Paying tax on rental property: the ultimate guide for landlords

As a landlord, paying tax on your rental properties is one of the many things you have to keep in mind.

Whether you’re looking to expand your portfolio, plan on selling some properties, or just need to report your income, then there’ll be a tax you have to pay.

There have been a lot of rental property tax changes lately, so check through this quick guide for an overview of the things you need to keep in mind.

Income Tax

Income tax is exactly what it sounds like - a tax on your income. You may pay a higher or lower amount depending on which tax bracket you fall into, but if you’re a self-employed landlord then you won’t have your tax deducted from your pay cheque like people who are employed by a company.

Instead, landlords pay income tax by registering for self assessment. The deadline for registration this year is 5 October, and you will then need to submit your tax return by the end of January, if you do it online, or by the end of October for paper returns.

There are a number of rental property tax deductions, exemptions and reliefs landlords can claim for, including wear and tear allowance, interest on your mortgage, and your landlord insurance.

You can read more about those and how to claim them in our guide to income tax for landlords

National Insurance Contributions

NICs are the other tax that is deductible from your income, and there are a number of different classes you can fall into. Landlords will usually pay Class 2 flat rate NIC and Class 4 earnings-related NIC.

However, you don’t have to worry about calculating any of this, as it’s all done for you when you register for self assessment, and the payment will be included in your tax return.

Stamp Duty Land Tax

If you’re thinking of acquiring a buy-to-let property - whether it’s your first or your 50th - then you’ll also have to think about SDLT. It’s payable whenever you buy either a property or piece of land in England or Wales.

The amount of SDLT you pay will depend on things like the price of the property, whether it’s freehold or leasehold and how many properties you’re buying at once. However, if it’s not your only property then you’ll have to pay an 8 per cent surcharge as of April this year.

Check out our full article on SDLT for more information on how, when and how much you’ll need to pay.

Capital Gains Tax

On the other hand, if you’re planning on selling off one or more of your properties, then it’s Capital Gains Tax you’ll need to be thinking about. This is what you pay on your profit, or ‘gain’, when you sell assets, including property.

So if you bought your property for £215,000 and then sell it for £285,000, it’s that £70,000 profit on which you pay tax - under most circumstances, at least.

We have a complete guide to Capital Gains Tax for landlords that will help you with calculating your gain and how much tax you’ll need to pay.

Other taxes

As well as these four main taxes, there are some others that may or may not affect you as a landlord.

Changes to the ‘green tax’ could soon affect over 300,000 landlords whose properties don’t meet the standards for energy conservation.

And while those who invest elsewhere, such as in stock and shares, are getting tax breaks, landlords are having to fight for the government to afford them the same.

Making Tax Digital

The final thing worth mentioning is that the government have begun their Making Tax Digital initiative and say that by 2018 most landlords will need to use ‘software or apps’ for their business records and tax returns.

This article is only an overview so do keep in mind that there may be other taxes you have to pay, as well as potential rental property tax allowances you’re entitled to, depending on your particular circumstances.

How do you keep on top of your finances? Looking forward to using apps for everything, or dreading making the move from paper? Let us know in the comments section below.

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