Landlord Tax 1st Jul 2015
Taxes are an unavoidable fact of life, and with an increasing number of people jumping on the buy-to-let bandwagon, the HMRC is cracking down on landlords. If you do decide to chance your luck, there are hefty fines and even jail sentences if you get caught, so why take the risk in the first place? However nobody wants to pay more tax than they have to, and so here are some top tips to help maximise your income.
Remember it’s better in your pocket than in the tax man’s pocket! Keep receipts for all allowable expenses. These include, but are not limited to:
• letting agents’ fees
• certain legal fees
• accountants’ fees
• buildings and contents insurance
• interest payments on your mortgage and the arrangement fee on the mortgage
• maintenance and repairs to the property (but not improvements)
• utility bills, such as gas and electricity
• factoring and service charges
• Council Tax
• services you pay for, like cleaning or gardening
• other direct costs of letting the property, like phone calls, stationery and advertising
Allowable expenses don’t include ‘capital expenditure’ - like buying a property or renovating it, beyond repairs to wear and tear.
You can claim 10% of the net rent as a ‘wear and tear allowance’ for furniture and equipment you provide in a furnished let. Net rent is the rent received, less any costs you pay that a tenant would usually pay (eg Council Tax).
Keep Accurate and Up To Date Accounts. Get Help
Property tax is a complex area. Keep a good and organised filing system. Records need to be kept for at least 6 years. There is landlord software where you can maintain your accounts, however if you don’t have the time or the inclination, find a good accountant, preferably someone who is a property tax expert.
If your income from property rental is greater than £2,500 per annum, you must declare it in your self assessment tax return.
.To work out the net profit or loss for all your property lettings:
• add together all your rental income
• add together all your allowable expenses
• take the expenses away from the income
The Government is talking about doing away with self-assessment tax returns ..... do not get too excited as the form may change but the substance will stay the same.
If you make a loss on renting, you can carry it forward to a later year and offset it against future profits. You can only offset losses against future profits in the same business.
If you live abroad for 6 months or more per year, you are classed as a ‘Non-resident Landlord’ by HMRC - even if you are a UK resident for tax purposes. You will need to register under HMRC’s Non-resident Landlord Scheme and will still need to pay tax on your rental income as stated above.
If you are running a property business and therefore being a landlord is your main job, you will have to pay Class 2 National Insurance contributions.
You do not have to pay National Insurance on your rental income if you’re not running a property business - even if you do work like sorting out repairs, finding tenants and arranging tenancy agreements.
In summary, if you keep accurate records and pay your taxes on time, you shouldn’t suffer any major tax nightmares, but if you do run into trouble, seek professional advice as soon as possible.