A landlord's guide to completing and filing a tax return

Here's everything you need to know

Completing and filing a tax return? Here's all you need to know...

There are so many upsides to letting out your property – but one of the downsides of making that extra cash is that you have to pay tax on it via a self-assessment tax return. Rental income is subject to income tax at your usual tax rate – so, 20% if you’re a lower rate taxpayer and 40% if you’re in the higher bracket. There are some reductions with things like repairs or maintenance.

Jennifer Yeates, Regional Director at Countrywide with over 15 years' experience in property told us: "We occasionally hear from landlords when they are coming up to their tax return deadlines, saying that they wish they had started pulling together details sooner and how much time it can take up. Landlords need to meet deadlines or risk a fine. We are able to provide an annual statement of income and expenditure for our managed landlords to assist them."

If you already do a tax self-assessment, then you’ll be in a good place and adding your property income to it will be pretty straightforward. However, if you’ve not done them before then we’re here to guide you, simply and easily, through the entire process.

Register with HMRC

The deadline for submitting online tax returns is 31st January for the previous tax year. If you’ve never previously registered for self-assessment, you must do this by 5th October of the tax year after you began receiving rental income. Go to the self-assessment tax return on the Government website and you will be prompted to register. Once you do this, you will receive your Government Gateway user ID and a password. You’ll then be able to manage taxes online. You will be sent a Unique Tax Reference number (UTR) which is your unique code when you submit a return. You will need to submit online by the 31st January deadline as you don’t want to be paying fines.

Prepare all the paperwork

This may sound daunting but it’s actually relatively simple. You will need to potentially show evidence of your numbers. So, keep all paperwork relating to your property income and expenses. You’ll need to be organised but this should make filing the return simpler. The information you need to keep includes rental dates, the money you have received and spent.

You should keep hold of the relevant:
  • Tenancy agreements
  • Rent books
  • Receipts
  • Invoices
  • Bank statements
  • Mileage logs and vehicle costs if you use one in relation to a property business
  • Documents from the purchase of a property

It’s worth noting here that there are handy apps that you can download and they’ll help you keep on top of receipts. Things like Wave, Smart Receipts and Shoe Boxed are all brilliant as they let you scan and store your receipts on your phone, online or in the cloud.

What's your property worth?

Work out your income and deductibles

Now you need to work out your income and deductibles. Albeit not the most riveting task, it’s vitally important to add up your rental income and any deductions for the given tax year. Deductions you can claim back include:

  • Repairs and maintenance
  • Replacement of domestic items (if you have items like wardrobes or beds in the property)
  • Accountancy and agent fees (you can reduce these by renting without an agent)
  • Landlord insurance
  • Running costs e.g. cleaners or gardeners

As the savvy investors amongst you probably already know, mortgage interest is no longer an allowable deduction. On the plus side, you can claim a 20% tax credit on your mortgage interest payments.

Complete the landlord tax return

This is the final stretch. Next, you need to log into your personal tax account with your Government Gateway ID. You now need to click to submit your self-assessment and you’ll see a form – which is fairly easy to use. You’ll see a property segment, as well as sections for things like other income, dividends, interest, etc.

If these don’t apply to you, you don’t have to fill them out. Declare which sections you need to fill in, and the form adjusts accordingly. You’ll need to submit your rental income from UK land or property in the property section, including letting furnished rooms in your home, plus any income from furnished holiday lets.

How and what can you claim back on tax?

There will be a section on deductions and you should fill this out. You can claim back things like repairs. You can also claim back the 20% mortgage tax break. When spend isn’t considered an allowable expense, you may be able to claim the 'Wear and Tear allowance' which applies to:

  • Moveable furniture, e.g. beds, wardrobes, etc
  • Furnishings, e.g. curtains, carpets, etc
  • Household appliances, e.g. washing machines, fridges, etc
  • Kitchenware

For the relief to be applicable, the following must apply:

  • The expense must be to replace a domestic item
  • The old item must no longer be available to use
  • The new item must be for the exclusive use of the tenants at the property
  • Where a new item is an improvement, you can only claim relief on the cost of an identical item. For example, if you replace a washing machine with a washer-dryer, and the washing machine would have cost £300 and the washer-dryer cost £450, you can only claim relief on £300.

What’s next?

Once all online form sections are complete, you can go back and make changes or go ahead and submit it. If you are only adding your property income, you’ll have a good idea of how much tax you will need to pay. Find a way of budgeting that suits you. You could try and plan ahead by keeping part of your monthly income aside each month for your tax bill. If you can’t afford to pay your tax bill on time contact HMRC to discuss the support they can offer you. And if you are in any doubt or need help with your tax return, speak to an accountant or tax specialist.

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