Top tips for completing your tax return …and what to consider before 28th Feb 2022
Income from a rental property is taxable, and needs to be declared! This is especially important (and might be scary) if you have always paid income tax through PAYE and have never completed a tax return.
But don’t worry, Thornley Groves are here to help you!
The deadline for submitting your self-assessment tax return online is 28th February 2022 so it’s something to consider soon. Earnings under £1000 are tax-free (forming part of your ‘property allowance’) and do not need to be reported to HMRC, but all earnings over £1000 must be declared. Remember, you must register for online self-assessment by the end of October of the first year you start collecting income from a rental property.
STEP 1: Prepare your income and expenditure over the tax year (including 6th April 2020 – 5th April 2021)
Collect your paperwork so that you have a detailed breakdown of all the rental income you collected throughout the tax year. This could be in the form of individual monthly statements, or you may be able to get an annual report- forming the basis of your income section. If you are a current Thornley Groves landlord and need these statements, please speak to your Property Manager.
Click here to see our guide to Landlord Statements.
Slightly trickier is the expenditure section.
So what can you claim for? It’s easiest to breakdown your expenses over the year into the following:
- Insurance cost (buildings, contents, rent insurance)
- Ground rent if applicable on lease hold
- Council Tax paid if property empty (rates)
- Utility Bills if empty
- Repairs and Maintenance Costs – any costs associated with fixing something that was broken are allowed – so the broken tap washer repair is allowed, the boiler repair is allowed in full- but be careful! Something that has just been upgraded, not ‘fixed’ may be deemed as a capital expense rather than a repair (more on this later)
- Legal fees or costs associated with the rental property
- Agency fees, see our fees breakdown here
- Factoring or service charge costs
- Wages associated with the property rental (if any)
- Your costs for travelling etc to the property can be offset too
Can I offset my mortgage finance costs?
You’re able to claim tax credit for 20% of the interest element of your mortgage payment- so if the interest element is £400 per month, you can claim £960 credit (£400 x 12 = £4800 – 20% of this is £960). Find your mortgage paperwork and work out which element is repayment and which is interest.
Repairs versus Improvements – what’s the difference?
Only things deemed as a repair, not an improvement, would be a capital allowance that could be claimed for as an allowable expense on a rental property (which you would claim for when you sold the property). So replacing a washing machine or replacing a boiler with a similar type is fine and can be claimed for.
However, you could not claim for an extension you added on that year for example- that would be a capital allowance. You’d be more likely to be on shaky ground if you bought bespoke marble worktops replacing the cheap laminate ones and claimed for the full amount. It’s about replacement versus improvement. Things like windows are interesting, you can now claim for replacing a faulty single glazed window unit with a double glazed one – as double glazing is now ‘the norm’ and it is not seen as an improvement.
All records need to be kept for 5 years, so make sure you are organised and keep your records tidy!
Speak to one of our team today to receive your monthly statement- call Property Management on 0161 245 1111.