10 January 2023

The self-assessment tax return deadline is fast approaching on the 31st of January, do you have any questions as a Landlord? We have put together some helpful tips so you can be confident submitting it correctly. Read below to find out how.

Rental income is treated as income and is therefore, taxable. If you’re a new landlord receiving rental income for the first time - you need to declare it. This is especially important (and can be a bit scary) if you have never completed a tax return and have always paid income tax through PAYE.

The deadline for submitting your self-assessment tax return online is 31st January 2023 so it's something that you need to consider now. If you earn less than £1000 per year, you do not need to report it to the HMRC. The first £1000 forms your “property allowance”, so is tax free. However, once your earnings are over £1000 it must be declared. Remember you need to register for online self-assessment by the end of October in the year you start collecting rental income.

Please note that you can't claim for both your personal allowance of £1,000 AND expenses. It is one or the other. If your expenses are higher than £1,000, you might be better claiming for this instead of your personal allowance. Contact your accountant for expert guidance.

The first step is to prepare your income and expenditure over the tax year (to include April – 5th April following year)

Get your paperwork together so you have a detailed breakdown of your rental income collected throughout the tax year – this might be from individual monthly statements, or you may be able to get an annual report. This will form the basis of your income section.

More complicated is the expenditure section – what can you claim for? Breakdown your expenses over the year into the following:

Insurance cost (buildings, contents, rent insurance)

Ground rent if applicable on leasehold

Council Tax paid if property empty (rates)

Utility Bills if empty

Repairs and Maintenance Costs - any costs associated with fixing something that was broken are allowed – so the broken tap washer repair is allowed, the boiler repair is allowed in full- however you must be careful if something is not just “fixed” but is upgraded – as this may be deemed a capital expense (more to follow)

Legal fees or costs associated with the rental property

Agency fees

Factoring or service charge costs

Wages associated with the property rental (if any)

Your costs for traveling etc to the property can be offset too.

Can I offset my mortgage finance costs?

Since April 2020, you can no longer deduct any of your mortgage expenses from your rental income to reduce your tax bill.

Instead, you now receive a tax credit, based on 20% of your mortgage interest payments compared to the previous rate of 40%.

The new system means higher or additional-rate taxpayers can no longer claim the tax back on their mortgage repayments, as the credit only refunds tax at the basic 20% rate, rather than the top rate of tax paid.

The new rules could take some landlords into the next tax bracket, because they'll need to declare the income that was used to pay the mortgage on their tax return.

If you need support with your upcoming remortgage, then speak to our friendly local mortgage team. https://www.linleyandsimpson.co.uk/mortgages

Repairs versus Improvements – what’s the difference?

An allowable expense for rental property is something deemed as a repair- not an improvement – that would be a capital allowance which you would claim for when you sold the property.

So, if you replace a broken washing machine with a new machine, that’s fine, it can be claimed as an expense. If you replace a broken boiler with a similar type – it can be claimed.

However, in the extreme, you can’t claim for the extension which you added on that year- that would be capital allowance. And more likely, you will be on shaky ground if you replace the cheap laminate worktops in the kitchen with a bespoke marble substitute and claim the full amount. It’s about replacement versus improvement. Things like windows are interesting, you can now claim for replacing a faulty single glazed window unit with a double glazed one – as double glazing is now “the norm” and it's not seen as an improvement.

All records need to be kept for 5 years, so be organised and keep your records tidy!

If you would like any further assistance or tips on filling in your self-assessment, then please contact your local branch who would be happy to help. https://www.linleyandsimpson.co.uk/contact-us

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