As the year comes to an end, don't forget about the upcoming January submission and payment deadlines for Self Assessment tax returns. Whether you own property in a limited company or your personal name, you need to be aware of your income and capital gains tax liabilities. In this blog, we outline the key things landlords need to know to complete a Self Assessment.
When you own investment property in your personal name, the rental profit is added to your other earnings (such as from your job) and taxed as income. How much tax you pay depends on:
How much profit you make
Your personal circumstances
You will need to complete a Self Assessment tax return if the income from your property is
£2,500 to £9,999 after allowable expenses
£10,000 or more before allowable expenses
If you make between £1,000 and £2,500 per year, you must make HMRC aware in order to pay tax.
The rate of tax you pay depends on your total income across the board for the year. You can find more information on Income Tax rates here.
Please be aware that there are different landlord responsibilities and tax implications when it comes to renting out property in Scotland. You can find more information on these differences here.
Tax-free property allowance
Landlords are entitled to £1,000 per year in tax-free property allowances. This means that if your annual gross income from your properties is £1,000 or less, you do not have to inform HMRC or declare this on a tax return.
However, this allowance can only be used in certain circumstances. You cannot use the property allowance if you:
Claim the tax reducer for finance costs such as mortgage interest for a residential property
Deduct expenses from income from letting a room in your own home instead of using the Rent a Room Scheme
If you own property in a limited company, you may be required to complete a Self Assessment tax return. However, rental income from your properties is not reported on your Self Assessment property pages, as it is reported in your company accounts and corporation tax return.
In your Self Assessment, the income from your limited company that you will need to report includes:
Any salary from employment within your limited company
Dividends paid to you by your limited company
It’s good practice to put aside 15 minutes each month to update your bookkeeping in your property accounting software. This ensures that all of the information you (or your accountant) need to complete your tax return is up-to-date.
There are many reasons why you might need to complete a Self Assessment tax return, but some of the more common reasons include:
Being in business for yourself (not using a limited company) and earning over £1,000 revenue - this is know as being a ‘sole trader’ or being a partner of a business
Earning over £50,000 and you or your partner are claiming Child Benefits
Earning over £100,000 and having additional income not reported through payroll
Disposing of a capital asset subject to Capital Gains Tax, for example selling a rental property, or gifting or transferring assets to family members.
Additionally, receiving untaxed income such as:
COVID support grants or payments
Property rental income
Savings and investments income
Income from abroad
HMRC offers a basic tool to check if you need to prepare and send a tax return. Please note that being a director of your own limited company is not the equivalent of being self-employed.
To register for self assessment you can use HMRC's online form or post a completed SA1 form. You’ll receive a letter with your Unique Taxpayer Reference (UTR) number within 10 days (21 if you’re abroad). You’ll need your UTR to file a return. It can take HMRC up to 6 weeks to process an application, so it's a good idea to register as early as possible.
The deadline for registering for Self Assessment has already passed (5th October 2022.) However, if you are only just registering for Self-Assessment, HMRC usually grant a small extension window before they begin issuing late filing penalties.
More guidance from HMRC on the registration process can be found here.
For the tax year running from 6th April 2021 to 5th April 2022, you need to:
register for Self Assessment by 5th October 2022
submit your tax return by midnight on 31st October 2022 if filing by post
submit your tax return by midnight on 31st January 2023 if filing online
pay the tax you owe by midnight 31st January 2023
You’ll usually pay a penalty if you’re late meeting the deadline. However, you can appeal to HMRC against a penalty if you have a reasonable excuse.
Landlords with personally owned properties need to complete a supplementary form (SA105) to record income from property alongside the main Self Assessment tax return. Many landlords with one or two personally owned properties complete their own tax returns. However, for more complex portfolios or for a professional service, many engage a specialist property accountant, such as Provestor.
If you’re a Provestor client on our Personal Advisor or Growth Advisor packages, we complete your tax return for you. We'll need details of the rented out properties, including:
Whether they are furnished or unfurnished
Whether they have been let out as Furnished Holiday Accommodation
If the property is let jointly and what percentage interest each owner has
Details of rental income and related expenses
The mortgage interest amount (not capital repayments, as any contribution towards capital is not recoverable)
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