A Guide to Renting Out as a Landlord

A comprehensive guide for landlords explaining their duties and responsibilities

An individual will be renting out as a landlord if he/she is letting a property. Being a landlord comes with a lot of responsibilities such as:

• They are responsible for keeping their properties safe and free from health hazards.
• They should ensure safe instalment and maintenance of electrical and gas equipment.
• They should ensure the protection of their tenants’ deposits in a government-approved scheme
• If in England, they should ensure whether the tenant has the rights to rent your property
• They should provide their tenants with a copy checklist of ‘how to rent’ as soon as they rent your property
• They should ensure the provision of an Energy Performance Certificate for the property

Financial responsibilities as a landlord

Renting out as a landlord, you are liable to pay

• Income tax (on the rental income you earn, exclusive of the daily running cost of the property)
• Class 2 National Insurance (If the letting work you do on properties counts as running a business)

Remember:

• You are liable to pay tax whenever you let a property in England and Wales.
• The same tax rules are also applicable in Scotland and Northern Ireland

When is your activity considered as running a property business?

Suppose your activities count as running a business, and you are generating profits that exceed £ 5965 per annum through this business. In that case, you are liable to pay Class 2 National Insurance if all of the following apply:

• Your main job is to be the landlord
• You are letting out multiple properties
• You are buying new properties for the purpose of letting

However, if your profits are lower than £ 5965, you can pay voluntary Class 3 National Insurance, for instance, to ensure you get the full state pension.

Suppose your activities do not count as running a business. In that case, you are not liable to pay any National Insurance even if your work revolves around making arrangements for repairing, tenant advertising, and managing tenancy agreements.

When you personally own a property

You can enjoy property allowance on the first £ 1000 earned through rental income; no taxes will be charged

You can contact HM Revenue and Customs if your rental income ranges between £1000 and £ 2500 per annum

You are liable to report it on your self-assessment tax return if:

• It is between 2500 to 9999 after deducting allowable expenses
• It is at least 10,000 before deducting allowable expenses

You have to register by the 5th of October after the tax year in which you had a rental income if you usually do not submit your tax returns.

If you are unsure about the process, a competitive tax accountant or personal tax accountant should be able to help you register and submit the relevant documentation required.

Declaration of unpaid taxes

Unpaid tax can be declared by informing HMRC about your rental income from previous years. You’ll be charged a lower penalty if you personally inform HMRC rather than HMRC finding it themselves, which can lead to a higher penalty.

You’ll have 3 months to work out to pay for what you owe after providing the disclosure reference number.

You should not include the property allowance (1000) for tax years from 2017 to 2018.

If you think you have undeclared income, speak to an expert accountant or tax accountant to get advice before speaking to HMRC.

The company’s property rental income

Rental income should be calculated in the same manner as you calculate your business income.

Costs you may claim for reduction of tax IF Renting Out as a Landlord

Different types of tax rules are applicable to:

1. Residential properties
2. Commercial properties
3. Furnished holiday lettings

Residential properties

You or your firm must pay the tax on the profits earned by letting out the property after deductions have been made for allowable expenses.

Allowable expenses are the expenses incurred on things you need on a daily basis to run the property, for instance:

• Payment (Fees) to letting agents
• Legal fees that are charged for rents of a year or less or for renewal of the lease for less than 50 years
• Accountants’ fees
• Interest paid on property loans
• Property maintenance and repairs (does not include any improvements made)
• Council tax
• Payment for services like cleaning and gardening
• Rent, ground rent and service charges
• Utility bills ( for instance, electricity, water and gas)
• Other direct costs that are associated with renting the property, for instance, phone calls and advertising
• Buildings and content insurance

Capital expenditures, such as the purchase of property or renovation of a property beyond the repairs for wear and tear, do not count as allowable expenses.

Replacement of domestic items relief is a tax relief that can be claimed on expenses that are incurred in replacing a ‘domestic item’.

The domestic items may include:

• Sofas
• Curtains
• Beds
• Carpets
• Fridges
• Crockery and cutlery

Keep in mind that the domestic item you bought must be only used by tenants in residential property, and the replaced domestic item should no longer be used in that residential property.

Availability of ‘replacement of domestic items relief’ for:

Individuals and partnerships: From the 2016-2017 tax year

Companies: From 1 April 2016

What can be claimed for furnished residential lettings?

‘Wear and tear allowance’ can be claimed by:

Individuals and partnerships: for the 2015-2016 tax year

Companies: On or before 31 March 2016

Video: Renting Out as A Landlord – Responsibilities, Duties & Obligations

Landlords are in a position of responsibility. Their duties involve much more than just collecting rent. Watch this video to get a complete overview of how it works.

What can be claimed on furnished holiday lettings?

