What is Landlord Accounting?
Landlord accounting involves managing the financial transactions related to your rental properties. This includes tracking rental income, recording expenses (such as maintenance, property taxes, and mortgage payments), and preparing financial reports for tax purposes and profitability analysis. Effective accounting ensures that landlords can manage cash flow, comply with tax regulations, and make informed decisions about property performance and investment.
Expert Accountants for Landlords
Owning rental properties can be a lucrative investment, but it also comes with various financial considerations, particularly regarding the taxes on rental income. Taxation on rental income can be complex, and we always recommend seeking advice from an experienced accountant who specialises in buy-to-let property services. At Expert Accounting, we provide up-to-date, expert tax advice to landlords, helping you navigate the intricacies of property taxation.
How Much Tax Do You Pay on Rental Income?
If you own residential property as an individual, tax is paid on your annual profits, which is your total rental income minus allowable expenses for the tax year. The tax rate varies depending on your total taxable income and will fall within tax bands ranging from 0% to 45%. For instance, if you earn £60,000 from employment and £10,000 in rental profits, that £10,000 will be taxed at the higher rate of 40%, resulting in a £4,000 tax bill.
For limited companies owning residential property, tax is levied between a tax rate of 19% - 25% on annual rental profits. Shareholders or company owners will then pay tax on dividends at rates ranging from 8.75% to 39.35%, depending on other income and individual circumstances.
What Landlord Expenses Are Tax Deductible?
Many expenses related to the upkeep and maintenance of a rental property are tax-deductible. Some examples include:
- Letting agent fees
- Routine repairs and maintenance
- Accounting fees
- Service charges and ground rent
- Mortgage interest (with certain restrictions)
However, it is important to note that there are restrictions on what can be deducted if the property is classified as an “investment” rather than a “trade.” We highly recommend consulting with a specialised landlord accountant before submitting your self-assessment tax return.
Also, capital expenditure, such as structural refurbishments or extensions, is not deductible against rental profits. Instead, it can be deducted against your capital gains when you sell the property.
Do I Pay Capital Gains Tax When Selling Property?
Capital gains tax (CGT) is charged on the profit you make when selling or disposing of property that has increased in value. With property prices rising over the past few decades, many property owners are caught off-guard with unexpected CGT bills, often due to poor planning or lack of awareness of tax laws.
Depending on your total income in the tax year, CGT rates for residential properties range from 18% to 28% for gains exceeding the annual exempt amount.
There are various reliefs that may help reduce or eliminate CGT liabilities, such as private residence relief, lettings relief, and rent-a-room relief. Since CGT planning is crucial before selling or purchasing property, we always recommend consulting with a qualified accountant to strategise before making any moves in the property market.
How Can an Accounting Service Help My Buy-to-Let Business?
Engaging with a landlord or buy-to-let accountant can provide invaluable insights into your property portfolio. A knowledgeable accountant will help you:
- Review your portfolio for potential tax efficiencies
- Assess your personal and household income for better tax planning
- Advise on future property purchases and portfolio structuring
- Recommend whether incorporating your property portfolio into a limited company could benefit you
- Navigate complex tax considerations, including stamp duty, inheritance tax, capital gains tax, and income tax
Additionally, a good accountant can guide you on the best digital accounting tools, such as Xero. Xero’s intuitive software removes the hassle of manual bookkeeping, offering receipt scanning and bank transaction integration to streamline your accounting process. It’s like having a virtual accountant, making it easier to prepare accounts and tax returns.
Why is Landlord Accounting Important?
Proper accounting for landlords offers several key benefits:
- Track cash flow and profitability – Stay on top of your income and expenses to ensure a profitable property business.
- Ensure tax compliance and claim deductions – Maximise your tax savings by identifying all allowable deductions.
- Avoid penalties – Accurate tax reporting helps you avoid costly fines or penalties.
Make informed financial decisions – Data-driven insights enable you to make strategic decisions about your property investments.
Frequently asked bookkeeping questions.
While not always required, landlord insurance is highly recommended. It can cover property damage, loss of rental income, and legal expenses if issues arise with tenants.
If a tenant falls behind on rent, landlords should follow legal procedures, such as sending a rent reminder, discussing payment options, or starting eviction proceedings if necessary.
This depends on your location. Some countries and regions require landlords to register with local authorities or obtain a license before renting out properties.
- Fixed-term tenancy: Ends automatically unless renewed.
- Periodic tenancy: Requires proper notice (e.g., 2 months' notice under Section 21).
It must be placed in a government-approved tenancy deposit scheme (TDP) like:
- Deposit Protection Service (DPS)
- MyDeposits
- Tenancy Deposit Scheme (TDS)
- Income Tax on rental profits.
- Capital Gains Tax (CGT) when selling a rental property.
- Property transaction tax when buying additional properties.