With such a high level of demand for rental property in South London, it is easy to see why some people would hold an interest in acting as a landlord. However, there are many responsibilities with this role. It is therefore essential that landlords understand what they need to do to comply with all rules and regulations and this is why Oaks Estate Agents has provided you with a quick guide to landlord tax implications and responsibilities.
Paying Income Tax
As a landlord, you are required to inform the HMRC that you are operating as a landlord and that you may be due to pay income tax. A failure to pay this income tax can result in a penalty.
As a landlord, you are eligible for allowable expenses. Allowable expenses relate to charges that you spend on the everyday running of your business and can include:
- Letting agents fees
- Accountancy fees
- Repair and maintenance
- Council tax bills
- Utility bills
It used to be that landlords could claim 10% of the rental fee for “acceptable wear and tear” but this is no longer the case. As of April 2016, landlords are only able to deduct expenses that have actually incurred.
A landlord who is making more than £5,965 in profit a year will also be due to pay Class 2 National Insurance tax.
Landlord tax relief changes
Another change in recent times with respect to taxation has been the change with respect to tax relief. This has been capped at the basic rate of tax, which is 20%, and this process is currently being rolled out.
As of 2017/2018, landlords are restricted to 75% of finance costs with respect to deductions from property income while the remaining 25% is available at the basic rate of tax. This will evolve year on year until 2020/21 when all of the financing costs that a landlord incurs will be taken at the basic rate tax deduction.
Landlords who were on, and remain on, the basic rate of tax will not be affected by this change but everyone else will be.
Stamp Duty Land Tax
In April 2016, new regulations saw anyone buying an additional property being required to pay an extra 3% in stamp duty land tax.
Capital Gains Tax
If a landlord sells a property that has increased in value, they will have to pay Capital Gains Tax, or CGT. This tax is only eligible to be paid on property that is not the main residence of the owner and it is calculated by deducting the purchase price from the selling price.
It is important to be fully aware of the tax implications facing landlords but help is available. If you are a landlord looking for guidance in and around South London, come and speak to Oaks Estate Agents and we will be happy to help you anyway we can.