It is fair to say that none of us like paying taxes. We work hard to earn our money and the thought of handing a portion of it over is quite galling. This is even more annoying when you see, hear or read about major companies and billionaires skipping their tax requirements. However, there is no excuse for not meeting your tax requirements and many landlords are putting their livelihood at risk by not being up to date with tax or knowing what the latest tax regulations are.
No matter how many properties you have or how many hours a week or month you serve as a landlord, if you generate income from letting property, you need to fill in a self-assessment tax return. As a landlord, you are due to pay different types of tax and you may need to pay:
• Income Tax
• National Insurance
• Stamp Duty Land Tax
• Capital Gains Tax
The last two taxes listed relate to the buying and selling of property, so may not be relevant to everyone but if you generate income as a landlord, you will need to be aware of your income tax and National insurance obligations.
Remember self-assessment deadlines
When it comes to deadlines for submitting your self-assessment form, the tax year ends in April and the deadline to submit your tax returns is either the next October for paper returns or the next January for online submissions. For the tax year that ended in April 2017, 31st of October 2017 was the deadline for paper submissions and January 31st 2018 is the deadline for online submissions.
There are allowable expenses that landlords can deduct from their tax bill but these have changed in recent times, so make sure you are up to date with what you try to deduct.
You may be able to deduct payments like letting agent fees, service charges, cleaning costs, advertising costs, accountancy fees, insurance and mortgage arrangement fees. It used to be that landlords can deduct a set amount for wear and tear allowance but this is no longer the case. Landlords are only allowed to make a claim based on actual expenditure for wear and tear repair or replacements.
Changes to tax relief has affected many landlords
The biggest change that landlords have had to consider with respect to taxation of late occurred on 6th of April 2017. The beginning of the new tax year saw the beginning of the phasing in of changes to the tax relief landlords can claim. Eventually, this will lead to landlords only being able to claim a 20% tax credit, which is the basic rate of tax.
The impact on landlords will see:
• Landlords who are currently on the basic rate of tax and who aren’t pushed into a higher tax bracket be unaffected
• Landlords who are currently on the basic rate of tax and who are pushed into a higher tax bracket will pay more
• Landlords who are currently in the higher rate of tax will pay more
• Landlords who are currently in the additional rate of tax will pay more
Some landlords may even be left with a tax bill that is larger than their profits so it is essential that landlords understand what these latest changes mean to their finances. Also, given that these changes are being phased in over a four year period, just because landlords have managed okay in their first year of the change doesn’t mean that this will always be the case.
It would be fair to say that most of us would prefer not to think about tax, I know I would, but landlords have to understand that they are exposing themselves to significant risk by not fully understanding their tax requirements. It is often beneficial to call on professionals for help in caring for a home and you’ll likely agree that calling on professional services to take care of your tax matters will be of benefit to landlords.