Being a landlord can be rewarding, but it also comes with tax responsibilities that are easy to overlook. Whether you’ve invested in buy-to-let properties, inherited a cottage, or started renting out a family property, the tax rules are the same.
Over the years, I’ve helped many landlords navigate these rules, and I often see the same mistakes cropping up. The good news is that most are easy to avoid with the right advice.
Here are ten of the most common mistakes.
1. Not declaring rental income
Some landlords assume that if they only rent out one property, the income doesn’t need to be declared. Unfortunately, that’s not the case. All rental income must be reported to HMRC through Self-Assessment, and failing to do so can lead to interest and penalties.
2. Forgetting to register for Self-Assessment
If you’ve recently become a landlord, registering for Self-Assessment should be one of your first jobs. Leaving it until the tax return deadline often creates unnecessary stress and can result in missed deadlines.
3. Poor record keeping
This is probably the issue I talk about most with clients. Keeping accurate records of your rental income and expenses makes preparing your tax return much easier and helps ensure you don’t miss out on allowable deductions. Good records save both time and money.
4. Missing allowable expenses
Many landlords don’t realise just how many expenses they can claim. Repairs, insurance, letting agent fees and professional fees can all reduce your tax bill, provided you’ve kept the necessary records. If you’re unsure whether something qualifies, it’s always worth asking.
5. Confusing repairs with improvements
Understanding the difference between repairs and improvements is important. Repairing a damaged roof is generally an allowable expense, whereas extending a property or carrying out significant improvements is treated differently for tax purposes. Getting this right can prevent problems later.
6. Misunderstanding joint ownership
Where a property is jointly owned, rental income normally needs to be declared in line with each owner’s share. This is an area that often causes confusion, so it’s worth checking that everything is being reported correctly.
7. Mortgage interest restrictions
Mortgage interest is no longer deducted in the way many landlords expect. Instead, relief is given as a basic rate tax credit. This change still catches people out, particularly those who have owned rental properties for several years.
8. Missing the 60-day Capital Gains Tax (CGT) reporting and payment deadline
If you sell a buy-to-let property, holiday cottage or other second property, you may need to report and pay any Capital Gains Tax within 60 days of completion. This deadline is easily missed, so it’s worth taking advice before a sale completes rather than afterwards.
9. Forgetting to include property sales on your tax return
Even if you’ve already reported and paid Capital Gains Tax separately, the sale still needs to be included on your next Self-Assessment tax return. It’s a simple step, but one that’s often overlooked.
10. Trying to do it all yourself
Property tax can be complicated, particularly if you own more than one property or also have farming, business or other income. A quick conversation before making decisions can often prevent costly mistakes and give you peace of mind.
This article covers some of the most common tax issues landlords face, but every situation is different. If you’re unsure about your property tax position or would like advice before buying or selling a rental property, we’re here to help.
