Tax on rental properties
We all hate paying taxes, but as a landlord, this is something you must deal with and dealing with it in the right way however is of prime importance. Please read on for further information
Paying taxes is a fact of life, as Benjamin Franklin famously wrote “nothing can be said to be certain, except death and taxes”. So, before you press delete you might want to read our top tips to help you keep on top of your rental property tax.
(Please note our tips assume that you own your properties as an individual not as a limited company.)
Inform HMRC when you start renting a property.
You may still have to complete a tax return even if you are making very little profit (or even a loss).
Calculate your income on a cash basis.
To calculate your profit, you need to know how much rental income you received in the tax year. If your tenants have missed a rent payment don’t include this as income.
The tax year runs from 6th April to 5th April the following year.
Make sure you know your allowable expenses.
You can deduct your ongoing running costs from your income, these are called allowable expenses. Make sure that you know what these are – click here for a list of allowable expenses on the gov.uk website.
Remember, from 2020 none of the interest on your mortgage payments can be considered an allowable expense.
Carry forward previous year’s losses.
It is quite common to make a loss when renting your property, particularly in the early stages of letting or if you have undertaken renovations. The good news is you can reduce your tax bill by carrying the loss forward to the next tax year (when your profits may be higher).
Keep records.
Keep records of the rent you received and the expenses you are claiming. This could include bank statements, receipts and invoices. You should keep everything for at least 22 months after the end of the tax year.
Bear in mind that the Inland Revenue can investigate you for up to 4 years (or longer in some cases).
Capital gains tax.
If you sell your property you will be liable for capital gains tax. You may pay less CGT if you lived in the property before renting it out.
As a landlord there is a lot to keep on top of.
We can take the pressure off by helping you let and manage your property. We will keep a full ledger of any and all expense you may accrue throughout the duration of the let & can assist with your returns when they become due.
Call us for a no obligation chat, either drop us a line either by replying to this email or call us on 01761 412300. We would love to hear from you.
