With a new tax year commencing, and repeat warnings that HMRC are cracking down on tax evasion amongst residential landlords, If you haven’t done so already make sure that you have registered for self-assessment.
A tax return needs to be filed online by 31st January following the period up to the 5th April each year. If you have been disorganised and not kept on top of what has been coming in and what has been going out over the last year, it would be a good idea to make a start now.
There are certain expenses that can be deducted from your rental income to reduce your liability so as a landlord you need to go over what you have spent over the last year and make sure you have receipts and relevant documentation because ensuring good record keeping is key. Keep all receipts no matter how small, they all add up. Most importantly, set up a separate bank account so you can track what is going in and what is going out via your bank statements.
To calculate the tax owed, the rental income must be added to any other taxable income you earn. The rate of income tax charged will depend on your total income for the tax year, but there are a number of expenses you can offset against your tax liability for rental income.
For example, interest payments on the element of a loan or mortgage used to purchase the rental property can be deducted as can costs for repair and maintenance such as plumbing and gardening or like for like replacements such as double glazing for single glazing, but not improvements.
If a property is let furnished a landlord can also offset wear and tear which is normally 10% of the annual net rental income.
Utility bills, buildings and contents insurance and council tax can all be taken into account as well as letting agency, management and accountancy fees.
The Landlords Energy Saving Allowance (LESA) is a deduction for income tax purposes when energy efficiency investments are made to properties. It is open to all landlords who pay income tax and who let residential property until April 2015. Tax relief is for a maximum of £1,500 per property.
