Landlord tax consideration

If you're a landlord, you will already know that renting out a property can be a great way to earn money, but you will also know that with any income, taxes will inevitably follow. Here we provide a bit of advice on some of the taxes you are liable to pay as a landlord.
Types of tax
There are a number of different types of tax you'll need to pay attention to. Legislation is always changing, but some of the main taxes to consider are National Insurance Contributions (NICs), Income Tax and Capital Gains Tax.
Income Tax and NICs are paid annually based on the income you make from renting out your properties. To pay your Income Tax and NICs you need to register for Self Assessment and complete a tax return each year. The deadline for submitting your tax return for each financial year is usually October 31st for paper tax returns and January 31st for online tax returns, and the deadline for paying the tax you owe is usually the January 31st. To fill in your tax return you'll need:
  • information about all the income you've received throughout the tax year
  • information about allowable expenses you want to deduct from your tax return (such as insurance, running costs and repairs)
  • your unique taxpayer reference number, which is assigned to you when you register for Self Assessment.
National Insurance Contributions (NICs)
You have to pay Class 2 National Insurance if your profits are over £5,965 a year and your landlord activity counts as running a business. For example, you may be renting out multiple properties as your main job, as well as buying new properties to rent out. If your profits are under £5,965, you can make voluntary Class 2 National Insurance payments.
Income Tax
Every UK worker is given an annual personal Income Tax allowance, which changes over time. The personal allowance for 2017-18 is £11,500. Above this threshold, Income Tax must be paid on the earnings.
As a landlord, you are taxed on the profit you make once you have deducted the allowable expenses associated with looking after your asset(s). If you have more than one UK property, you will need to assemble the income and expenditure details on all of them and treat them as one business. If you make profit from overseas property, or if your property is commercial furnished holiday accommodation in the UK or European Economic Area, there are other rules to consider and the profit and loss must be calculated separately.
Capital Gains Tax
Capital gains tax only needs to be paid when buying or selling a property. Any profit you make from selling a property is called a 'capital gain', and it’s calculated on the difference between what you paid for your asset and how much you sold it for (minus the transaction expenses).
There are some exemptions. For example, if the property is your main residence then you don't need to pay Capital gains tax. Plus, if your total income (including the profit you make on the sale of your property) falls below the Income Tax threshold, then this is tax-free. For more information on your tax liability as a landlord, visit the HMRC website.
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