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23 Jan 2022

11 tips for buy-to-let landlords filing a 2020-21 tax return

Get on top of your taxes ahead of the 31 January self assessment deadline

There's just over a week remaining for buy-to-let landlords to file their self-assessment tax returns for the 2020-21 tax year.

Filing your tax return can be a laborious task, but we're here to help with details of the key deadlines, rules and allowances you'll need to be aware of.

Read on for 11 top tips on filing your 2021-21 tax return before the 31 January deadline.

1. Find out if you need to complete a self-assessment tax return

Whether you'll need to file a tax return depends on how much rental income you received in the 2020-21 tax year, which ran from 6 April 2020 to 5 April 2021.

The first £1,000 of rental income each year is tax-free, so if you took in less than this across your residential properties, you won't need to fill out a return.

If your income was between £1,000 and £2,500, you may not need to complete a return, but you'll need to contact HMRC for further advice.

Buy-to-let landlords who brought in more than £2,500 in rental income in the 2020-21 tax year must complete a tax return.

2. Work out your taxable income

If you're an individual landlord (i.e. your properties are owned in your name, rather than through a company), your profits will be taxed at the same rate as income you receive from other sources.

The income tax bands for the 2020-21 tax year were as follows:

  • £0 to £12,500: 0%
  • £12,501 to £50,000: 20%
  • £50,001 to £150,000: 40%
  • £150,001-plus: 45%

When calculating your final tax bill, you'll need to add your rental profits to any other income you've earned during that tax year.

For example, if you earn £40,000 in your day job, you'll pay tax on everything above £12,500 at the basic rate of 20%.

If you then add £15,000 in rental income (making a total of £55,000), this will push you into the next tax bracket, meaning you'll pay 20% on your income between £12,501 and £50,000, then 40% on the remaining £5,000.

3. File and pay on time if you can

Your tax return is due at midnight on the 31 January - that's just over a week away.

Normally, if you submit your return after the deadline, you could be hit with an automatic £100 fine, which increases with every day you're late - but that's not the case this year.

Earlier this month, HMRC announced it will waive the fixed penalties on late tax returns until 28 February 2022, and on late tax payments until 1 April 2022.

While this could provide some temporary respite, you'll still be charged 2.75% interest on what you owe from 1 February, so it's worth filing and paying on time if you can.

4. Check if you'll need to pay National Insurance

If you made a profit of more than £6,475 from letting property in 2020-21, you may need to pay National Insuranceif HMRC considers you to be running a business.

This is likely to be the case if being a landlord is your main job, you let more than one property or you're actively buying investment properties.

5. Get to grips with new tax relief rules

The phased changes to mortgage interest tax relief rules have been a source of frustration for many landlords in the past few years.

The one piece of good news is that, as of this year, the calculations are more straightforward than before.

The 2020-21 tax return is the first on which the new mortgage interest tax relief credit applies. In short, this means you'll now only be able to offset 20% of your mortgage interest payments when filing your tax return.

For more information and example calculations, check out our full guide on mortgage interest tax relief.

6. Remember to deduct your expenses

When calculating your bill, you can deduct a range of expenses that you will have incurred as part of letting the property.

The most obvious examples of allowed expenses are letting agent fees, maintenance costs and accountancy fees.

You can also claim the costs of replacing items in a furnished property, such as beds, carpets and white goods.

Whether you can deduct utility costs (such as water, gas and electricity) depends on whether it's you or the tenant who is responsible for the bills in the tenancy agreement.

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7. Keep track of minor costs

You're likely to be thinking about the big outgoings we've mentioned above, but you can also claim smaller expenses, which can quickly add up.

For example, you can offset expenses such as travelling to your rented properties, for phone calls or texts sent to tenants and suppliers, and also for subscriptions to industry groups or publications.

Over the course of a year, you might be able to claim back more than you think - but you'll need to have clear evidence of your outgoings and be able to prove they were exclusively for business use.

8. Offset local licensing fees

An increasing number of landlords across the UK must apply for a licence from their local council.

For some, this is due to recent rule changes for people letting Homes in Multiple Occupation (HMOs). For others, it's due to their councils introducing their own local schemes.

Eligibility rules and costs of local licensing schemes vary significantly. In some areas, you might need to pay more than £1,000, but you will be able to deduct this as a business expense on your tax return.

9. Assess your portfolio as one business

Whether you own one or 10 homes, your rental profits from UK properties will be considered as one business (with one bottom line) when filing your tax return.

This means that if you made a loss on some of your properties, you can offset this against the profits you've made on others.

10. Carry forward losses from previous years

The expense and uncertainty caused by Covid-19 may have had a significant effect on your profits in the 2020-21 tax year.

If you made a loss on your portfolio during 2020-21 (for example, if your tenants fell into significant arrears, or you had a lengthy void period), you can carry this loss forward and offset it against profits in future tax years.

11.File your 2020-21 tax return with Which?

For a jargon-free, easy-to-use approach to filing this year's tax return, try the Which? tax calculator.

You can use it to tot up your tax bill, get tips on allowances and expenses, and submit your return direct to HMRC.