As Accountants in Dunfermline we meet many landlords who rent houses not only locally but also nationally.
This gives us a massive insight on what is and is not working for local landlords and as local accountants in dunfermline we are keen to share these insights with you.
OnTax Accountants In Dunfermline Discuss:
An Overview Of Being A Landlord
Fun & Profitable
Have you had the opportunity to rent out a house but are unsure if you should? Do you fancy the idea of investing in a rental property? Is being a landlord still viable from a tax perspective? Luckily OnTax accountants in Dunfermline can help you to come to a well thought out decision.
Having the possibility of buying, maintaining and even visiting your pension is the aspiration of many.
In today's uncertain world, many feel investing in bricks and mortar is the most stable of investments that they should consider. As Accountants In Dunfermline, OnTax can advise and help you reach a decision in which you are confident.
If you like to get involved in projects then perhaps being a landlord might be the right thing for you. It will give you the opportunity to alter a property to your liking as well as earning a good return on investment in the process.
Demanding Yet Rewarding
Being a landlord can be very rewarding (make no mistake though, it can easily go the other way!). By renting out a property you are almost guaranteed a monthly income from the rent the tenant will be paying you for staying there.
As most accountants in Dunfermline will tell you, there are huge gains to be had but not without a few risks being involved. You need to be aware of both sides of the equation before proceeding.
You are likely going to be kept busy with maintenance and safety at your property, as well as dealing with any issues that arise.
Bear in mind that there are so many legal requirements you have to comply with that even hiring the people to help you comply will keep you very busy.
Risks & Rewards Of A Landlord
Registering With HMRC As A Landlord
Registering with HMRC as a landlord is the same thing as registering for self-assessment.All that is required is a few personal details such as your name, address, date of birth, national insurance number and the date you commenced.
These details then form the basis of your registration with HMRC. OnTax Accountants in Dunfermline will happily help you with this.
Once HMRC has completed their checks and registered you for self assessment, they will then send you a confirmation letter. This letter will advise you of your 10 digit "UTR". This expression stands for "Unique Tax Reference".
You need to then forward this number to OnTax Accountants In Dunfermline. We will then use this to submit data to HMRC.
We will then undertake the registration process with HMRC on your behalf. The registration process can take from 7 days to many weeks depending on how busy HMRC are.
It is important to understand that besides registering with HMRC as a landlord you may well have other registrations that require to be undertaken such as registering with your local council as a landlord.
Now that you are registered with HMRC for self-assessment you have a new obligation! You must now complete and submit an annual tax return until they tell you otherwise or your circumstances change.
Of course, using ourselves to undertake this task will make your life so much easier, allowing you to focus on what really matters.
Inspiring Thoughts For Landlords
"High Demand Items With Low Supply Always Appreciate - Buy Property!"
"Landlords Grow Rich In Their Sleep"
"Every Property You Buy Is Creating A Better Tomorrow For You"
"Half The Battle is In The Mind - The Rest Is Opportunity You Create"
Legal Responsibilities Of Landlords
Most accountants in Dunfermline will go beyond their role of being your tax advisor and give you some basic pointers on the legal commitments you will need to abide by. Some of these commitments are legal requirements which you will have to bear. Some legal requirements you will need to comply with are detailed a little more below:
Tenants deposits need to be transferred for safe-holding to an approved tenant deposit protection scheme to ensure that the tenants deposit is not put at risk by unscrupulous landlords.
You will be expected to prepare a tenancy agreement for the tenant you rent a property out to. The agreement will confirm the amount of rent the tenant has agreed to pay each month as well as the length of the agreement and possibly even if pets are allowed in the property. OnTax Accountants In Dunfermline can even help you by providing an AST to you.
Gas Safety Certificate
You will be required by law to ensure that you have an inspection once a year by a registered gas engineer to make sure that the gas supply in the property is up to standard. You must also fit smoke alarms and a carbon monoxide detector.
Electrical Safety Certificate
You will also need to make sure that each time a tenant moves into your property, the electricity supply in the house is safe. The person who carries this test out must know what they are talking about and perhaps be at least part qualified as they will need to know if the electrics in the house are up to the legal standards.
An energy performance certificate should always be available to a tenant, it is the law to have one of these for your property and it should be up to date.
