Jan

The final tax return filing deadline is approaching fast…

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Self-Assessment:

It’s that time of
year again and the tax return deadline looms. If you’re organised
and you have all your paperwork in order, then completing your own
tax return or sending off an organised file to your accountant for
them to complete your return should be a doddle.

Please note, this article is intended as a general guide only and is not a definitive statement of the tax rules – seek professional advice before making or not making decisions.

Whichever way you do
it, pen and paper, on a spreadsheet or using one of the specialised
accounting and /or property management software packages, keeping on
top of your finances should be a top priority.

The final deadline
for submitting your tax return online (and paying any tax due) for
each financial year is the 31^st of January, so in this
case you are submitting figures for the 2018-19 tax year, year ending
5^th April 2019. The deadline for submitting on paper is in
the past, which was the 31st October 2019.

Depending on the
size of your operation, as a landlord you could be involved with all
these different taxes listed below. Bear in mind there are constant
changes with tax rules, almost every Budget brings a new set of
rules, so expect to do some research unless you use an accountant.
These are the main taxes affecting landlords:

Income Tax
(rental income from property is included, but for HMRC purposes it
counts as investment income, not earned income)
National
Insurance contributions (NICs)
Corporation Tax
– if the property is owned by your own company, then the company
pays Corporation Tax
Capital Gains
Tax (CGT)
Stamp Duty Land
Tax (SDLT)

All landlords, or
anyone earning income from property, must register for a
Self-Assessment Tax Return, and complete the property income section
of the return. Income Tax and any NICs due are currently paid
annually based on the income you receive from renting out properties
and any additional earned and unearned (investment) income.

Your UK property
company will be liable to pay Corporation Tax on its profits from
rental lettings at the prevailing rate, currently 19%. HMRC requires
a company to register for Corporation Tax within three months of
starting to trade.

From 6 April 2020,
all non-UK resident companies that carry on a UK property business,
or have other UK property income, will be charged Corporation Tax
rather than being charged Income Tax. This measure is designed to
deliver more equal tax treatment for UK and non-UK resident companies
in receipt of similar income.

SDLT is payable on
purchase and in the case of a buy to let (second home)there is a 3%
surcharge.

CGT applies when you
make a gain on the sale of a property, the gain being the difference
between the purchase price and the sale price having taken into
account both buying and selling costs and any capital expenditure
made during the period of ownership. It is very important to keep
records of all these items in a property file because the period
between purchase and sale may be many years.

From April 2020 new
capital gains tax rules are due to come into operation which if
implemented as expected will mean (1) a tighter payment deadline with
just 30 days to pay after the sale completion as opposed to the
current system of waiting until the following tax year, and (2)
changes to Private Residence Relief (PRR) will apply where the
exemption period is reduced from 18 months to 9 months of the last
period of ownership of a second home.

The PRR changes have
a knock on effect for Letting Relief because, for those who qualify
for PRR, (if you lived in the sold rental property as your main
residence) it might be possible to claim letting relief to reduce the
capital gains tax owed by up to £40,000, or £80,000 for a couple.

Currently, letting
relief can be claimed if you used to live in the property you are
selling and have also let out part or all of it, but when the new
rules apply from April 2020, landlords will only be able to claim
this relief if they lived in the property when it is sold.

The Self Assessment
process is similar for landlords as for small business owners and
sole traders and is relatively easy to do online once you have
registered for Self Assessment.

You’ll receive
your UTR (unique taxpayer reference) number, which is assigned to you
when you register and is usually on all your tax communications from
HMRC. It is needed when you file your return and in all
correspondence with HMRC.

To simplify
somewhat, to complete your tax return all you need to know is your
total income from property and all the deductible expenses for the
tax year in question, 6^th April to 5^th April.

The expenses you are
allowed to claim are determined by HMRC, they can get complicated and
some can change from year to year, so professional advice here is
preferable – you don’t want to claim more than you are allowed as
penalties my result.

As a rough guide and
these are by no means definite, the main allowable expenses in
renting are:

Accounting fees
Insurance
Running costs
Property repair
and maintenance costs
Replacement of
domestic items (from April 2016)
Service charges
Ground rent
Cleaning costs
Advertising
costs
Letting agent
fees
Light and
heating costs
Wages for hired
help and other services
Phone calls,
stationery
Travel costs
wholly in connection with the rentals.

If you have a
mortgage on your rental property, then you can claim some of the
interest payments against income tax, but this is being restricted,
this being phased in over four years:

Since April 2017,
tax relief on mortgage interest payments is being phased out. By
April 2020 this will not be deductible. Instead a tax-credit is
allowed, based on 20% of your mortgage interest payments. This is
allowance hits higher-rate taxpayers hardest, who were effectively
receiving 40% tax relief on mortgage payments under the old tax
rules. The new system is being phased in over several years. For the
tax year 2018-2019 you can only claim for 50% of your mortgage
interest payments and from April 2020 onwards all mortgage interest
will only receive the tax credit.

Note: if you have
neglect to report any rental income to HMRC in the past you should
make a point of informing them of your oversight through their Let
Property Campaign – link below. HMRC is currently targeted
residential landlords. Failure to disclose can result in high
penalties and even a criminal prosecution.

Income Tax when you let property: work out your rental income

Let Property Campaign: your guide to making a disclosure

Corporation Tax

Letting Relief – Tax when you sell your home

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