It is easy to get caught up and forget about your tax implications, when you first become a landlord. Your main goal is to find a property that can generate consistent tenancy demands and cover its mortgage repayments through rents.
Yet when this is all said and done – what are your tax implications as a landlord?
Will I have to pay Income Tax?
This will depend on how much profit you make as a landlord and if you are letting a room out in a property you live in.
Generally, like all self employed positions, you will first need to inform the HMRC that you are working as a landlord so they can register you for self assessment. Once registered, they will allocate you a login and password which will allow you to complete your self assessment online at the end of each tax year.
Now, if being a landlord is your sole job, then the amount of Income Tax you will have to pay will depend on whether you exceed your personal allowance. If you exceed it, you will have to pay tax.
(Note: if you are renting a room in the house you live in, you may be able to take advantage of tax allowances and incentives that can lower the amount of tax you pay).
If on the other hand, you have turned to property letting as a supplementary income to your current job, then the amount of Income Tax and National Insurance you pay will be affected by the following:
Employed – you will pay any Income Tax and Class 1 NIC due through PAYE.
In terms of Income Tax, the HRMC will combine: your 2 salaries; will take into consideration the amount of tax you have paid on your employed job and will base your Income Tax on how much you exceed your personal allowances.
Note: if you make profits of over £77,000 a year you will have to register for and pay VAT.
Making taxes easier…
Entering into a new profession, becoming self employed or using property let’s as a supplementary income doesn’t have to make your tax responsibilities more stressful.
True, you will have to keep a clear record of all your in goings and out goings in relation to your property(s), but with the right preparation and tax advice, you can successfully manage your taxes and ensure you are not paying too much.
For instance, employ the help of a chartered accountant, and not only can they provide industry advice on the best ways to expand your property portfolio and keep it profitable. With their support they can reduce your tax liabilities, ensure you access the right reliefs and more importantly ensure you complete your self assessment correctly and on time.
So if you are considering becoming a landlord, simply remember to bear the above information in mind and enlist the help of an accountant to ensure you are never over taxed.