As the new tax year commences there are repeat warnings that HMRC are cracking down on tax evasion amongst residential landlords. As a consequence the Landlord Syndicate is offering advice to landlords on how to make their tax less taxing in the year ahead.
‘If you haven’t done so already, the first thing you need to do is register for self assessment,’ said Amer Siddiq, member of Landlord Syndicate and managing director of Tax Insider. ‘A tax return covers the period to the 05 of April each year, and needs to be filed online by the following 31 January so if you have been disorganised and not kept on top of what has been coming in and what has been going out over the last year, it would be a good idea to make a start now,’ he added.
There are certain expenses that can be deducted from your rental income to reduce your liability say the Landlord Syndicate, so landlords need to go over what they have spent over the last year and make sure they have receipts and relevant documentation. In order to calculate the tax owed, the rental income must be added to any other taxable income you earn. The rate of income tax charged will depend on your total income for the tax year, but there are a number of expenses you can offset against your tax liability for rental income.
For example, interest payments on the element of a loan or mortgage used to purchase the rental property can be deducted. Costs for repair and maintenance such as plumbing and gardening or like for like replacements such as double glazing for single glazing can also be deducted, but not improvements. If a property is let furnished a landlord can also offset wear and tear which is normally 10% of the annual net rental income.
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The Landlords Energy Saving Allowance (LESA) is a deduction for income tax purposes when energy efficiency investments are made to properties. It is open to all landlords who pay income tax and who let residential property until April 2015 – tax relief is for a maximum of £1,500 per property. Utility bills, buildings and contents insurance and council tax can also be taken into account as well as letting agency, management and accountancy fees.
There are also some additional costs which can include anything involved with letting the property such as phone calls, advertising, travel to and from the property and stationary costs. ‘If you really want to make life easier, ensuring good record keeping is key. Keep all receipts no matter how small, they all add up. Most importantly, set up a separate bank account so you can track what is going in and what is going out via your bank statements,’ explained Siddiq.