You need to complete a landlord tax return by 31 January each year if you make a significant amount of money from renting out a property.
You do this through Self Assessment, which can seem daunting at first. That’s why we’ve created this guide to help you understand the different parts of the landlord Self Assessment process and work out what you need to do.
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While you might not think that landlords count as being self-employed, as you’re receiving income that doesn’t get taxed at source (through PAYE), you need to fill in and submit a Self Assessment tax return to HMRC.
There are a few different types of landlord tax to keep in mind:
Not all of these are paid through Self Assessment. For example you only need to pay Stamp Duty Land Tax and Capital Gains Tax when buying or selling a property – you can read more about them in our guide to rental property tax.
Income tax and NICs are paid annually and are based on the income you make from renting out your properties. To pay your income tax and NICs you need to register for Self Assessment and complete a tax return each year.
HMRC has a tool you can use to check whether you need to send a Self Assessment tax return.
Gov.uk says you get a £1,000 tax-free rental income tax allowance each year, which you can claim on your tax return.
However, a landlord’s rental income will almost certainly be more than £1,000 a year, and you can’t claim any other expenses if you use the property allowance. This means the allowance is only useful if you have less than £1,000 in expenses from renting out your property.
If your property income is between £1,000 and £2,500 a year, you need to contact HMRC.
You report rental income on a Self Assessment if it’s:
Gov.uk says you pay Class 2 National Insurance if your profits are £6,475 a year or more and renting out properties is your main job. Essentially, you only pay national insurance if you’re running the operation as a business.
As a way of working out whether renting out your property counts as running a business, gov.uk says all of the following should apply:
If you’re not renting out property as a business, you don’t pay national insurance – even if you manage your property yourself.
Some landlords choose to create a limited company for the purposes of letting a property. That’s because profits are subject to Corporation Tax at 19 per cent, rather than higher individual income tax rates – although there are more costs and paperwork involved with running a limited company.
If you’re using the corporate structure, the process is slightly different and you'll need to set up for Corporation Tax.
You'll then follow the process for paying Corporation Tax. Read more about this in our guide to filing a company tax return.
The Self Assessment process is largely the same whether you’re a landlord, small business owner or sole trader.
The first thing you need to do is register for Self Assessment.
If you aren’t already registered for Self Assessment, you usually need to register by 5 October in the tax year after you started receiving rental income. So, if you started receiving rental income in 2019-20, you should’ve registered by 5 October 2020.
HMRC might fine you if you don’t register by the deadline, so be sure to do it as soon as possible.
When you register, you should get a Government Gateway user ID and password. With this you can set up your personal tax account, which lets you manage your taxes online.
Once you’re registered, you can then file your tax return by filling out the Self Assessment tax return form either online or on paper.
That being said, Making Tax Digital means that paper tax returns will eventually be phased out.
The deadline for submitting your tax return for each financial year is usually 31 October for paper tax returns and 31 January for online tax returns. So for the 2019-20 tax year, the deadline for paper tax returns is 31 October 2020 and the deadline for online tax returns is 31 January 2021.
Once you’ve filed your tax return, you then need to pay the tax you owe. The deadline is the same as the final date for online Self Assessment tax returns, so the deadline for paying your 2019-20 tax is 31 January 2021.
There are penalties for missing the deadlines, so don’t delay getting yours ready.
To fill in your tax return you’ll need information about all the income you’ve received throughout the tax year, as well as information about expenses you want to deduct.
It’s important to keep a record of all your income and expenses so that you can easily find it when you come to fill in your return.
HMRC says you need to record:
HMRC lists the documents to keep in support of your records:
You can use software to keep much of this information – for example, there’s accounting software available that can organise and keep track of your records for you.
You’ll also need your UTR (unique taxpayer reference) number, which is assigned to you when you register for Self Assessment. It’s usually printed on communications from HMRC regarding your tax return, but keep a note of it somewhere safe so you can easily find it when the time comes.
There are a number of allowable expenses for landlords. You can deduct these to work out your total taxable profit. As a general rule, your expenses need to be ‘wholly and exclusively’ used for the purposes of renting out property.
Some of the main allowable expenses are:
Depending on what costs your tenants take on board, you can also claim for:
There’ve been a number of changes to the way you can deduct mortgage expenses from your rental income. For 2019-20, the tax relief on mortgage interest has reduced to 25 per cent – for 2020-21, it’ll be zero. It’s replaced by a 20 per cent tax credit on your mortgage interest repayments. Read about buy-to-let tax changes for 2021.
Read more about allowable expenses for landlords at gov.uk.
We’ve also got more articles about self-employed tax deductible expenses:
When you fill in your tax return online, HMRC’s system reacts to information as you enter it, removing sections that aren’t relevant.
It’ll ask you what type of income you receive, tailoring the return to your circumstances.
UK landlords will need to fill in the UK property section, where you’ll tell HMRC about:
For paper tax returns, everybody needs to fill in form SA100.
HMRC will calculate what you owe and send you a tax bill. If you send a paper return, you’ll get a bill in the post.
If you file online, you can see how much you owe under ‘View your calculation’.
You’ll need your payment reference to pay your bill, which is your Unique Taxpayer Reference (UTR) number followed by the letter ‘K’.
The fastest ways to pay your tax bill are:
You can also pay by Bacs, cheque or Direct Debit, but these take longer.
It’s important to pay your bill as soon as you can, because there are penalties for missing the deadline.
If your bill is over £1,000, you’ll also need to make a payment on account, which is an advance payment towards your next Self Assessment bill.
You usually need to make two payments on account each year – one on 31 January and one on 31 July. Read more about payment on account.
And finally, if your bill is between £32 and £30,000 for your payment due on 31 January 2020 and you think you’ll struggle to pay, you can use HMRC’s Time to Pay service to set up a payment plan online. Using Time to Pay, you can clear your bill over the following 12 months.
But if you can pay, you should – the system is designed for those in financial difficulty and interest will be added to the bill from 1 February, making it more expensive.
The government often announces tax changes for landlords. While we’ve tried to provide an exhaustive list of everything you need to keep in mind for your tax return, exactly what you need to pay will depend on your particular circumstances and how things change in future.
You can read about the latest on Capital Gains Tax and four buy-to-let tax rules landlords should know about for 2021, but it’s worth keeping your eye on our landlord news, in case more are introduced.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
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