Are you already a landlord or thinking of investing in buy-to-lets? You’ll no doubt be doing a lot of research, and just one of the things you need to know about is tax. Have a read of this guide on landlord tax to help you on your way.
A few of things affect how much tax you’d need to pay as a landlord. The main two points are how much profit you make from your rental properties, and whether you’re employed or a full-time landlord.
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What are the landlord taxes?
In the UK, there’s 3 different types of tax. We’ve all familiar with VAT and National Insurance, but income tax can come into play too.
If you’re employed full time but have a couple of properties in your portfolio that you rent out, you’re likely to need to pay income tax on the profit. The tenant living in the property is responsible for paying council tax, but if your property sits empty it’s up to the landlord to cover.
If you aren’t employed elsewhere and have committed to your landlord duties on a full-time basis, you need to declare to HMRC that you’re starting a business, which will result in the way you’re taxed to be different.
How is rental income taxed?
Landlords have an allowance of £11,850 for the 2018-2019 tax year, beyond which any profit from rental income is taxed. Remember that there are deductions to profits from letting, which are services not normally provided by landlords. These should be claimed as trading income instead of rental:
- regular meals
- cleaning services
- laundry services
Here’s what is included in rental income, but this list isn’t exhaustive:
- rent paid by tenants
- cleaning costs for cleaning communal space
- any fees for furniture use
- utility costs
- any parking fees
Allowable expenses for landlords can be deducted from rental income as long as they were only for renting out property, here’s a just a few that could be included:
- property repairs and maintenance
- utility costs and council tax
- interest on the mortgage to buy the property
- letting agent and management fees
- fees from accountants
- costs for running your vehicle when using it for your rental business
What are the income tax rates?
For the 2018/2019 tax year, if you fell under the higher rate tax band (taxable income of £46,351 to £150,000) you paid 40% tax. Alternatively, if you were an additional rate taxpayer, where you had a taxable income of over £150,000 for the tax year, you were charged at 45% income tax. If you rented out a property and earned under the threshold for the higher rate tax band, you paid 20% tax.
For the 2019/2020 tax year, which began on the 6th of April 2019, the rates are:
- Higher rate tax band (taxable income of £50,001 to £150,000) is taxed at 40%
- Additional rate taxpayer (taxable income of over £150,000) is taxed at 45%
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When do I need to declare to HMRC?
You will need to let HMRC know about your rental income prior to the deadline after the end of the tax year. The deadline for online tax returns is 31st January 2020 for the tax year 2018/2019.
If it’s your first year, register by the 5th of October the year after you collected your rental income.
There’s a whole lot more to do with paying tax as a landlord, but you can use this guide as a starting point.
I began writing for Property Press Online in October 2019. Particular areas of interest are housing market news and new developments in the market.