It’s that time of year once again when tax deadlines are looming. However, this year is the last one before taxes will change for all landlords, so it’s important you carefully note your income and profit so you can work out what you will earn in future years and calculate the difference it will make to the profitability of your property investment.
Key dates for landlords
The first thing you (and your accountant/bookkeeper) need to be sure of are the dates for registration and filing, which are determined by:
- Whether you want to file your return in paper form or electronically
- Whether you want to pay the tax you owe through next year’s tax code
- Whether you’re happy to pay the tax you owe in one go.
For the 2015/16 tax year:
- To file your tax return by post, it must be with HMRC by 31st October 2016
- If you’re intending to file your tax return electronically, this needs to be done by 30th December 2016
As long as you file by these dates, you can opt to pay your tax through next year’s tax code, if you are able to do so.
If you’re happy to settle your tax bill straight away, you have until 31st January 2017.
If you haven’t filed a tax return as a landlord before and are not yet registered for self-assessment, you must register by 5th October 2016: https://www.gov.uk/register-for-self-assessment
The information you need in order to file your tax returns
To fill in your tax forms, whether you do it yourself or have someone else do it for you, there are various pieces of information required. What’s important to know is that, unless all of your income or capital gains you make on any property sales in a year is purely from property, it won’t be looked at in isolation. If, as many landlords do, you have other income – for example from a salaried job and other financial investments - it will all be taken together and you will be taxed on the total ‘profit’ you make.
As such, if you have a salaried job you will need things like your P60, which you should have received in April of this year, and if you have received expenses through work, it’s likely you will need your P11D.
If you have made money from savings or income/capital gains from other financial investments such as stocks and shares, you will need that information too.
As far as your Buy to Let properties are concerned, here are the top 5 things you will need to have to hand:
- The rental income figures - login in to your portal account here >
- The expenses you have incurred in running the property/portfolio, such as insurance, property repairs or utility bills
- Any mortgage interest costs you have incurred
- Dates, costs and a note of other relevant information if you have increased your mortgage
- Capital expenditure on the property to add something that ‘wasn’t there before’ or ‘alters, improves or upgrades’ something existing. This is particularly relevant if you have bought a property and upgraded it, or if you have sold a property. You should always keep this information up to date, even if you can only deduct it from your tax liability when you come to sell.
Check last year’s returns too, because if you made a loss, you may be able to deduct that from this year’s income to reduce your tax bill.
To find out exactly what information is accessible from us online, login to your portal account here.
Different rules can apply if your property is let fully furnished, you’re renting out properties overseas, renting rooms in your own home or offering furnished holiday lets. The government and HMRC provide some useful information and guidance online.
If you’re a non-UK landlord and earn money from renting property in the UK, the rules are different again, so this government information may be useful to you.
Last but not least, if you earn less than £2,500 net income from your property, then you just need to call the Self-Assessment hotline on 0300 200 3310 (+44 161 931 9070 if you’re calling from abroad), or you can chat via the web.
Ask for help!
If you haven’t filed a tax return for your property earnings before, it can be quite daunting and it’s essential you get it right from the start. So do come in and see us and we’ll help all we can, but it’s certainly worth also getting help from a property tax expert. They will be able to assess all your other income and assets – not just those relating to property – and advise you on how best to minimise your tax liability.
What tax forms you need to complete
Most landlords are likely to be registered under ‘self-assessment’ to declare property income and earnings. Even if you make a loss on your rental income, it’s important to find out under what circumstances you’re required to fill in a tax return and when it’s enough for you to simply advise HMRC of your circumstances over the phone or online.
The main form to register for and complete is the ‘UK property’ (SA105) self-assessment form:
What changes will be made to your tax bill for 2016/17?
Now you have got to grips with your current tax requirements, it’s important to make sure that you know how your tax bill will change next year. For example, you won’t be able to automatically claim a 10% wear and tear allowance for 2016/17; you will only be able to claim if you have actually spent money rectifying wear and tear issues.
What changes are coming up for 2017/18 and beyond?
The following year, if you are a borderline low to higher-rate tax payer or already a higher-rate tax payer, then your tax bill is likely to increase because:
- You will no longer be able to simply deduct mortgage interest from your rental income
- The amount of mortgage interest relief you can claim will start to fall. It is being phased in over 4 years, dropping to the basic rate of 20% (from 40% or 45%) by the tax year 2020/21
Moving forward, in 2019 you will have to pay any Capital Gains Tax within 30 days, rather than being able to wait until the next time you’re due to pay your tax bill.
Three ‘must dos’ before your next tax return
- With the biggest changes to property taxation to hit landlords for many years, it’s vital you make a record of the tax you pay this year and the income/profit you secure.
- You then need to compare these figures with the tax you will have to pay in 2016/17 following the changes to the wear and tear allowance.
- Finally, you need to consider how the changes to mortgage interest relief could affect your earnings. Remember, you won’t be able to simply deduct the mortgage interest you pay from the rental income from the tax year 2017/18. If you have quite high loans to values on your properties, this could mean you end up being classed as a higher-rate tax payer and paying a lot more tax over the next few years than you do currently.
Need help and guidance on your tax for this year or in the future? Then do visit www.gov.uk/renting-out-a-property/paying-tax