Buy to Let Tax

1. All property income over £1000 must be declared to HMRC via the self-assessment system each year.
2. If the property is jointly owned then both owners will need to file for self-assessment. We do offer a discount for couples!
3. If you’re a new landlord, you’ll need to register for self-assessment by 5^th October following the tax year in which your business begins. Your business begins on the first day you begin to receive rental income.
4. The tax year runs from 6^th April until 5^th April the following year. Tax returns can be submitted any time after 5^th April, with a deadline of 31^st January. Payments of tax are made on account twice a year on 31^st January and 31^st July.
5. You’ll need to keep accurate records of your income and expenses. Some people use a spreadsheet, some use book-keeping software like Xero or QuickBooks. Portfolio landlords may use specialist software such as Hammock or Landlord Vision. There is no perfect solution but try to avoid piles of dusty paperwork!
6. Most landlords use the ‘cash basis’ for their accounts. This means income and expenses are counted when they occur. The alternative is the accruals basis where the amounts are accounted for when they are due, not when payment is made. For most landlords, we recommend you stick with the cash basis.
7. Mortgage interest relief. Since 2020, tax relief on mortgage interest is no longer available in full. Instead, you’ll receive a “Tax Reducer” worth 20%. It’s called Section 24, and is grossly unfair, but it’s here to stay.
8. Profits. Your profits are simply your total receipts less the allowable expenses. These profits are then charged to Income Tax. It’s a special kind of income tax however; it’s not ‘earned’ income but ‘property’ income. This means you don’t have to pay National Insurance contributions (good), but the income won’t count towards pensionable earnings (not so good).
9. The rate of tax you pay will depend on your other income. Basic rate is at 20% up to £50,270 and Higher rate is 40% over this level. You get to earn £12,570 before paying any tax.
10. You can claim for most expenses that are incurred “wholly and exclusively” in the running of your property business. Where an item is replaced, this usually qualifies under “Replacement of Domestic Items Relief”. Replacing an existing kitchen is fine, installing a new hot tub is not!
11. If your expenses are minor, you can claim a £1000 property allowance instead. No other expenses are allowed in this case.
12. Rent a Room Relief. You can receive up to £7500 per year tax free if you rent a room in your own home. AirBnB qualifies as long as the guest area is not self-contained.
13. If you run a Holiday Let please see our separate guide.

Remember, this is a general guide to property taxes. Tax is a specialist area where mistakes can be stressful, time consuming and costly. Contact us for a free, no obligation chat if you’re unsure of anything.