Self-assessment Tax Returns - What you need to know and do – before 31st Jan 2023!

Rental income is treated as income and is therefore, taxable. If you’re are a new landlord receiving rental income for the first time - you need to declare it. This is especially important (and can be a bit scary) if you have never completed a tax return and have always paid income tax through PAYE. 

The deadline for submitting your self-assessment tax return online is 31st January 2023 so it's something that you need to consider now. If you earn less than £1000 per year, you do not need to report it to the HMRC. The first £1000 forms your “property allowance”, so is tax free. However, once your earnings are over £1000 it must be declared. Remember you need to register for online self-assessment by the end of October in the year you start collecting rental income. 

The first step is to prepare your income and expenditure over the tax year (to include April – 5th April following year) 

Instead, you now receive a tax credit, based on 20% of your mortgage interest payments compared to the previous rate of 40%. 

The new system means higher or additional-rate taxpayers can no longer claim the tax back on their mortgage repayments, as the credit only refunds tax at the basic 20% rate, rather than the top rate of tax paid. 

The new rules could take some landlords into the next tax bracket, because they'll need to declare the income that was used to pay the mortgage on their tax return. 

Repairs versus Improvements – what’s the difference? 

An allowable expense for rental property is something deemed as a repair- not an improvement – that would be a capital allowance which you would claim for when you sold the property.  

So, if you replace a broken washing machine with a new machine, that’s fine, it can be claimed as an expense. If you replace a broken boiler with a similar type – it can be claimed.  

However, in the extreme, you can’t claim for the extension which you added on that year- that would be capital allowance. And more likely, you will be on shaky ground if you replace the cheap laminate worktops in the kitchen with a bespoke marble substitute and claim the full amount. It’s about replacement versus improvement.  Things like windows are interesting, you can now claim for replacing a faulty single glazed window unit with a double glazed one – as double glazing is now “the norm” and it's not seen as an improvement. 

All records need to be kept for 5 years, so be organised and keep your records tidy!