Whether you’re a professional buy-to-let landlord with years of experience or simply renting out a room, it’s important to understand your financial responsibilities.
But what does this mean for your tax commitments? What expenditure should you keep track of as a landlord?
Why is it important to keep track of income from land and property?
Anyone renting out any sort of property as a landlord must pay tax on the income from it. To calculate the tax liability correctly (and to avoid over- or underpaying tax) it’s essential to keep detailed, accurate records.
For UK tax purposes, if multiple properties owned by the same person or legal entity are let out, they’re considered to be part of one single property rental business. Basically the taxable profit is worked out on a “global” basis, after taking account of the income and expenses from all properties within that business.
With Pandle Projects you can create a ‘project’ for each property, and keep an eye on your business finances overall, as well as drilling down into individual properties. Here are our top 5 things to keep track of.
Paying tax isn’t exactly fun and nobody wants to pay more than they have to. For landlords, the key to this is in accurately recording everything relating to the property (or properties) they rent out. This means tracking every single expense and keeping the receipts that go with each one. Only then can you claim for any allowable expenses.
Expenses which can be deducted when working out property rental profits include:
- Accountant’s fees
- Building and contents insurance
- Cleaning costs
- The cost of advertising for tenants
- Costs relating to energy efficiency certificates or gas safety
- Council tax
- Gardening costs
- Legal fees
- Letting agent’s fees
- Maintenance and repairs
- Mortgage interest
- Utility bills, including water, electricity and gas where the costs are covered by the landlord
- You can also include other costs of letting the property, such as phone calls, printing costs, or postage etc.
Records should include a description of the expense, when it occurred, who the supplier was, how much it cost and the amount of VAT (if applicable). Don’t forget furnishings, either! If you rent out a furnished (or part furnished) property, document anything you pay for the furniture, including any receipts, invoices or rental statements.
2. Profit and loss
Remember what we said about UK property rental business rules? Where the profit or loss relates to all properties within that business?
If a landlord spends a lot of money on one property in a year – more than the property income itself – then relief will automatically be applied against the income of a different property in the same portfolio. However, if the overall result is a loss, this loss can only be offset against future profits of the same property rental business.
It’s important to know (and be able to demonstrate) exactly how much income and expenditure has occurred for each property in order to work out the profit or loss for the business. Again, this is where accurate record-keeping comes into play!
The landlord must have accurate records of any losses to be able to carry the right amount forward, and claim relief for them as soon as possible.
3. Capital expenditure
When it comes to tax, revenue and capital items are handled differently. Revenue expenses are the day-to-day operating costs, whilst capital items are the big one-off purchases. As a landlord it’s useful for your bookkeeping records to distinguish between the two.
This is to help make sure you can claim any tax relief or allowances available to you. For instance, if you buy any machinery, capital allowances are available as long as you can show how much the item cost and when it was bought.
If applicable then you should also keep records against the annual investment allowance – this is a type of tax relief dealing with the purchase of equipment. If there is no claim for the annual investment allowance, or if it has already been used, landlords must maintain records of writing allowances claimed every year. The tax will then be written down and the value carried forward.
4. Capital gains
At the point a rental property is sold, capital gains tax will need to be paid on the profit from the sale. In this scenario, landlords should keep details of the following:
- The date of acquisition.
- How much the property cost and incidental costs surrounding its purchase.
- Details regarding any subsequent improvements of a capital nature.
- The date of disposal and the disposal proceeds.
- Details around incidental disposal costs, for example estate agents or legal fees.
If the property also happens to be the landlord’s main residence, residency dates, and dates relating to when it was let out, must also be recorded. This ensures that main residence and letting reliefs can be received where applicable.
5. Other income
Many landlords also receive income from other sources, which must be considered when calculating a rental business’ profit or loss. Examples include charges relating to the use of particular services or facilities, maintenance charges, ground rents and similar. This should be recorded in the same way as rental income, with records backed up by rental statements, receipts or invoices.
Sometimes landlords will receive other additional income relating to the property. Perhaps they’ve rented it out to a film crew, or they’ve received a grant from the council. Maybe the garden is hired out to keep animals, or income has been derived from sporting rights. If this is the case, keep records of this income too, along with documentation which supports it.
Again, this is where Pandle, and especially Pandle Projects, can be extremely useful for keeping everything in one place. Pandle Notes also allows you to make general notes as well as to attach notes to specific invoices, transactions, bank accounts etc. Complete organisation and control!
How else can Pandle Projects help?
Part of our Pro package, Pandle Projects is all about tracking a project’s (or in this case, a rental property’s) performance. By tagging your transactions to specific property rentals you can quickly and easily produce financial reports for each one.
It really comes into its own when a landlord has two or more properties in their portfolio, as it makes managing them so much more efficient. It’s also the chance to gain valuable insights into how each property is performing financially, which in turn can help you make more informed decisions.
There’s not much point in renting out a property if you’re not seeing a healthy return. But with Pandle Projects you can easily keep an eye on the finances relating to each property and keep track of profit.
Add categorisation at the touch of a button
By categorising your expenditure and invoices you can keep them separate from other income streams and business transactions.
Generate clear, digestible reports
No more squinting at Excel spreadsheets! All reports generated within Projects are bold, brightly coloured and easy to understand.
See detailed breakdowns
The epitome of accurate record keeping, with Pandle Projects you can drill down into any category to easily see in more detail what expenses you’ve incurred and what invoices are outstanding.
Create your free Pandle account today and start managing your buy-to-let portfolio like a pro. Try Pandle Pro free for 14 days – no card or payment details required.