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/ by Ryan Lane

A landlords guide to tax liabilities

Navigating the rental market as a landlord can often be confusing. While there are many rewarding aspects to being an investor, there are also tax obligations to bear in mind.

If you are planning on letting a property in the UK, your rental income profits will be subject to income tax. This is fairly standard, however there are still many who don’t fully understand what this entails and what implications you may face should you not adhere to HM Revenue & Customs (HMRC) procedures. In order to avoid any penalties, a self-assessment tax return must be submitted annually to HMRC. Your profits will then be subject to tax at a rate of 20%, 40% or 45%, depending on your total income in that tax year.

There are ways in which you can mitigate some of your tax liabilities. One way is to ensure that you have deducted all the allowable expenses from your total rental income as you would only be taxed on your net rent. The list of allowable expenses is comprehensive and includes contents insurance, lettings agent’s fees, maintenance and repairs to the property and the cost of services. According to the Landlord’s Energy Saving Allowance, you could also reduce your tax bill by up to £1,500 by installing energy saving products. If you’re a landlord with multiple properties, employing an accountant may be beneficial to ensure you are making the most effective use of your tax allowances.

HMRC has strict procedures in place. These include timelines on notifying HMRC of new sources of income and deadlines on filing tax returns. Failure to comply could lead to tough financial penalties for you. For example, failing to notify HMRC of taxable rental income could result in a fine of up to £3,000. HMRC is aware of a large tax shortfall from landlords failing to register their property business. To address this problem, it has introduced the Let Property Campaign. For landlords who have failed to declare their correct rental income, the Let Property Campaign provides the opportunity to get their tax affairs in order. Reporting undisclosed income now, will mean exposure to penalties will be limited from 100% of the tax due, to a maximum of 20%.

For further information about tax requirements for landlords, visit the Warrener Stewart website here.

About our expert View all posts by this expert

Expert Ryan Lane
Ryan Lane Associate at Warrener Stewart at London
Ryan has worked in tax for over 18 years. He joined the Warrener Stewart tax department as a senior tax manager in 2012 and was promoted to the position of Associate Director in April 2014. Ryan works with several private clients as well as a growing number of owner managed businesses to advise on personal taxation, capital gains tax, inheritance tax planning and estate matters. He has gained his membership of the Association of Taxation Technicians and is also a member of the Chartered Institute of Taxation. In his spare time, Ryan enjoys refereeing on his local grassroots football leagues as a FA qualified referee and spending time with his young family.

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