Work out your income and deductibles
Now you need to work out your income and deductibles. Albeit not the most riveting task, it’s vitally important to add up your rental income and any deductions for the given tax year. Deductions you can claim back include:
- Repairs and maintenance
- Replacement of domestic items (if you have items like wardrobes or beds in the property)
- Accountancy and agent fees (you can reduce these by renting without an agent)
- Landlord insurance
- Running costs e.g. cleaners or gardeners
As the savvy investors amongst you probably already know, mortgage interest is no longer an allowable deduction. On the plus side, you can claim a 20% tax credit on your mortgage interest payments.
Complete the landlord tax return
This is the final stretch. Next, you need to log into your personal tax account with your Government Gateway ID. You now need to click to submit your self-assessment and you’ll see a form – which is fairly easy to use. You’ll see a property segment, as well as sections for things like other income, dividends, interest, etc.
If these don’t apply to you, you don’t have to fill them out. Declare which sections you need to fill in, and the form adjusts accordingly. You’ll need to submit your rental income from UK land or property in the property section, including letting furnished rooms in your home, plus any income from furnished holiday lets.
How and what can you claim back on tax?
There will be a section on deductions and you should fill this out. You can claim back things like repairs. You can also claim back the 20% mortgage tax break. When spend isn’t considered an allowable expense, you may be able to claim the 'Wear and Tear allowance' which applies to:
- Moveable furniture, e.g. beds, wardrobes, etc
- Furnishings, e.g. curtains, carpets, etc
- Household appliances, e.g. washing machines, fridges, etc
For the relief to be applicable, the following must apply:
- The expense must be to replace a domestic item
- The old item must no longer be available to use
- The new item must be for the exclusive use of the tenants at the property
- Where a new item is an improvement, you can only claim relief on the cost of an identical item. For example, if you replace a washing machine with a washer-dryer, and the washing machine would have cost £300 and the washer-dryer cost £450, you can only claim relief on £300.
Once all online form sections are complete, you can go back and make changes or go ahead and submit it. If you are only adding your property income, you’ll have a good idea of how much tax you will need to pay. Find a way of budgeting that suits you. You could try and plan ahead by keeping part of your monthly income aside each month for your tax bill. If you can’t afford to pay your tax bill on time contact HMRC to discuss the support they can offer you. And if you are in any doubt or need help with your tax return, speak to an accountant or tax specialist.