Allowances can be claimed on furnished holiday homes. You can claim

• Plant and Machinery capital allowances on equipment used inside the property, like furniture, furnishings, and equipment used outside the property, like vans and tools
• Capital gains tax relief
• Business Asset Rollover relief
• Entrepreneur’ relief
• Relief for gifts of business assets
• Relief for the loan given to traders

Entrepreneurs’ Relief: This is what you need to know

Your eligibility to make the above claims depends upon the following conditions:

• You are charging rates according to the market value of the properties in the vicinity
• You let the property for 150 days or more per annum
• The property is offered to be rented out for at least 210 days per annum
• No single rent is more than 31 days

If the property is owned personally by you, then the profits you earn may count as earnings for pension purposes.

You should seek professional advice from competitive tax accountants, property accountants, or an expert online accountant before trying to claim the various reliefs mentioned above.

What can you claim if you let a Commercial property?

Plant and machinery capital allowances can be claimed on some items if you let out a commercial property, for instance, a shop, garage, or lock-up

Estimating your profit

You can calculate the net profit or loss for all your property lettings by treating it as a single business; furnished holiday lettings are excluded. You do this by:

• Summing up all of your rental incomes
• Summing up all of your allowable expenses
• Taking out expenses from the income

To ensure you only claim tax benefits for eligible properties, estimate the profit or loss from furnished holiday lettings from any other rental business.

Loss-making

Write down the amount on your self-assessment form after deducting any losses from your profit.

You may balance your losses against:

• Future profits, by carrying them forward to any incoming year
• Profits generated from other properties (If you have one).

Losses can only be balanced against future earnings if in the same business.

Tools for Setting Up Your Property Rental Portfolio in the UK

Setting up and managing a property rental portfolio in the UK can be complex for landlords. Fortunately, various tools and resources are available specifically tailored to the UK market to streamline the process and ensure efficient management of your rental properties. Here are some tools that landlords in the UK can use to set up and organize their property rental portfolio:

1. Property Management Software: Consider using UK-specific property management software such as Arthur, LetMC, or Re-Leased. These platforms offer features designed for UK landlords, including tenant screening, rent collection, maintenance tracking, and compliance management.
2. Rental Listing Websites: Utilize popular UK-specific online platforms like Rightmove, Rentola United Kingdom, Zoopla, and OnTheMarket to list and advertise your rental properties. These websites attract many potential tenants in the UK, increasing your visibility and chances of finding suitable renters.
3. Tenant Referencing Services: Ensuring reliable tenants is crucial, and UK-specific tenant referencing services like Experian, Let Alliance, and HomeLet can provide comprehensive tenant background checks, credit reports, and previous landlord references to help you make informed decisions.
4. Online Rent Collection Platforms: Simplify rent collection with UK-focused platforms like PayProp, RentPro, or Rentomojo. These tools offer secure online rent payment options, automated rent reminders, and integration with UK banking systems.
5. Maintenance and Repair Management: UK landlords can benefit from property maintenance tools like Fixflo, Property Maintenance UK, or CFPwinMan. These platforms enable tenants to report maintenance issues online, and landlords can track progress, assign tasks to contractors, and ensure compliance with UK regulations.
6. Accounting and Bookkeeping Software: Choose UK-specific accounting software like FreeAgent, QuickBooks, or KashFlow to manage your rental property finances. These tools are tailored to UK tax regulations, making it easier to track income and expenses, generate reports, and simplify tax filings.
7. Document Management Systems: Store and organize essential documents securely using UK-focused tools like Landlord Vision, Document Manager, or Reapit Foundations. These platforms provide features specific to UK landlords, including document templates, tenancy agreement generation, and GDPR compliance.
8. Property Inspection Apps: Conduct regular property inspections using UK-specific apps like InventoryBase, Property Inspect, or TouchRight. These tools offer pre-configured inspection templates, digital checklists, and the ability to capture and store photos, ensuring compliance with UK inventory regulations.
9. Communication and Collaboration Tools: Effective communication with tenants and team members is vital. Consider using UK-specific tools like Fixflo Chat, Rentman, or Goodlord’s Virtual Assistant to streamline communication, share updates, and facilitate collaboration on property management tasks.
10. Legal and Compliance Resources: Stay updated on UK-specific laws, regulations, and compliance requirements using resources like GOV.UK, Residential Landlords Association (RLA), or National Landlords Association (NLA). These platforms provide access to legal documents, guidelines, and expert advice on UK landlord-tenant laws.

By utilizing these UK-specific tools, landlords can enhance their efficiency and compliance when managing their property rental portfolio in the UK. Each device is tailored to meet the unique needs of UK landlords, helping them navigate the specific regulations and requirements of the UK property rental market. With the right tools, you can streamline your operations, ensure legal compliance, and provide a better experience for you and your tenants in the UK.

Clear House Accountants are specialist Accountants in London, who have trained a highly competitive team of property accountants. Our specialised accountants have been working with clients from the property industry for many years and have been able to help them create smart tax saving solutions for their complicated tax problems.