Bookkeeping for landlords

When you receive rental income from privately owned property you are automatically a landlord. If you receive more that £1,000 per year in rent after allowable expenses you will probably pay income tax and National Insurance Contributions (NICs). 

 

Tax could also apply to additional income from, for example, use of furniture or cleaning communal areas. 

 

Most private landlords must therefore submit a Self Assessment Tax Return (SATR) each year. There’s a specific section for property income, related expenses and exemptions. 

 

Most UK landlords are private individuals but there are some distinctions which can affect your tax position. 

 

Resident landlords. If you rent out a room in your home the first £7,500 of rental income is exempt from tax, or £3,750 if you jointly own the property. However, if you also provide breakfast it’s seen as a guest house and is considered a trade instead. 

 

Non-resident landlords. If you live abroad for six months or more per year, you’re classed as a ‘non-resident landlord’ by HMRC. This applies even if you’re a UK resident for tax purposes. If you want to receive your rental income without deductions you must complete a special form (NRL1). Alternatively, you can apply using the Government Gateway. If your taxes aren’t up to date your application will fail. 

 

Furnished holiday lettings. Different rules for furnished holiday lettings allow you to claim Capital Gains Tax relief or count profits as earnings for your pension. You could also claim a capital allowance for items such as furniture, equipment, and fixtures. 

 

Professional landlords. If owning and renting property is your full time occupation you’re seen as operating a trade. This means you’ll pay tax and NICs. 

 

Limited companies. If you set up a company to own your properties you’ll pay Corporation Tax rather than income tax. In some cases, this is more tax efficient. You can receive a salary and dividends from the company. 

 

tax return. These should include money you spend on a boiler repair or replacement curtains, for example. Even small amounts are worth recording because they can reduce your tax bill. You can also claim mortgage interest costs up to the basic income tax rate of 20%. 

 

If you’re thinking of buying more properties in the future financial records are also important. Buy-to-let mortgage lenders will want to see information about your existing rental business and how well you’ve managed your property. 

 

For HMRC you should keep keep details of: 

 

You must keep accurate and legible records either on paper, in computer spreadsheets or using accounting software in the cloud. Without them, you could face a penalty from HMRC. 

 

As with any SATR you must keep you records for at least 22 months after the end of the tax year. So, for example, for the 2022/23 tax year that ended on 5 April 2023, you’ll need to keep the records until the end of January 2025. 

 

If you miss a tax submission deadline you’ll have to keep your records for at least 15 months after you submit your tax return. Say, for example, you missed the 31 January 2024 deadline for 2022/23 and submitted your SATR in February instead. You will have to keep your records until the end of May 2025.