The deadline for Self Assessment is looming – get it done now!
No matter how many properties you own, as a buy-to-let landlord, the lovely people at HMRC require you to tell them all about your business. Yes, I did say business. Whether you rent out one or 101 homes, you are running a business for tax purposes. It means you must complete a Self Assessment tax return. If you don’t, you will likely be charged for late Self Assessment penalties.
In this article, you’ll learn the basics to help you complete your Self Assessment tax return correctly.
What records should a buy-to-let landlord keep for Self Assessment?
You will need to tell the taxman about all your income and expenditure (such as maintenance costs and investment property management fees) on your buy-to-let property. When you complete a Self Assessment, it is made for the previous tax year. So, the one that you should be making now is for the 12-month period between 6th April 2016 and 5th April 2017.
There are some expenses that you won’t need to include in a Self Assessment, but which you should keep records of anyway. Items such as the cost of purchase, stamp duty, and cost of improvements cannot be used to offset against income tax liability, but when you come to sell, the investment property can be used to reduce your capital gains tax bill.
How does a buy-to-let landlord complete a Self Assessment tax return?
The Self Assessment process is the same for everyone. There are dates by which you must submit your forms, and these deadlines do not change. The form will require you to give details of all your income. It might be from a business you own, self-employment, employment, pensions, dividends, etc.
As a buy-to-let landlord, you will also need to complete the part of the form dealing with property.
When must you submit your Self Assessment to HMRC?
The deadline dates for doing so are:
- If you have registered for online assessment, 31st January in the calendar year following the end of the tax year being assessed (e.g. for tax year 2016/17, 31st January 2018)
- If not registered for online assessment, 31st October following the end of the tax year being assessed (e.g. for tax year 2016/17, 31st October 2017)
How to complete your tax return
You will need to declare all your income. There are separate pages for this. With regard to your buy-to-let property, you must:
- Tell the taxman how much rent (and other property income) you received
In addition, you should:
- Include details of all tax allowable expenses relating to your property
While you won’t need to send in receipts and invoices on these expenses with your tax return, the taxman can request you to supply them. It is therefore very important that you keep all receipts, invoices, and other paperwork relating to your property investments.
You should keep all tax records for a minimum of six years.
What expenses can be used to reduce your buy-to-let income tax liability?
Certain costs can be used to offset your rental income for income tax purposes. These may change in the annual budget, so you should always check what is currently allowed. Usually, you can claim expenditure such as:
- Repairs and maintenance (but not the cost of improvements)
- Investment property management fees
- Landlord insurance premiums
- Council tax and utility bills if you have paid them
- Service charges and ground rent
- Cleaning costs
- Advertising costs
- Travel to and from the property
- Stationary and telephone bills in direct relation to your landlord responsibilities
You should also claim tax relief on your mortgage interest payments, though this is being reduced by phasing through to 2020. You can see how this affects you by reading the Gladfish article “How mortgage interest tax relief is changing”.
How much income tax will you pay?
How much tax you will be required to pay depends upon your circumstances, total taxable income, rental income, and allowable expenses. You won’t pay any tax if your total taxable income (after allowable expenses have been deducted) is below your taxable allowance. Above this amount, the more income you have, the higher the rate of tax you will pay. For tax year 2016/17, these are the taxable allowances and tax band thresholds:
|20% basic rate tax payable on income of||£11,500 to £45,000|
|40% higher rate tax payable on income of||£45,000 to £150,000|
|45% additional rate tax payable on income of||£150,000 +|
Paying outstanding income tax
If you are assessed as being liable for income tax, HMRC will write to you and let you know how much tax you owe and when it must be paid. When making payment, you will need your UTR number (the number given to you when you registered for Self Assessment). The easiest way to pay an income tax liability is by online credit, direct into the HMRC account. Don’t forget to reference the payment and keep a copy of payment confirmation.
Should you do your own Self Assessment tax return?
While it is possible to complete your own tax return, the tax rules and regulations are constantly changing. To make sure that you don’t overpay tax, and that you claim all the taxable allowances available to you as a buy-to-let landlord, we recommend that you use an accountant to file your tax return for you.
Remember, too, that our business is investment property management. We’re not accountants. The above information, therefore, is supplied as a guide and correct when it was written. Always check that the limits, allowances, tax thresholds, and so on are still in force and applicable before completing your Self Assessment.
Yours in effortless property management,