Tax Returns for Landlords

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Essential Tax Considerations for Landlords

  • Declare rental income in tax return to avoid penalties and interest on taxes owed
  • Some rental expenses are tax deductible, while others can be added to property cost
  • Consider setting up an SPV company for potential tax benefits based on personal income and dividend withdrawals
  • Owning properties through a company has tax advantages and disadvantages, including costs and fewer mortgage products available
  • Non-resident Landlords Scheme applies to UK rental income earned by non-resident landlords, requiring tax deduction by letting agents or tenants

Do I need to submit tax return to declare my rental income?

Property income is one of the incomes that needs to be declared through a tax return. Some new landlords are unaware of their responsibility to notify and declare their rental income through a tax return, especially if they were not previously required to submit tax returns. It’s important to understand that failure to declare rental income can result in serious consequences, such as penalties as high as 100% of the tax owed, interest on tax and penalties, and loss of tax due to non-declaration of rental income.

Am I allowed to deduct any expenses from the rental income?

As a landlord, you can deduct property expenses from your rental income, such as repairs, gas and electric safety checks, and letting agent’s commission.

However, some expenses, such as adding an extension or installing a higher-spec kitchen, are considered capital expenditures and cannot be deducted from rental income. These expenses can be added to the cost of the property, which will reduce the capital gains tax when you sell the property.

If you’re unsure about the tax treatment of any expenses, don’t hesitate to reach out to us for assistance. Our team is here to help you navigate the complex world of rental property taxation.

Can I use a limited company to reduce tax on rental income?

If you’re a landlord, you might be wondering if setting up a Special Purpose Vehicle (SPV) company could help you save on taxes. The answer depends on various factors, such as:

  • Whether you already own rental properties in your name
  • Your personal income from various sources
  • Whether you would be withdrawing dividends from the SPV company

While having an SPV company might not fully benefit you if any of the above factors apply, it could still be worth considering for other reasons, such as:

Tax treatment of mortgage interest: From 6th April 2020, private landlords can only claim 20% of their mortgage interest as a deduction against their tax liability on net rental profits. However, mortgage interest is treated as a business expense for limited companies, meaning you can deduct the full amount before paying corporation tax.

Tax treatment of profits: Private landlords face tax rates of 20%, 40% and 45% depending on their total taxable income. In contrast, companies are taxed at a flat rate of 19%, with rates of 19%, 26.5% and 25% on profits below £50,000, between £50,001 to 200,000 and over £200,000 respectively from 1st April 2023. Holding properties through a company could be beneficial if you don’t plan on withdrawing dividends from the company.

Disadvantages of using a limited company for rental business

There are certain disadvantages to owning properties through a company, such as:

  • Costs of transferring existing privately owned properties to the company, including capital gains tax (CGT), stamp duty land tax (SDLT), early redemption charges and increased mortgage charges, conveyancing and solicitor fees, and more paperwork.
  • Availability of mortgages: There are fewer buy-to-let mortgage products available for companies than for individuals.

Before making any decisions about how to structure your letting business, it’s essential to consider all the factors and seek advice from a tax professional.

The Non-resident Landlords Scheme

The Non-resident Landlords Scheme is a tax scheme that applies to UK rental income earned by landlords who don’t reside in the UK. Here are some key points to keep in mind:

  • Letting agents or tenants who pay rent to non-resident landlords must deduct basic rate tax from the rent.
  • Non-resident landlords can apply to HMRC to receive their UK rent gross, but they must self-assess at the end of the year to determine if they owe any tax.
  • Deductible expenses must be subtracted before calculating the tax.
  • Letting agents are subject to the scheme regardless of the rent amount, while tenants are only required to deduct tax if the rent is above £100 per week.
  • Non-resident landlords approved to receive rent gross do not require tax deduction.
  • Approval to receive rent gross does not exempt the rent from tax, and non-resident landlords must include the rent in their tax return.

In summary, the Non-resident Landlords Scheme is designed to ensure that non-resident landlords pay the appropriate amount of tax on their UK rental income. Letting agents and tenants play an important role in implementing the scheme, and non-resident landlords have the option to apply for approval to receive their rent gross.

Our fees:

We believe in transparent and fair pricing. Our fees are competitive and reflect the level of service and expertise we provide.

  • For individuals with rental income, we can register you and complete your tax return from as low as £175 for one tax return, and £300 for two tax returns if the property is owned jointly. Please note that our fee may increase if you have other sources of income or own multiple properties.
  • If you own properties through a limited company, our annual fee starts from £575. We offer a range of services tailored to your specific needs, including bookkeeping, payroll, and VAT returns.

All our fees are exclusive of VAT. We also offer a free initial consultation, where we can discuss your requirements and provide you with a clear breakdown of our fees.

We pride ourselves on delivering a high-quality, reliable service that takes the stress out of managing your tax affairs. Our team of experts stay up-to-date with the latest tax legislation to ensure you are fully compliant and maximising your tax efficiency.

Contact us today to see how we can help you.


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