Landlords Tax Returns – 10 Common Mistakes

Landlords Tax Returns – 10 Common Mistakes

22:47 PM, 19th December 2013, About 10 years ago 12

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In this article I am going to share the common mistakes that landlords make when completing their tax returns.

In no particular order and certainly not a definitive list:- Landlords Tax Returns - 10 Common Mistakes

1) Treating the entire mortgage payment as an expense.

  • You should only claim mortgage interest as an expense. If you have a repayment mortgage this is not the full monthly payment. Check your annual mortgage statements from your mortgage lender and claim only the interest element of your repayments.
  • You can only claim interest as an expense if the borrowed money was used to finance your property portfolio or to withdraw capital you invested into it.

2) Claiming improvements as expenses. For example, if you extended a property the money you invested should be treated as capital and not as expense items.

3) Claiming legal fees associated with purchases as expenses. These should be treated as capital items. However, legal fees associated with refinancing may be treated as expenses.

4) Forgetting to declare profits made on sales of previously let property as capital gains.

5) Not claiming PPR relief and lettings relief against capital gains made on a property which was once your principle private residence.

6) Over/under claiming on use of home as office expenses

7) Forgetting to account for business/personal use of vehicles, mobile telephones and internet use

8) Thinking that a tax return isn’t necessary due to making losses

9) Owning property jointly but only submitting one tax return

10) Failing to account for rental income on overseas properties, whether they make profits or losses

So what if a person has made these mistakes in previous years?

If you are one of these people you are not alone. The best thing you can do is correct your mistakes, but not before taking professional advice. The penalties for making mistakes are far less serious than being caught out by HMRC. The chances are that you will get caught out sooner or later if you don’t own up to mistakes because the HMRC claim to investigate one in seven landlords tax returns.

I use a boutique accountancy practice which specialises in advising landlords on their tax affairs. They are based in Norwich but work with clients all over the world providing they own rental property in the UK. I have referred several clients over the years and those who have taken up the service have always been incredibly impressed. They are not cheap but you get what you pay for. They have saved me many times more tax than they have charged me in fees over the years. They are also pro-active and unlike most accounts they take a forward looking approach to tax planning as well as just accounting for what has happened in the past.

Accountants Introduction Request

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Ed Atkinson

23:23 PM, 20th December 2013, About 10 years ago

Good List Mark

You packed a lot into point 1. My understanding is that if I increase the loan on property A and use it to help purchase property B, the increased interest cannot be allocated to the tax calculations for property A, but they can be for property B.

You are also saying something new for me - that if I purchase a £100K house with an £80K loan, I can later increase the loan to £100K and still include all the interest in the tax calculations. That's great news.

Have a wonderful break Mark - you so deserve it.


21:15 PM, 27th December 2013, About 10 years ago

Your note in item 3 is not entirely accurate. You have to distinguish those fees incurred for the purpose of lending and those fees incurred for the purpose of purchasing. The former can be an income expense in some circumstances.

Jireh Homes

21:02 PM, 16th June 2015, About 9 years ago

Acknowledge Reader's comment on legal fees is strictly correct, however on the basis that the cost associated with lending is small this may be "ignored" and the full cost allocated to capital. There is a phrase which covers this concept, but escapes me for the time being. Allan

J lied03

9:42 AM, 20th February 2016, About 8 years ago

Reply to the comment left by "Jireh Homes" at "16/06/2015 - 21:02":

Re: part 3 - legal fees for purchase.
Would these be mortgage broker fees, mortgage lender fees and conveyancing fees? Guess Stamp Duty isn't classed as a legal fee more a tax?
How does declaring it as capital rather than an expense affect my tax?

Simon Lever - Chartered Accountant helping clients get the best returns from their properties

10:43 AM, 29th March 2016, About 8 years ago

Mortgage broker fees and mortgage lenders fees are a financing fee but are still not allowable as an expense when they are associated with the purchase of a property.

When they are for a refinancing deal they are allowable but subject to the new Clause 24 regulations they will be treated in the same way as interest will be.

Legal fees and associated costs (searches, TT fees etc), agents fees (if any) and surveyors fees in respect of a purchase are all capital and are added to the cost of the property and are allowable when the property is sold as part of the original cost for CGT purposes.

Stamp duty (SDLT) is a transaction tax and is also treated as part of the original cost of the property for CGT purposes.

michelle mor

11:44 AM, 3rd May 2016, About 8 years ago

Not really clear on this , I got a loan of £60,000 to buy a £85,000 house to rent out. This was a loan and not a mortgage, does this mean I can claim the interest back.
Thanks for all your wonderful help.

17:29 PM, 17th September 2017, About 6 years ago

I tried to purchase in my sole name two investment properties as B2L, they both fell through, so I bought a 3rd. Can I put down those taxi costs and solicitor costs as a business expense? Or a capital expense against the 3rd that I did buy?

Jireh Homes

21:47 PM, 18th September 2017, About 6 years ago

In respose to Michelle's query, all interest is treated the same, whether associated with a mortgage or loan from another source.

Jireh Homes

21:53 PM, 18th September 2017, About 6 years ago

In response to Rich's query, all "unallocated costs" or non-specific property costs may be grouped with those for a specific property (where more than one), which all wraps under the appropriate headings on self assessment property page. And consider all expenditure on unsuccessful purchase a legitimate business expense and thus claimable.

21:55 PM, 18th September 2017, About 6 years ago

Reply to the comment left by Jireh Homes at 18/09/2017 - 21:53
Hello Jireh Homes

Thank you for your reply. Do you have an HMRC link about that? Are you an accountant? Thank you

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