In order to protect both yourself and your property you should ensure that you have the correct insurance in place. You will need landlord insurance and property insurance to do this. OnTax Accountants In Dunfermline can recommend a good insurer for this.
Not enough landlords are aware that legally they must undertake a Legionella risk assessment at the rental property. Being a landlord involves complying with much legislation and being aware of all the laws that must be complied with. This is one of the lesser known ones!
We Specialise In Landlord Tax Returns
Landlords And The Taxman
If you are a landlord you will be required to submit a personal tax return once a year with HMRC. Although there are circumstances under which a tax return does not need to be submitted, we always advise that you do this to ensure your maximum future advantage.
Capital expenses are rarely tax deductible during ownership. An expense is classified as a capital expense when you upgrade something in the property, or when you add something to the property. The initial purchase of furniture and equipment for the property is considered a capital expense too. These items are dealt with on disposal of the property at which point they reduce your CGT.
How much tax you pay will depend on the profit you make from your property as well as your personal circumstances. The profit made on the property is worked out by taking the rental income you received and subtracting tax deductible expenses. Tax deductible expenses can help to reduce your tax bill but do seek the guidance of your accountants in Dunfermline to ensure this is done correctly.
Tax Deductible Items
Below is a list of some expenses that most accountants in Dunfermline would be tax deductible:
- Water, rates, council tax, electricity & Insurances
- Mortgage interest (being phased out for non-limited landlords)
- Letting agent fees/management fees & accountant fees
- General maintenance and repairs
Be A Successful Landlord
We'll Support And Help You Every Step Of The Way...
30 Years Commercial & Accounting Experience. I'm also a published author on property investment techniques (The book was previously sold in W H Smith) and used to head up a property acquisition venture. You're in safe hands!
Advantages Of Being A Landlord
Fund A Pension Pot
As a landlord you will have a monthly income coming in from any tenants you have, (assuming your tenants pay on time).
This money, whilst used to pay the bills on the property will also pay the mortgage. Although, as all accountants in Dunfermline will advise, this is being phased out over a 3 year period by HMRC.
Therefore it is almost as if the tenants are paying into your pension pot for you, with you doing little work in the background to benefit from this.
It is more than likely that while you are renting your property out to the tenant your property is appreciating in value over time.
Bearing in mind that likely you put in up to 25% as a deposit, you are getting the return on the full 100%.
In effect this means that for every £25 you invest, you get the interest (or appreciation) on £100. Not bad at all!
One aspect not often thought about is that of capital appreciation and how it can be used.
To illustrate: You buy a house for £100K, putting £25K down as a deposit. In time the house appreciates to £130K.
At this point, you could re-mortgage for to 85% of the property value i.e remortgage for £110,500. As the previous mortgage was for £85K then mortgage company will forward to you £25,500. This is the return of your deposit, possibly for further investment in property number 2!
Any Dis-Advantages To Being A Landlord?
When you are a landlord there is always the risk that the tenant you have might not pay their rent.
Even if you think you have a really good tenant there is no guarantee that they are going to always pay their rent, whether they pay it late or not at all.
Aside from the worry of a tenant not paying is the risk that you might struggle to actually get a tenant.
You are not always guaranteed to have someone in your rental property and therefore while it is sitting vacant you are going to be losing money on it because you will still have to pay the mortgage and other such expenses.
Being a landlord can be a very time-consuming job.
This is due to the fact you will have to deal with contracts, tenants, any issues, repairs and maintenance as well as ensuring you pay your tax on time.
It is likely that you will have regular payments you will be required to make on your rental properties. Such costs might include property insurance, landlord insurance, the cost of gas safety certificated and the cost of other such repairs.
Administering these things can seriously eat up your time!
As a landlord you should also know to some extent the legal procedure involved in evicting a tenant.
For example in the case of a tenant not paying you rent for a substantial period of time and you have tried to get them to pay then you have a right to serve an eviction notice but there is a procedure you must follow in doing so.
You can end up being held responsible for the behaviour of your tenants. If any tenants act in an antisocial way then you will be responsible for ensuring they don’t do it again, if you don’t make an attempt to stop the antisocial behaviour then you could be issued with an antisocial behavioural note.
Mortgage Interest Not Tax Deductible
New legislation has been brought in that means mortgage interest will soon no longer be tax deductible for individuals. Limited companies can still make this claim but not individuals. If you wish to explore owning your properties through a Ltd Co, please consult OnTax accountants in dunfermline. This section, however, will focus on individuals only.
