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Contents
In this article we discuss:
Introduction
When Do I Need to Tell HMRC I Am Receiving Rental Income?
What Happens If I Don’t Declare My Rental Income?
How Do I Register for Self Assessment With HMRC?
What If I Have Made A Loss?
When Do I Need to File A Self Assessment Tax Return and Pay Tax?
What Income Do I Pay Tax On?
How Do I Pay The Tax Due On My Rental Income?
My Rental Property Is A Jointly Owned Property – How Does This Work?
What Deductible Expenses Can I Claim When I’m A Landlord Receiving Rental Income?
I Only Rent A Room Out In My Home – Do I Owe Tax?
I Am Selling My Investment Property – Do I Need to Tell HMRC?
What Are the 23/24 Rental Income Tax Rates for Landlords?
What Records Do I Need to Keep for My Rental Income & Allowable Expenses?
How Can I Keep My Accounts & Business Finances Organised?
Why Use An Accountant?
Further Information
Introduction
Are you thinking of becoming a landlord? This tax guide aims to give landlords receiving rental income a better understanding of the tax requirements involved, which many individuals may struggle with.
We cover when you need to tell HMRC you are receiving rental income, how to register For self Assesment, self assessment taxes, paying income tax and national insurance on rental income, and completing your annual self assessment tax return.
This guide doesn’t cover properties held under a Limited Company, where different rules apply. You will pay Corporation Tax on your UK property income, rather than income tax and national insurance.
Investing in property and becoming a landlord has so many benefits. Taxes can be a factor that put many people off.
Simple Taxes are here to change that. Specialising in taxes and self assessment tax returns for the self employed and landlords, let your dedicated Simple Taxes accountant worry about the tax requirements side of your income for you. We will offer advice and keep you tax efficient.
While using a professional accountant isn’t a legal requirement, it can be extremely beneficial. They will ensure you remain compliant with HMRC legislation when it comes to your income tax affairs and paying tax on rental income. They should also be able to save you tax, saving you money in the long run.
When Do I Need to Tell HMRC I Am Receiving Rental Income?
As soon as you start receiving rental income you will need to inform HMRC. As this income isn’t taxed at source, you will need to report the income to HMRC on a self assessment tax return, and pay income tax on rental income.
Once the tax year ends on 5th April, you will need to inform HMRC by 5th October that year.
What Happens If I Don’t Declare My Rental Income?
It is so important that you let HMRC know when you start to receive rental income. They do have ways of finding out!
HMRC could ask you to declare any undeclared backdated UK rental income, under the let property campaign.
You would then end up paying penalties and interest on top of the tax owed.
How Do I Register for Self Assessment With HMRC?
This can be done online through the HMRC website. Or Simple Taxes can do this for you.
What If I Have Made A Loss?
If you make a loss in the tax year, you must still declare your income and expenditure figures to HMRC.
The loss can be carried forward and offset against future rental income profits.
When Do I Need to File A Self Assessment Tax Return and Pay Tax?
The tax year ends on 5th April each year. You then have until 31st January the following tax year to file your tax return and pay any tax on any rental income after expenses are deducted.
If your tax liability exceeds £1,000 you will be required by HM Revenue & Customs to make payments on account towards the following tax year. The exact amount of payments on account are due on 31st January and 31st July.
What Income Do I Pay Tax On?
You will pay income tax and National Insurance on your net rental income.
This is your total income in the tax year, less any business related expenses – your net rental income.
How Do I Pay The Tax Due On My Rental Income?
You will need to complete a self assessment tax return, to calculate your income tax liability payable.
Once this has been filed you can pay your income tax by various methods using your personal UTR number as the payment reference.
See the HMRC guidance here on the ways to pay.
My Rental Property Is A Jointly Owned Property – How Does This Work?
Joint ownership
You can share ownership of rental property with other people and the amount of rental income on which you will pay income tax will depend on your share of the property.
Property jointly owned with spouse or civil partner
Property jointly owned by married couples and civil partners who live together will usually be taxed in equal shares.
If you own the property in unequal shares and are entitled to the income in the same unequal shares, the income can be taxed on that basis.
You both need to declare the rental income in a tax return.
Property jointly owned but not with a spouse or civil partner
If you own a property jointly with another person who is not your spouse or civil partner your share of the rental profits or losses will usually be based on the share of the property you own, unless you agree a different allocation.
