Self Assessment Tax Return for landlords - 2021/22 tax year

What are the differences in Self Assessment for landlords who personally own property and limited company directors?

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

Self Assessment Basics

Who needs to complete a Self Assessment tax return?

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

• Dividend 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.

How to register for Self Assessment

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.

When are the 2021/22 tax year Self Assessment deadlines?

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.

How to complete your tax return

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)