Over the course of 3 years, a diminishing amount of mortgage interest will be offsettable against rental income. The effect of this is that your rental profits will rise with a corresponding rise in taxes.
Currently, the only way around this is to setup a limited company and transfer the property over to the limited company. As this is a complex area, please seek our advice on the matter.
Is Being A Landlord Worth The Risk?
Being a landlord can be very rewarding and it is well known that a lot of individuals choose to invest in property in order to start or maintain a pension pot.
You can save the money you make but if you need to dip into it for whatever reason you have that option too.
This is one of the biggest advantages of investing in property as it can end up being security for you in later life.
Getting a 100% return on investment where typically you have invested 25% is certainly a compelling reason to own property.
It is also clear that being a landlord can be a hands on job and you will more than likely need to be involved in the maintenance of the property to ensure that it is up to standard.
It can at times be admin intensive or you could suffer rental voids (periods where there is no tenant or rent is not paid on time).
Mortgage interest rate rises and other unforeseens could wipe out any rental profits.
Further, as the property value collapse of 2008 demonstrated, investment values can rapidly decline.
Owning a buy to let rental property is an undertaking that needs well thought through. Good systems and ability to minimise costs are key skills. OnTax accountants in Dunfermline are well placed to advise on the systems you might require.
There are many risks, but some say these risks are less or better than those surrounding traditional investment products.
However, all in all, being a landlord is in our opinion a safer and better bet than many "investment" products that are out there.
Need Landlord Tax Advice?
Frequently Asked Questions
HMRC will tell you that if your rental profits are below £2500 then you may not need to submit a tax return. This is not entirely correct as you could be losing out by doing so.
For a more accurate answer, bring your data to us and we will ensure you end up in the best possible position.
Generally speaking, as soon as you start to rent the property! You should inform them of your rental income right from the beginning so they can send you a self assessment form at the appropriate time.
Also, any initial losses need to be registered with HMRC so that they can be offset against later rental property gains.
Generally speaking, a UK tax return will still be required to be submitted to HMRC. This is because foreign property rental income is subject to UK tax when brought into the UK.
There are some good tax breaks on foreign rental properties as they are treated differently to UK rental properties.
Yes, all incomes need to be declared to HMRC. Even if you make a loss during the year this still needs to be declared to HMRC so that the loss can be used up against future years profits thus reducing your tax bill.
HMRC will tell you "Whether you need to fill in a tax return will depend on the total rents you get and the profit you make. It will also depend on any other income you’ve had or may get, for example, from employment or pensions", however in our opinion submitting a return is always best.
The most common types of expenses you can deduct are:
- Maintenance and repairs to the property (but not improvements)
- Water rates, council tax, gas and electricity
- Interest on a mortgage to buy the property
- Contents insurance
- Costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
- Letting agents' fees
- Legal fees for lets of a year or less, or for renewing a lease of less than 50 years
- Direct costs such as phone calls, stationery and advertising for new tenants
- Accountant’s fees
- Rents, ground rents and service charges
Lettings agents are required by law to report rental incomes of their clients to HMRC, therefore if you use a letting agent then it is assured that HMRC already know about your property letting.
Also, HMRC control the land registry, so will know the addresses of all properties registered to you. Our advice is dont dodge the taxman, come and speak to us today, we will help you sort it all out!
The costs associated with the acquisition of the property are treated as part of the acquisition cost, this means they dont form part of the trading, or renting.
As such, neither can they be offset against trading gains. Instead, a note of these amounts is kept on file and offset against the gain when the property is sold. Any remaining gain is then subject to Capital Gains Tax after allowing for the annual personal exemption.
In order to arrive at the tax amount due, the original cost of the property plus all relevant capitalised expenses (i.e legal fees, renovation costs etc) are added up.
This amount is then compared to the selling price and selling fees to arrive at a "capital gain".
Any amount that is over and above the annual exemption of CGT is then subject to tax.
Yes you can. However, whether this is capitalised (for offsetting against the gain on sale at a later date) or is immediately offset against rental profits is a matter of decision for both you and your accountant.
If you rent a property to a connected person then HMRC may enquire as to whether the rent is at the commercial going rate.
If it falls below this rate then HMRC may decide to restrict your allowable expenses with a subsequent impact on the amount of tax you will pay.