear allowance is calculated as a percentage of the rental income, and the percentage varies depending on the type of property and the furnishings.
Let’s say that you own a furnished rental property and you receive rental income of £20,000 per year. The value of the furniture, appliances, and other items in the property is £10,000. You can claim the wear and tear allowance of 10% of the rental income, which is £2,000.
In this example, you would be able to claim the wear and tear allowance of £2,000, which would reduce your taxable rental income to £18,000.
Claim tax relief for energy efficiency improvements
Landlords can also claim the Landlord’s Energy Saving Allowance (LESA). If you make energy efficiency improvements to your rental property, such as installing insulation or double glazing, you may be able to claim tax relief under the Landlord’s Energy Saving Allowance (LESA). The LESA allows you to claim tax relief on the cost of certain energy-saving improvements, up to a maximum of £1,500 per property.
For example, if you spend £1,000 on insulation for your rental property, you can claim tax relief of £200 (20% of £1,000). If you also spend £1,500 on double glazing, you can claim tax relief of £300 (20% of £1,500). In this
example, you would be able to claim a total of £500 in tax relief under the LESA.
Claim capital allowances
If you make improvements to the property, such as installing a new central heating system or replacing the roof, you can claim capital allowances. Capital allowances allow you to claim a percentage of the cost of the improvement each year as an expense.
The percentage of the cost that you can claim each year varies depending on the type of improvement and the rate of capital allowances. For example, the rate of capital allowances for energy-efficient equipment is 100%, which means you can claim the full cost of the equipment as an expense in the year it was purchased.
Let’s say that you own a rental property and you make improvements to the property, such as installing a new central heating system at a cost of £5,000. You can claim capital allowances of 20% of the cost each year for five years, which is £1,000 per year.
In this example, you would be able to claim capital allowances of £1,000 per year, which would reduce your taxable rental income each year. However, it’s important to note that capital allowances cannot be claimed for the cost of the property itself, only for the cost of improvements made to the property.
Claim for furnished holiday lettings
If you own a furnished holiday lettings property, you may be able to claim additional tax reliefs and allowances that are not available for other types of rental properties. For example, you may be able to claim:
Capital allowances for furniture, appliances, and other items in the property
Relief for certain expenses, such as mortgage interest and repairs, against your other income. The ability to set losses against your other income, reducing your overall tax bill.
However, in order for a property to qualify as a furnished holiday lettings property, it must meet certain criteria, such as being available for short-term lettings for at least 210 days per year and being let for at least 105 days per year.
There are a number of other tax reliefs and allowances that are available to landlords to reduce their tax liability. Some of these include:
- Use the cash basis accounting method: If your rental income is less than £150,000 per year, you can use the cash basis accounting method to calculate your rental income and expenses. The cash basis accounting method allows you to record income and expenses when they are actually paid or received, rather than when they are invoiced or due.
- Using the cash basis accounting method can simplify your record keeping and reduce the amount of tax you owe. This is because you only need to record income and expenses when they are actually paid or received, rather than when they are invoiced or due.
- Rent-a-room relief: If you let out a room in your own home, you may be eligible for rent-a-room relief. This allows you to earn up to £7,500 tax-free per year.
- Keep accurate records: Keeping accurate records is essential for completing your tax return correctly and reducing your tax bill. You should keep records of all income and expenses related to the rental property, including invoices, receipts, and bank statements.
You should also keep records of any capital gains or losses you have
made on the sale of any property, as this will affect your tax liability.
Tips for reducing your tax bill
As a landlord, there are several ways you can reduce your tax bill. Here are some tips to consider:
- Keep accurate records: Keeping accurate records is essential for completing your tax return correctly and reducing your tax bill. You should keep records of all income and expenses related to the rental property, including invoices, receipts, and bank statements. You should also keep records of any capital gains or losses you have made on the sale of any property, as this will affect your tax liability.
- Claim all allowable expenses : One of the most effective ways to reduce your tax bill is to claim all allowable expenses. Allowable expenses are costs that are incurred wholly and exclusively for the purposes of renting out your property.
- Use the rent-a-room scheme : If you rent out a room in your main residence, you may be able to use the rent-a-room scheme. This allows you to earn up to £7,500 per year tax-free.
- Consider forming a limited company : If you’re a higher-rate taxpayer, you may be able to reduce your tax liability by setting up a limited company to manage your rental properties.
- Use your personal allowance : If you have other income as well as your rental income, make sure that you’re using your personal allowance to reduce your tax liability. The personal allowance for the 2022/23 tax year is £12,570.
- Make use of tax reliefs : There are a number of tax reliefs that landlords can use to reduce their tax liability, such as the wear and tear allowance and the Landlord’s Energy Saving Allowance.
- Plan ahead: Keep in mind any potential tax liabilities when planning your rental business, and consider ways to minimize your tax liability.
- Seek professional advice: If you’re unsure about how to complete your tax return or how to reduce your tax bill, it’s a good idea to seek professional advice from ZATRS ACCOUNTING LIMITED. Aa a qualified accountant or tax advisor we can help you understand the tax rules and regulations, and provide advice on how to minimise your tax liability.
In conclusion, understanding the UK landlord tax return is crucial for any landlord looking to maximise their rental income and minimise their tax liability. By staying on top of your tax obligations, keeping accurate records, and taking advantage of available tax reliefs and allowances, you can ensure that you comply with the tax rules and regulations and your rental business runs smoothly and profitably.
If you would like any further information on anything covered in this article, please feel free to contact us on 0179-570-4085 or drop us an email on info@zatrsaccounting.com or book a no obligation free consultation appointment with one of our expert through our website www.zatrsaccounting.com
Click here to learn more about landlord tax rules from HMRC site.
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