Landlords Tax Returns – 10 Common Mistakes

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:- 

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.

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