Landlord Self Assessment Checklist
Landlords including those people renting out a room in their property using the Rent-a-Room scheme need to keep detailed records of their income and expenditure to prove to HMRC that they are paying the correct amount of tax on their profits.
If you let the property through an agent they will provide you with a statement showing all income and expenses that they have tracked but of course there will be some information that they will not have such as your mortgage payments, visits you have made to the property, repairs and ad-hoc expenses you have incurred.
Below we outline best practice with regard to the information you need to keep and pass to us so we can complete your self assessment for you and help advise you properly so you pay the correct and least amount of tax that you should.
- Your rental income needs to be recorded clearly, per property and shown gross ie before any agent fees and other deductions they might have made.
Interest and Finance Charges
These charges and fees can be declared as revenue expenses if they were incurred to obtain money and insurances for the properties that you let out:
- Mortgage interest – often the big one . Remember though, if your mortgage is a repayment, then we can only claim the interest so it is important to ask your mortgage provider to give you a mortgage statement clearly breaking out the interest covering the tax year period. Sometimes the lender will give a statement covering a calendar year instead so you should ask for the missing months. The banks should not charge you for this and indeed the information is often available though your online banking.
- Bank charges – if you use a dedicated bank account for tracking the income and expenses you can claim any bank charges incurred.
- Overdraft charges
- Credit cards
- Mortgage arrangement fees
- Loan arrangement fees
Accountancy, Legal and Professional Fees
If you use us for your property business or you incur legal fees due to property and tenant disputes, you may claim these as revenue expenses:
- Accountants fees related solely to the property business – your Self Assessment charge itself cannot be claimed
- Bookkeeping fees
- Letting Agent fees – normally detailed on their statement but do double check them as often items get duplicated or missed off.
- Other agent deductions – again normally detailed on their statement and again double check them.
- Legal fees for tenancy matter including evictions and disputes.
- Debt collection fees for collection of missed rent etc
Insurance and Service Charges
Service charges made solely for your rented properties or solely for the benefit of your tenants are tax deductible, including:
- Insurances – you might have buildings and contents insurance (often the tenant pays for their contents cover) along with Public Liability Insurance but you also might have various landlord insurances that cover empty periods or malicious damage, boiler repairs or further legal cover and these are all claimable.
- Ground rent – normally if the building is a leasehold then there will be a (possibly) nominal ground rent which can be claimed as a cost.
- Utility bills – normally the tenant will cover all gas, electric, water and Council Tax bills, but if the property is empty and you pay the bills, or the agreement is that you as landlord pay these, they can certainly be claimed with no problems.
- Gas Safety Certificates
- Landlord licences (where applicable)
- Wages for gardners and cleaners if they are in the rental agreement and only used for the rental properties
Advertising and Marketing
If you are advertising vacant properties then all advertising andmarketing applying to your rental properties is allowed, for example:
- Newspaper advsrts
- mails shots
- Hosting and maintaining a website
- any other online advertising
Motor and Travel Expenses
Examples of travel and motor expenses are:
- Motor costs – normally it is easiest and best to claim the accepted HMRC 45p per mile which can be claimed for both there and back.
- Air fair for foreign property visits
- If you are required to stay away overnight you can claim for hotel and food costs as well
- This is not often claimable apart from with foreign properties
and they can be claimed for the following purposes:
- Visiting the letting agent
- Tenant visits
- Accountant visits
- Solicitor visits
- Property maintenance – collecting materials as well as visiting the property
Repairs and Maintenance
We need to be aware of what is a repair and therefore claimable each year and what is “betterment” and is only claimable against any Capital Gain when you sell the property.
- Repairs and maintenance – make sure you keep receipts for even trivial amounts eg light bulbs as they do add up and will save you tax. Ensure to put in large repairs as well such as repairing the roof or replacing windows but depending on the nature of these larger expenses, sometimes we cannot claim it in that tax year and have to claim it when you sell the property. We can of course advise you when you can claim should this be the case. In this section, you should also include items such as yearly electrical and gas checks and reasonable gardening costs where provided by the landlord.
- General labour
- Skip hire
If you run your properties from home you can claim certain office costs provided they are used solely and exclusively for running your business.
- Landline and mobile costs
- Stationery costs eg paper, stamps, printing
- Technical books and publications you buy that are relevant to your property business
- Fax machine costs
- Internet costs
- Small computer equipment including property management software and accounts packages
You should be very careful claiming any of your household bills and take good advice in this area.
You can claim revenue expenses for the replacement of furnishings in your rental properties on a like for like basis. You must have incurred a cost for replacing the item and it must not be considered a betterment. Examples of what you could claim for:
- Any movable furniture eg wardrobes, shelving units, bookcases
- Furnishings such as carpets and curtains
- Household appliance eg cookers, fridges, freezers, televisions and other electrical items
- Kitchenware such as crockery and cutlery
Education and Training Costs
If you do any training relevant to your property business, you can claim the following:
- Training costs
Any other expenses incurred in letting out the property – let us have them and we can let you know if you are able to claim them!
Things you can’t claim!
- The capital repayments of any borrowings, you can only claim for the interest not the capital repayments
- Any fines you incur, regardless of their relationship to your business, cannot be claimed as expenses, that includes things like traffic fines and government fines
- Anything used for non-business purposes, so you can’t claim your own home repairs and improvements as expenses on your tax return because they are for personal use
- The legal costs associated with buying a property (except the legal fees for arranging a mortgage)
- The costs of settling tax disputes or fines
- Entertaining of customers, suppliers or hospitality at events
We need to report any other income as well as from April 17 tax relief on mortgage interest is changing for higher rate taxpayers and being phased in over 4 years.
Therefore we will need your P60 and details of any other income and benefits you might receive so we can check if you are affected by the changes.