What Is The Property Allowance?
You can claim tax relief under the property allowance and get up to £1,000 a year tax-free property income.
If you claim the property allowance tax relief you cannot claim a deduction for your expenses.
If your annual gross rental property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. You may be required to complete a tax return and pay tax for other income.
What Deductible Expenses Can I Claim When I’m A Landlord Receiving Rental Income?
Below is a list of allowable expenses that you can claim against your taxable rental income:
general maintenance and repairs (but not large improvements)
utility bills such as water rates, council tax, gas and electricity (usually the tenants responsibility, but you are liable for periods the property is empty)
insurance, such as landlords’ policies for buildings, contents and public liability
costs of services, including the wages of gardeners and cleaners
letting agent fees and management fees
legal fees for lets of a year or less, or for renewing a lease for less than 50 years
accountant’s fees
rents (if you’re sub-letting), ground rents and service charges
direct costs such as phone calls, stationery and advertising for new tenants
vehicle running costs (only the proportion used for your rental business) including mileage rate deductions for business motoring costs
mortgage interest
accountant fees
I Only Rent A Room Out In My Home – Do I Owe Tax?
You can receive up to £7,500 a year tax free income if you rent a room in your home, under the ‘Rent A Room Scheme’ tax relief.
If you jointly own the property, this allowance is of course halved.
This tax exemption is automatic, meaning you do not need to do anything.
If you earn more than this however, you must complete a tax return and declare the income.
When completing your tax return you can opt into the scheme and claim your tax free allowance.
If your lodger has their own separate door, kitchen and other facilities, this will not qualify for the rent a room scheme.
I Am Selling My Investment Property – Do I Need to Tell HMRC?
If you sell a house that isn’t your main home, you may be liable to report and pay Capital Gains Tax within 60 days of the completion date.
You can find HMRC guidance on how to pay Capital Gains Tax here.
We also have a handy blog on Capital Gains Tax here, which explains how to calculate your gain and more.
What Are the 23/24 Rental Income Tax Rates for Landlords?
Income tax is payable at 20% (basic rate taxpayer) for profits over the £12,570 tax free personal allowance. This increases to 40% (higher rate taxpayer) for any income over £50,270
Class 2 NI is a set weekly amount of £3.45 when your profits exceed £6725
Class 4 NI is 9% of any profits over £12,570
Sound complicated? Don’t worry! When you complete your tax return online HMRC automatically calculates any tax due for you.
If you are still unsure and struggling to navigate the HMRC website, you can use the service of a qualified accountant such as Simple Taxes. They will be able to offer professional advice specific to your current situation. You can also claim any accountant fees as a tax deductible expense!
What Records Do I Need to Keep for My Rental Income & Allowable Expenses?
When you are receiving rental income, you are legally required to keep all of your rental business records (bank statements, rental income invoices, purchase and allowable expenses invoices), for 6 years plus the current tax year.
This is incase HMRC ever ask you for proof of your figures.
HMRC can issue penalties if the required documents not available.
How Can I Keep My Accounts & Business Finances Organised?
Here are a few tips for keeping accurate records and keeping on top of your business accounts and finances:
Open a business bank account – this keeps all of your rental income and expenditure in one place, separate to your personal income, making completing your year end tax return 100x easier.
Use accounting software such as Quickbooks – keep on top of your bookkeeping so you can see how your business is performing. Need help with bookkeeping and setting up Quickbooks? Simple Taxes can help.
Keep all your receipts and bank statements in one place – either by cloud storage like Google Drive, Quickbooks, or in a box.
Why Use An Accountant?
Using an accountant can prevent trivial mistakes that could be costly. By using an accountant you give yourself peace of mind that everything is done correctly and no expenses, tax relief or deadlines are missed, saving you as much money as possible.
You may have the impression that accountants can be costly. At Simple Taxes this is not the case. Simple Taxes specialise in self employed and landlord tax returns, for a low all in fee of £150.
Further Information
For further information on tax returns for landlords, please read the HMRC guidance here.
If you need help with your taxes get in touch with us today at www.simpletaxes.co.uk .
Disclaimer
The information contained in this blog is for general information purposes only, and not for accounting and tax advice. You should speak to a qualified professional about your specific circumstances before acting upon any of the information in this blog.
Date Published: April 2023
