If you are a Landlord collecting rental income then you will need to pay tax on any profit you make from your Buy to Let property. Your profit put simply is the amount you make after you deduct allowable costs from the rent you receive. The amount of tax you pay will depend firstly on how much you make and secondly, your personal earning circumstances.
Let HMRC Know
If you haven’t already, then you must let HMRC know that you are earning money from renting out a property. You should do this by the 5 October following the tax year you started receiving rent. A tax year runs from 6 April to 5 April. For example, say you begun receiving rental income on 31 January 2017, then you should let HMRC know about this by 5 October 2017 so you submit a tax return and pay tax on these earnings by 31 January 2018.
You can let HMRC know online here, just choose the right option for you.
Self Assessment Tax Return
You will now be required to submit a tax return by the 31 January each year, notifying HMRC of the ALL of money you earned in the tax year, including your rental profits as a landlord.
How to Work out Your Rental Profits
The first step is to add up the amount of rent you have collected from your tenants. This will typically be the amount the tenant agreed to pay in accordance with their tenancy agreement, but it may include anything else you needed to charge them for such as:
- the use of furniture
- charges for additional services you give such as:
- cleaning of communal areas
- hot water
- repairs to the property
Deduct Your Allowable Expenses
To work out your taxable rental profit you can deduct the expenses you incurred maintaining your property while it is rented out. These expenses must be Wholly & Exclusively for the purposes for renting out the property here are some common examples
- general maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
- water rates, council tax, gas and electricity
- insurance, such as landlords’ policies for buildings, contents and public liability
- costs of services, including the wages of gardeners and cleaners
- letting agent fees and management fees
- legal fees for lets of a year or less, or for renewing a lease for less than 50 years
- accountant’s fees
- rents (if you’re sub-letting), ground rents and service charges
- direct costs such as phone calls, stationery and advertising for new tenants
- vehicle running costs (only the proportion used for your rental business)
- a portion of your mortgage interest (although the amount of tax relief you can claim is reducing until it is removed in 2020 though)
Find out more about Tax Allowable Expenses for Buy to Let Landlords here.
Next: How to Calculate How Much Tax You Pay