What are Residential Landlord Tax Rates?
What are residential landlord tax rates? Being a landlord can come with lots of administration and what can seem like an endless amount of things to sort out. You usually have to sort out a new mortgage, make sure the property is in a good state, find out what kind of insurance policies are out there to suit your need, find good tenants and maintain a good relationship with them and much, much more.
What are Residential Landlord Tax Rates?
At its core, being a landlord is the same as owning a business. Therefore, the administrative steps you’ll have to take will depend on what sort of business you’re running. Even if you own just residential properties, there are all sorts of variations that need to be dealt with and boxes you need to make sure you have checked correctly. Things can get even more convoluted if you’re letting your properties for commercial use, where the possibilities are many. If you’re bold and able to stay on top of things well, you may even have a mixture of properties used for residential and commercial use.
Do Residential Landlord Tax Rates Apply to Me?
If you’re only just dipping your toes in the water of landlord management for the first time, then it’s worth getting yourself familiar with things such as ‘allowable expenses.’ You must register as a Self Assessment taxpayer if you live in the United Kingdom also. Sorting out all of your taxes doesn’t have to be some dreaded ordeal, but it is essential to find your position and what is legally expected of you.
How Much are Residential Landlord Tax Rates?
The exact amount of tax you have to pay will depend on a few things. One of the many factors is how exactly your property is rented out. Even if you’re receiving the same amount of rent from two different properties, the tax laws may differ if the tenants are using them for two completely different things. However, when the rental income is different, your landlord tax rates will change accordingly, with the amount you owe increasing as the amount of income you have goes up.
The Importance of Residential Landlord Tax Rates
Now, allowable expenses aren’t something that you want to brush by. These are essential costs that legitimately come from your pocket every year, and the government will recognise these expenses and reduce your tax accordingly the more you’ve had to fork out. Knowing what things count as allowable expenses can give you a bit of extra freedom. You no longer need to hold off on repairs and important but expensive accounting responsibilities.
You can instead act quickly on these tasks in the knowledge that the taxman will give you a relative break for the sums you’ve had to pay out to maintain your properties. After all, it’s only fair that if you are taxed more for the more you earn, your taxes are also decreased for the more expenses you have.
This isn’t a complete list, but the following are just some of the allowable expenses that you should make sure you note down when you spend money on them (and keep the receipts) so that you can make the most of the tax break when the day comes around:
- Landlord insurance
- Accounting fees
- Domestic services such as gardening
- Utility bills such as electricity, gas, and water
- Interest on mortgages that you’ve taken out
- Agent fees
- Council tax
- Ground rent
- Legal fees related to renewing or signing a lease
- Many other costs directly associated with renting out a property
Your net income is the core number used to work out how much tax you owe. This is easily worked out. Calculate your total income and, from that, take away all of your allowable expenses. The number that you get will be used to calculate how much you need to pay. This is why it’s worth closely tracking your allowable expenses as the more you record, the more you can reduce your net income and, therefore, how much tax you owe.
In some cases, you may also have a renewals allowance or wear and tear allowance, which can also be deducted from your total income to find what your net income is.
For better or worse, HMRC (if you’re based in the United Kingdom) will treat all of your properties as one business when it comes to taxes. Many people are fans of this since it streamlines the process and means you don’t have to keep on top of loads of different tax forms at once (or at least more than you otherwise would).
Many landlords also take this approach to their insurance. Whilst it is possible to take out landlords insurance for each property separately, most people find that this, again, is far too much hassle. Instead, many landlords opt for portfolio insurance or multi-property insurance, which bundles all of your property into one business and makes staying on top of your admin a lot easier.
It is important to remember that the rules are slightly different if you’re planning on renting out a floor or a furnished room in your own flat or house that you live in. In the United Kingdom, there is currently a Rent A Room scheme. This allows you to earn up to £7,500 a year (from that rental) tax-free. If your rental earnings remain below that level, then you won’t even need to complete a tax return. It is essential to clarify that this is only for resident landlords.
Not everyone landlord can benefit from this. So don’t make the mistake of thinking you get this tax break if you’re renting out a flat in the next town from where you live, or you could find yourself in big trouble with the taxman.
Residential Landlord Tax Rates – To Conclude
In conclusion, the important thing is to track your income and expenses closely throughout the year to make sure you stay on the taxman’s sunny side and so that you aren’t ever paying more than you should do. Things can be relatively easy to stay on top of as long as you note things as needs are.
Find out more about the importance of insurance here.
Other useful links about Business Insurance:
Building Insurance for Landlords
Landlord Contents Insurance
UK General Landlord Insurance
Remember to Compare Your Business Costs is here to help your business every step of the way from business advice, or saving you time and money on your business purchases such as: