Deadline for buy-to-let contractors looms large

Contractors whose nest egg or ‘Plan B’ is in property could be among the record number of landlords expected to miss this Sunday’s tax deadline, an accountancy firm is warning.

Accounts & Legal says the 700,000 people who failed to file their self-assessment returns by last January 31st look set to be dwarfed by an even greater number of late filers this year.

As well as not filing on time, often due to not realising they’ve crept into the shadow of self-assessment, one-man bands and landlords in particular are also at risk of filing inaccurately.

“Greater confusion...especially for landlords, as well as an inability to find help and support given the deadline falls on a Sunday” all bode well for HMRC’s penalty regime, says the firm’s managing director Chris Conway.

He explained that landlords approaching their tax return must take all rent paid and then net off allowable expenses, such as mortgage interest payments, letting fees, repairs, insurance and bills.

But contractors new to buy-to-let and declaring it to HMRC for the first time should “note that there are key differences between allowable repairs and non-allowable improvement expenditure.”  

These allowable costs include repairing faults and damage, replacing certain fixtures and fittings, and even redecorating to restore a property to its original condition.

Non-allowable costs include anything that improves or enhances a property and these reduce the capital gain when the property is sold, rather than being offset against rental income on a self-assessment.

But, adds Mr Conway, those landlords who have let out a furnished property may, for the first time, opt to claim 10% of net rent as a ‘wear and tear’ allowance, rather than deduct the actual costs of replacing furniture and appliances.

“Tactical landlords may choose to defer non-essential maintenance work until after April 2016,” he said. “[Then] the deductibility of maintenance costs will be strictly limited to costs actually incurred rather than the 10% allowance which applies even if no work has been carried out.”

This change, introduced by George Osborne, is believed to lead to an increase in the administrative burden for approximately 750,000 individual landlords who currently utilise the pragmatic allowance.

Another intervention by the chancellor will see the tax deductibility of mortgage interest removed from April 2017, meaning such interest will no longer be treated as an allowable expense.

Although a workaround to the removal has been recommended by IFA ContractorMoney, the broad effect will be landlords paying tax on a higher level of profit than previously. This removal is in addition to a new 3 per cent stamp duty levy on all properties purchased for let.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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