How to Fill in a Landlord Tax Return

Landlords in Brighton and Hover and across the UK must pay taxes on their rental profits. How much tax you pay will depend on how much profit you make from your rental business and your other income.

If you’ve previously been employed and have been taxed at source, you will need to file a tax return to tell HMRC about your rental income. This will mean registering for self-assessment.

If you have a limited company and own the property through it, this guide won’t apply to you. Limited companies’ processes and tax obligations differ from those of self-employed landlords.

What types of tax do landlords pay?

Landlords with rental properties have a legal obligation to pay the correct UK taxes. There are five categories of tax that self-employed landlords may have to pay. These are:

• Rental income tax. The amount you pay is calculated from your net rental profit (which is your rental income less any expenses). Your tax rate depends on the income tax bracket you fall into. Be aware that when your rental income is added to your other income, you may be pushed into a higher tax band.
• National Insurance. You may need to pay Class 2 National Insurance if HMRC determines that you are running a ‘property business’ and your profits are over £6,725 per year. You may make voluntary Class 2 National Insurance payments to ensure you qualify for your full state pension.
• Stamp Duty Land Tax. You have to pay stamp duty when buying a UK property. The amount you will pay depends on the property’s value, for buy-to-let properties you’ll have to pay an extra 3% in stamp duty.
• Capital Gains Tax (CGT). You will be liable to pay CGT when you sell a property that is not your home. You pay tax on the gain, which is the difference between the amount you bought it for and the sale price. Everyone has a tax-free allowance for capital gains of £12,300.

What is the landlord tax return process?

It can be daunting and confusing for anyone new to renting out property in the UK, especially if you haven’t been self-employed before. If that sounds like you, read on for our step-by-step guide to landlord tax returns.

Step 1: Make sure you’re registered for self-assessment

You first need to register for self assessment if you haven’t already done so. You must register for self-assessment by 5th October following the tax year in which you received rental income, or you could face a fine.

When you register, you will be given a unique Government Gateway user ID and password, which you can use to manage your tax account on the HMRC website and app. Be careful of any sites other than gov.uk that offer to complete the process for you. They may be fraudulent or charge you fees for doing something you can do yourself easily.

Step 2: Know the self-assessment tax return deadlines

Once you have registered, you must remember to submit your tax return by the deadline – 31st January following the end of the tax year for online returns (which most people use) or 31st October for paper returns. The deadline for paying your tax is also 31st January.

Failure to meet these deadlines will result in penalties and a potential fine, so get organised and submit everything early.

Step 3: Pull together your information

Being well-organised and having a sound system in place to file and store all your information will make the self-assessment tax process easier. Keep a record of all the income you have received and the expenses you have incurred. A simple spreadsheet can help with this or you can find software an apps to help you manage this information.

Below is a list of information required by HMRC to complete your tax return, so have this ready before you begin:

• the dates you let out your property
• all the money you’ve spent (including cash, cheque, credit and debit card transactions)
• all rents received

HMRC lists the documents to keep in support of your records:

• lease or letting contracts
• rent books
• receipts
• invoices
• bank statements
• mileage logs (for journeys that are solely for your property business purposes)
• cost of the vehicle used for property business and its CO2 emissions
• for furnished holiday lettings and commercial premises, the costs of any other capital items used in the property
• all documents relating to when you bought the property

You will also need the unique taxpayer reference (UTR) number assigned to you by HMRC. Keep a note of it somewhere safe, so you know where to find it when needed.

Step 4: Work out your allowable expenses

There are several landlord expenses that you can deduct from your rental income to work out your taxable profit. Usually, these are costs wholly related to your property rental.

They may include:

• property repair and maintenance costs (but not improvements)
• accounting and letting agents’ fees
• landlord insurance
• advertising costs
• replacement of domestic items including:

1. beds
2. sofas
3. curtains
4. carpets
5. fridges
6. crockery and cutlery

You must have bought these items for use by tenants in a residential property, and the things you replaced must no longer be in use.

If you pay for these items, you can also claim for:

• utility bills
• service charges & ground rent
• cleaning costs
• council tax

There have been changes to how you can deduct mortgage expenses from your rental income over the past few years. Since the tax year 2020-21, mortgage interest tax relief has been replaced by a 20 per cent tax credit on your mortgage interest repayments.

Read more about allowable expenses for landlords at gov.uk.

Step 5: Fill in your tax return

Filling in your online tax return is a logical process, so work through the form, answering the questions which apply to you as a landlord.

You will need to fill in the UK property section, which includes questions about rental income tax, other receipts from UK land or property, and income from letting furnished rooms in your home.

If anything is unclear, don’t just guess the answer – check the gov.uk website for advice or contact HMRC. Or think about using an accountant to help you.

Step 6: Pay your landlord tax bill

Once you have filed your return, HMRC will calculate the tax you owe. If you file online, you can see how much you owe under ‘View your calculation’.

If your bill is more than £1,000 you will usually be asked for payments on account. These are advance payments towards your next year’s tax bill.

You have to make two payments every year, usually by midnight on 31st January and 31st July.

If you still have tax to pay after you’ve made your payments on account, you must make a ‘balancing payment’ by midnight on 31st January next year.

Make sure your payment reaches HMRC by the deadline to avoid paying interest and a penalty for late payment.

Same-day payments can be made:

• through your online bank account
• online or telephone banking (Faster Payments)
• CHAPS
• by debit or corporate credit card online
• at your bank or building society

If you’re new to renting out property and need help or advice about any aspects of the process, please give us a call.