Tax Return for Landlords

Reporting your rental income

Rental income from a buy to let, a room let beyond the rent a room scheme, or any other let property is taxable. You report it on the property pages of your Self Assessment tax return. The tax year runs from 6 April to 5 April, and you add up the rent due in that period.

You report the rent you were entitled to in the year, not just the rent that was paid, although unpaid rent that you genuinely cannot recover can be relieved. If you own a property jointly, you each report your share of the income and costs. There is a property allowance of £1,000, so if your gross rents are below that you may not need to report them, but most landlords are well above it.

For a wider view of how rental profit is taxed, see our guide to landlord tax.

Allowable costs

You deduct the day to day running costs of letting the property to arrive at your rental profit. Common allowable costs include:

• Letting agent and management fees
• Buildings and contents insurance
• Ground rent and service charges
• Council tax or utilities where you pay them
• Repairs and maintenance that keep the property in its existing condition
• Accountancy fees for the rental accounts

The key distinction is between repairs and improvements. A repair, such as fixing a boiler, replacing broken roof tiles or repainting, is allowable against your rental income. An improvement, such as building an extension or upgrading to a clearly better standard, is capital and is not deducted from rental profit, though it may reduce a future capital gain. Replacing something like for like is usually a repair, while a genuine upgrade tends to be capital. Our guide to landlord allowable expenses goes through the detail.

The mortgage interest reducer

This is the part that catches landlords out. You can no longer deduct mortgage interest as an ordinary expense from your rental income. Instead, you work out the profit without the finance costs, and then you get a basic rate tax reduction worth 20% of your finance costs.

So mortgage interest, and other finance costs such as loan arrangement fees, do not reduce your taxable rental profit directly. They give you a credit against your tax bill at the 20% basic rate. For a basic rate taxpayer the effect is broadly similar to the old deduction, but for a higher rate taxpayer it means more of the rent is taxed and the relief is capped at 20%.

This is why two landlords with identical figures can pay very different amounts of tax depending on their other income.

A worked example

Common mistakes

Landlord returns trip people up in predictable ways.

• Deducting mortgage interest in full. Interest is no longer an ordinary expense. It gives a 20% tax reduction instead, so deducting it from profit overstates the relief.
• Treating improvements as repairs. A genuine upgrade is capital, not an allowable repair, and belongs in your capital gains calculation when you sell.
• Forgetting the 60 day rule. If you sell a residential property at a gain, you must report and pay the capital gains tax within 60 days of completion, separately from your annual return.
• Missing joint ownership splits. If you own with someone else, report only your share of income and costs.
• Not claiming small costs. Insurance, service charges and accountancy fees all count and are easy to overlook.

What you should do

Keep a folder for each property with the tenancy details, agent statements, the annual mortgage interest figure and every receipt. Separate repairs from improvements as you go, because the difference matters both now and when you sell.

The online filing deadline is 31 January after the tax year, which is also when the tax is due. If you sell during the year, remember the 60 day capital gains reporting window. You can sanity check your numbers with our tax calculators, and TaxTune can prepare your landlord tax return and keep the finance cost treatment correct. When you are ready, start your quote.

Frequently asked questions