Property Landlords

If you receive rent or income from land and property in the UK, you are required to complete a Self Assessment Tax Return. If the property is jointly owned, typically both owners need to complete a Tax Return.

If you are not already registered with HM Revenue and Customs then the first thing you will need to do is to inform HMRC that you are receiving property income. We can do this on your behalf if you prefer.

You have until 5th October following the end of the tax year to register for Self Assessment with HM Revenue & Customs. For example, if you start renting a property during the tax year 6th April 2023 to 5th April 2024 you have until 5th October 2024 to register for Self Assessment.

You should inform HMRC of your property income irrespective of whether you are making a profit or a loss from the property. If you are making a loss then this can be carried forward and used as a deduction against future rental profits. However, if your total income from property in the tax year is below £1,000, this will be covered by the £1,000 property allowance (explained in more detail below) and there is no need to declare this income to HMRC.

Self Assessment Tax Return

The annual Self Assessment Tax Return is the method used to report your income and expenses from your rental property. If you are making a profit then this is added to your other income of the tax year and taxed at your marginal rate. If you are a basic rate taxpayer this will be 20%, for higher rate taxpayers this will be 40% and if you are an additional rate payer this will be at 45%. The tax is paid under self-assessment which is usually a tax bill due by 31st January each year. You may also be due to make interim tax payments which we would advise you on.

Rental Income

This is the amount received from your tenant before deducting expenses. It is calculated on a cash received basis between 6th April and the following 5th April annually.

Rental Expenses

To arrive at your rental profit or loss you can deduct various expenses such as:

· electricity and gas bills paid by you and not charged to the tenant

· the cost of redecoration

· any rent or ground rent that you have to pay

· fees you pay to a managing agent

· legal fees on renewing short leases (but not when they are first made)

· interest you may pay on a loan for the property (this is restricted to basic rate tax relief)

· cost of gas safety certificates or similar requirements

· insurance

· accountant’s fees

· repairs & maintenance

· your management expenses such as travel and telephone calls

· the cost of replacing domestic products such as washing machines and ovens

Property Income Allowance

If your property rental expenses are less than £1,000 then you are entitled to claim an allowance of £1,000 against your rental income instead of claiming the actual expenses incurred. Similarly, if your annual gross property income is £1,000 or less then you do not have to declare this income on a tax return.

Rent-a-Room in your own home

If you have one or more lodgers living with you in your own home and paying rent then there is a special HMRC scheme called Rent-a-Room. HMRC’s definition of this is “someone who is living with you as a member of your household but paying you to do so”.

If your lodger has a separate front door, kitchen and other facilities then this would not qualify under Rent-a-Room.

The scheme involves a flat rate deduction of £7,500 and if your lodger pays you less than that then there is no taxable rental income. If you receive more rent than the £7,500 threshold then you are required to report this on a Self Assessment Tax Return and pay any tax due on the excess above £7,500.

You do not have to use the Rent-a-Room scheme if your expenses relating to the lodger are more than the £7,500 and, in these circumstances, you would report your rental income and expenses as detailed above.

Non-resident landlords

If you live abroad, or are going to move abroad, and receive rent from a UK property then it is important to realise that you remain liable to UK tax on those rents and will need to complete a Self Assessment Tax Return each year. We can of course help with this. Our IRIS OpenSpace portal makes it very easy for you to submit your records electronically to us, and e-approve your Self Assessment Tax Return remotely.

You should also consider registering with the Non-resident landlords’ scheme. If you don’t register then your tenant or letting agent will deduct tax at source which you would then have to reclaim or offset on your self-assessment return.

How we can help

At Hanley and Co., we have years of experience helping landlords with all areas of their rental business and Self Assessment Tax Return submissions.

Whether you are a landlord with a single property or have a large portfolio of properties we are here to make sure that you get the right advice and make sure that all of the Tax Saving expenses to which you are entitled are claimed.

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