How to Get Started with Self-Assessment for Landlords

If you're a landlord, self-employed, or a sole trader, chances are you’ll need to file a self-assessment tax return. Navigating tax obligations can seem daunting, but it’s a straightforward process with the proper preparation.

Jashoda Pindoria from HM Revenue and Customs (HMRC) outlines what you need to know to stay compliant and avoid penalties.

What Is Self-Assessment?

Self Assessment is the system HMRC uses to collect Income Tax from those whose income isn't automatically taxed, such as landlords, self-employed professionals, and sole traders. You’re required to declare all income from the 2023–2024 tax year (6 April 2023 – 5 April 2024) by filing a tax return and paying any tax owed.

Do I Need to Submit a Tax Return?

As a landlord, you must submit a Self Assessment tax return if:

• You receive a rental income of over £1,000 per year.
• You receive untaxed property income, including renting out a room in your home through the Rent a Room Scheme (which allows you to earn up to £7,500 tax-free).

If you’re unsure whether to file, use the ‘Check if you need to send a tax return’ tool. Answer a few simple questions to help you determine your obligations.

How to Get Started

If this is your first filing, you must register for Self Assessment by 5 October 2024. HMRC provides YouTube tutorials to guide you through the registration process.

Once registered, HMRC will issue your Unique Taxpayer Reference (UTR), a 10-digit code to complete your tax return. Keep it safe, and remember, you can always access it via the HMRC app.

Key Deadlines

• 5 October 2024: Deadline to register for Self Assessment.
• 31 January 2025: Deadline to file your return and pay any owed taxes.

What Should Landlords Include on Their Tax Return?

As a landlord, you must declare all rental income, even if you only occasionally rent out part of your home or property. You’ll also want to report expenses, many of which can be deducted to lower your tax bill. Here's a breakdown of some key areas:

Income

You must report all income from renting out property, whether residential, holiday lets, or commercial. Even if rent is paid in cash, you must declare it.

Expenses

You can deduct many allowable expenses directly related to running and maintaining your rental properties. These might include:

• Mortgage interest payments (up to specific limits for residential properties).
• Repairs and maintenance (e.g., fixing a broken boiler or repairing roof damage).
• Property management fees if you use a letting agent.
• Ground rents and service charges.
• Utility bills if they’re part of your rental agreement.
• Landlord insurance.

Tip: Keep detailed records of all receipts, invoices, and contracts. If HMRC requests evidence, you’ll need these to support your claims.

Depreciation & Capital Expenses

While general repairs are deductible, improvements (such as a new extension or adding a conservatory) are considered capital expenses and can’t be claimed as an immediate deduction. Instead, these may be factored in when calculating Capital Gains Tax (CGT) if and when you sell the property.

Financial Tip for Landlords: Maximise your deductions by keeping track of replacement relief for items like furniture and appliances in furnished properties. For example, if you replace a sofa in a furnished rental, you can claim back the replacement cost, but not for the initial purchase.

What if I Have Other Income Sources?

Many landlords have other income sources, such as employment or additional self-employed work. Be sure to include all taxable income in your Self Assessment, including:

• Income from PAYE employment, for which you may already have paid tax, still needs to be reported.
• Self-employment income, including profits from side businesses or consultancy work.

You’ll also need to account for other income, such as dividends, savings interest, or capital gains.

What if I Get My Return Wrong?

If you're worried about making mistakes on your tax return, remember HMRC provides a range of tools and resources:

• Live and on-demand webinars to guide you through specific areas, including property income.
• Tax calculators to help estimate what you owe.
• Digital tools and HMRC’s digital assistant are available 24/7 for basic queries.

Financial Tip for Landlords: Consider using an accountant or tax advisor, especially if you own multiple properties or have complex finances. While there’s a cost involved, a professional can often help you claim deductions you may have missed and ensure you stay compliant.

How to Pay Your Tax Bill

You can pay your tax bill in various ways, including the HMRC app. If you cannot pay by the deadline, you can apply for a Time to Pay arrangement to spread payments over time. This option is available if you owe less than £30,000 and request the arrangement within 60 days of the payment deadline.

Tip: Setting up a Budget Payment Plan can also help you spread the cost of your tax bill throughout the year, easing the financial burden in one go.

Do I Need to File Again Next Year?

If you continue to rent out property or earn income requiring you to file a self-assessment, you must complete one yearly. If your circumstances change—such as selling a property or stopping renting it out—you can inform HMRC that you no longer need to file.

Ignoring a letter from HMRC about self-assessment could result in penalties, even if you think you have no tax to pay. Always check your obligations using the Self Assessment tool.

Final Reminders for Landlords

• Keep thorough records of rental income and expenses.
• Make sure you understand the difference between allowable expenses and capital improvements.
• Stay on top of tax deadlines to avoid penalties.

Self-assessment doesn’t have to be a hassle; with the proper preparation, you can maximise your tax efficiency while staying compliant.

Additional Financial Tip: If you’re considering selling a rental property, remember that you may be liable for Capital Gains Tax on any profits. You can reduce your CGT bill by offsetting it with allowable costs, such as legal fees and the property's original purchase price.