Being a landlord can be a very rewarding career path. It’s a great way to get into business and can be extremely lucrative. That’s not to say that running a rental business is without its fair share of responsibilities. So what are landlord obligations for tax?
As well as ensuring the property is fit for use, and your tenants are happy, you also have numerous tax obligations to meet. Here’s what you need to know.
What are landlord obligations for tax?
As a self-employed landlord, your rental profits will be subject to income tax.
A £1,000 tax-free property allowance can apply to rental income, but once you surpass this, you’ll pay the relevant amount of income tax relating to your tax band. Bear in mind that you can’t claim expenses while using the property allowance, so you might need to weigh up the best option for you.
If you register as a limited company, you’ll pay corporation tax on the profits instead, which is currently set at 19% for profits up to £50,000 and 25% on anything over £250,000, with marginal relief applying in between.
As a company director, you’ll usually face more reporting requirements than a private landlord, so it’s essential to understand your obligations. You’ll also usually need to file a self-assessment tax return if you take salary or dividend payments from your rental business.
In certain circumstances, National Insurance contributions (NICs) may be payable. Your NICs will depend on various factors, including the way you structure your business, how you take a wage and your total income.
Working out how much you need to pay can be more complicated if you have multiple income streams. If you’re unsure of your obligations, you should speak to your accountant.
It’s worth noting that building up a National Insurance record does have its advantages. For example, paying NICs can ensure you qualify for benefits such as maternity allowance and the new state pension.
Capital gains tax
Landlords may also find themselves having to pay capital gains tax (CGT) on the sale of any property they own. If you sell a property which isn’t your main residence for profit, you’ll have to make sure you report it and pay HMRC.
The current CGT rate for 2023/24 is 18% or 28% on profits from residential properties, depending on your income tax band.
There’s also a tax-free CGT allowance on gains up to £6,000 a year.
Similarly to income tax, limited companies won’t need to pay CGT but will pay corporation tax on their gains instead.
Land transaction tax
As of April 2018, property investors in Wales have been paying land transaction tax (LTT) when purchasing a new property over the set thresholds.
People buying an additional property need to pay higher rates rather than the standard rates of LTT. These also apply if you purchase through a limited company. The higher rates are as follows:
|Price threshold||LTT rates|
|Up to £180,000||4%|
|£180,000 to £250,000||7.5%|
|£250,000 to £400,000||9%|
|£400,000 to £750,000||11.5%|
|£750,000 to £1.5m||14%|
Stay on top of your taxes
Letting properties as a landlord can be a lot of hard work before you even consider the records you’ll need to keep and the paperwork you’ll need to file for tax.
Your landlord tax obligations may also change depending on whether you register as a limited company or not. Whatever your situation, we are happy to give you practical tax advice for your rental business.
At Harries Watkins Jones, we work closely with landlords in Wales (and beyond) to help them meet their tax obligations.
Get in touch to find out how we can help you meet your obligations.