The Rent-A-Room scheme is a simplified scheme that ensures a lot of casual landlords are not taxed and fall outside the scope of the tax regime.
For full details please see here, but in summary if you earn under £7,500 from renting out one or more furnished rooms in your main residence then you do not need to report anything at all.
However, if you earn over £7,500 rental income you must report it but we can help you choose the most appropriate methodology to calculate your tax liability and ensure your tax bill is as low as possible.
Remember the threshold is split between you and a partner if the income is split between you.
Method 1 – Pay tax on your actual profit
This means we look at your income, calculate your costs incurred and work out your profit and you pay tax on this profit.
Claimable expenses would include repairs and maintenance on the rented rooms (not the whole property), mortgage interest (again proportioned for the number of rooms rented out), utility bills such as gas/electric/water/insurances and Council Tax (again all pro-rated).
If this creates a loss it can be very useful to roll it forward against profits in the following year.
Deciding the mechanism to apportion expenses is unclear but an accepted method would be to divide the expenses by the total number of rooms (include bedrooms, bathrooms, living and dining rooms, kitchens and conservatories) and multiply by the number of rooms being rented out (usually one).
Method 2 – Pay tax on your gross receipts over the threshold
This simple method simply knocks the threshold off the gross income and ignores any expenses and you are taxed any the balance left. Remember that the threshold is split if the income is shared between you and a partner.
Please note you do not have to use the same method each year so it can mixed and matched as it suits you which is very helpful.
Summary of Mortgage Interest Relief Changes
Mortgage Interest Relief changes are designed to reduce the amount of relief that higher tax paying individual landlords can claim on any mortgage interest payments whilst renting out a residential property. Individual landlords paying Basic Rate Tax along with Limited Company landlords are not affected as for some reason this appears to be targeted at middle income and often “accidental” landlords.
This table shows the difference once the system has been fully implemented by the 20/21 tax year – in the interim it will change on sliding scale each year.
Previous System (16/17)
New System (20/21)
|Mortgage interest and other allowable costs can be deducted before calculating taxable profit||Mortgage interest can’t be deducted before calculating taxable profit|
|Rental Income||£10,000||Rental Income||£10,000|
|Mortgage Interest||£5,000||Other Costs||£2,000|
|Other Costs||£2,000||Taxable Income||£8,000|
|Taxable income||£3,000||Tax due at 40%||£3,200|
|Tax due at 40%||£1,200||Mortgage Interest Relief (20% of £5,000)||£1,000|
Buy to Let Profit
Buy to Let Profit
All of this can unfortunately appear to be very complex and difficult – remember we are here to help you find your way through this ever changing minefield.
Obviously you also need to report any other income you might have from self employment, employment and other investments etc so use our other Self Assessment Checklists to ensure you track all of your information properly and can claim all of your expenses.
General Tax Considerations
- Married couples or civil partners must split rental income and expenses 50/50 for tax purposes, unless the HMRC form 17 is completed.
- Non-married joint owners can split income however they like, this is usually done on a percentage of ownership basis.
- Any net losses can be carried forward into the next year, so if last year you made a loss of £1000 that amount becomes tax deductible and should be declared in your next tax return.
- Your property rental business begins from the first day any of your properties are actually let out. If you have secondary properties that aren’t for let yet, they are taxable too as your business begins when you let one property.
- We’ve said it many times in this checklist – any expenses you declare on your tax return must be because of expenses incurred wholly for business purposes!
Frequently Asked Questions
What is the Difference Between Revenue Expenses and Capital Expenses?
Revenue expenses mean that you’ve incurred expenses to make revenue. They are usually ongoing expenses like maintenance. Revenue expenses should be declared in your tax return.
Capital expenses are those you incur to increase your capital (namely the money tied up in your property). Capital expenses include things like renovations needed to make a property habitable or anything that increases the value of a property like the addition of an extension. Capital expenses should be declared when the house is sold. They can be deducted against the amount of Stamp Duty Land Tax payable.
What is the “Wear and Tear Allowance”?
Before 2016 you were able to claim a wear and tear allowance of 10% for furnished properties. This no longer applies and is instead covered by the replacement of domestic items expenses.
What is the difference between a repair and a betterment?
Where repairs are made to the property they must be done on a like for like basis.
This is in part due to the rules about capital expenses and revenue expenses.
Anything you do to better a property and increase its value is considered a capital expense. Capital expenses can only be declared as an expense if calculating Capital Gains Tax when the property is sold.
For instance, if you want to build an extension on a property that doesn’t currently have one, it’s considered a betterment. If you need to make repairs to an existing extension you can claim the expenses you incur. There are very few exceptions to this but the one that is most commonly cited is replacement of single glazing windows with double glazing. This is technically betterment, but it is seen as incidental, because the single glazed window is being replaced with the nearest modern equivalent.
What expenses can I deduct for replacing furniture and furnishings?
You can claim for replacing furniture and furnishings if:
- They were part of the property when it was let out
- An expense was incurred to replace them
- The new item is solely for the use of the tenants
- The old item is no longer available
- The replacement is on a like for like basis
If you want to replace an old item with a newer item, you can still claim a partial expense. For instance, if the tenant’s sofa needs replacing and you want to replace it with a sofa bed it’s considered a betterment. If a new sofa would have cost £300 but the sofa bed is £500 then you can only claim £300 as an expense.
Don’t forget, you can also claim any costs you incur to remove and dispose of the old sofa as expenses. If in three years time the sofa bed needed to be replaced again, you could claim the entire cost of the replacement sofa bed (if you’re replacing it on a like for like basis).
This is a pretty complex area so please feel free to call us to get advice on how to ensure you are fully compliant and claim all of the expenses that are open to you!