A landlords guide to tax return season
As we approach tax return season, Gemma Doswell of Tax Scouts shares advice for landlords on what taxes they need to pay, important deadlines and how to file a tax return.
Here are three tips for landlords as we approach tax return season.
- Know what taxes landlords have to pay
- Avoid HMRC’s late filing and payment penalties
- Always choose the easier way to file
What taxes do landlords have to pay?
There are five types of taxes you need to pay as a landlord. Get to know what you owe so you can get a better estimate of your tax bill.
1. Stamp Duty
Stamp Duty Land Tax (SDTL) is a tax you have to pay when you buy a house in England or Northern Ireland.
The tax rate you pay depends on the price of the property you’re buying.
| Property price | Stamp Duty Rate |
|---|---|
| Up to £250,000 | 0% |
| £250,000 - £925,000 | 5% |
| £925,001 - £1.5m | 10% |
| £1.5m+ | 12% |
For landlords, you pay an additional 3% if you’re buying a:
- Buy-to-let property
- Second home
Scotland and Wales have different rates and exemptions.
2. Rental Income Tax
Income Tax is tax you pay on your regular earnings.
As a landlord, you pay Rental Income Tax, which is tax on your regular income, plus rental income, minus your expenses. This helps determine your tax band.
UK Income Tax Rates 2023/24
| Income | Tax rate | Tax band |
| Up to £12,570 | 0% | Personal Allowance |
| £12,570 - £50,270 | 20% | Basic rate |
| £50,271 - £125,140 | 40% | Higher rate |
| £125,141 + | 45% | Additional rate |
Use TaxScouts’ Rental Income Tax calculator to find out an estimate of what you might owe.
3. National Insurance
You have to pay Class 2 National Insurance on your rental income if:
-
HMRC decides you have a “property business”
-
Your profits from self-employment are over £6,725 in a tax year
If you make more than £12,570 in a tax year, you’ll have to pay Class 4 National Insurance.
4. Capital Gains Tax
You have to pay Capital Gains Tax (CGT) when you sell your property for a profit unless:
-
Your capital gains are under £6,000 (for the 23/24 tax year)
-
You’re selling your main residence
There are different tax rates of CGT from 2023/24.
| Total annual income | CGT rate (applies to your entire profit |
| Below £50,270 | 18% |
| Over 50,000 | 28% |
Starting from April 2020, all UK tax residents who sell property (unless it’s their primary home) have to use HMRC’s Real Time Capital Gains Tax Service.
You might not need to file a tax return anymore unless you have other sources of untaxed income (like self-employment) or your income changes significantly during the year.
5. Inheritance Tax
Inheritance Tax (IHT) is a tax paid on someone’s estate after they pass away.
Properties can be passed down to you or you could also go on to pass your properties to the next generation at some point. In both situations, IHT may be due.
| Who owns the estate | Estate value | Inheritance Tax |
| You | Under £325,000 | 0% |
| You | Over £325,001 | 40% |
| Couple/civil partnership | Under £650,000 | 0% |
| Couple/civil partnership | Over £650,001 | 40% |
Note: if you leave your main home to a child or grandchild, you get another £175,000 allowance as an extra “main residence allowance”.
Tax deadline reminder
When is the deadline again?
You need to file your tax return and pay for your tax bill, by the 31st January the year AFTER the tax year in question, for example, if you’re paying your 2022/2023 tax return, this should be completed before the 31st of January 2024.
What happens if you miss the deadline?
Late filing penalty
Landlords who are required to file a return, but miss the deadline, will receive an automatic £100 penalty from HMRC – whether or not they owe tax!
Additional fines will be added on top of the £100 penalty dependent on how late you file.
| How late you are | Fine (each gets added to others!) |
| Between 1 day and 3 months | £100 flat fine |
| Between 3 months and 6 months | £10 each day |
| Between 6 months and 12 months | £300 flat or 5% of your tax bill (whichever is greater) |
| Over 12 months | £300 flat or 5% of your tax bill (whichever is greater) |
Late payment penalty
Here are the penalties if you’ve filed your return but forgotten to pay your tax bill by 31st January.
| How late you are | Late payment penalty |
| Between 1 day and 30 days | 0 |
| Between 30 days and 6 months | 5% of your tax bill |
| Between 6 months and 12 months | another 5% |
| Over 12 months | and another 5% |
On top of these fines, you’ll also pay interest on any late payments. Currently, it’s 7.75% (since Aug 2023). Here’s the full list.
Is there any easier way to file?
Yes! For a limited time only, NRLA members get a whopping 20% discount off TaxScouts’ tax return service - reducing the cost from £149 to just £119, all in.
Sign up and pay for your tax return before 2nd January 2024 to claim the £30 off. Spend less time worrying about taxes and more time growing your property empire.
Let TaxScouts’ accredited accountants sort and file your tax return for you. 0% fuss, 100% online and 20% off.
