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.
- 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.
- 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.
- Insurances – you might have buildings and contents insurance (often the tenant pays for their contents cover) but you also might have various landlord insurances that cover empty periods or malcious damage, boiler repairs or further legal cover and these are all claimable.
- 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.
- 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.
- Legal and professional fees – these are generally claimable but we do need to understand exactly what the costs were for. Certainly any costs incurred on claiming unpaid rent etc are perfectly fine.
- 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.
- Travel costs – if you visit the property for general reviews and checks for the condition of the property you can claim for this travel. Normally it is easiest and best to claim the accepted HMRC 45p per mile which can be claimed for both there and back.
- 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.
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.