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The annual tax filing countdown is underway for landlords – and many are confused about if they are running a business or investing in property.
HM Revenue & Customs is unhelpful – they say file a tax return, and we’ll check for errors rather than giving upfront advice.
According to HMRC, landlords are running a property business if:
This definition means most landlords are tending their investments and cannot take advantage of moving their property into a company to ease their tax burden with the advent of restricted mortgage interest relief in April 2017. If you make profits of more than £5,965 and all three factors above apply, you can pay voluntary Class 2 NIC, which counts towards qualifying years for the state pension.
“If your profits are under £5,965, you can make voluntary Class 2 National Insurance payments, for example to make sure you get the full State Pension,” says HMRC.
“You don’t pay national insurance if you’re not running a business - even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.”
As many landlords look towards DIY tax filing to keep their costs down, HMRC is signposting online help.
Videos on the HMRC YouTube channel show how to complete a tax return, while landlords seeking more detailed help can download online toolkits aimed at tax professionals. These toolkits cover more complex tax filings, such as what expenses can be claimed, capital gains tax on buy-to-let property and allowances for furnishings and equipment.
“We would like to take this opportunity to show taxpayers our five most downloaded self-assessment toolkits. They have been tailored to support taxpayers by addressing the most common errors seen from previous years, and set out mitigating steps they can take to avoid those errors,” said an HMRC spokesman.
“Make sure you are equipped with these toolkits to help you get things right first time around.”