Taxes are always a headache. They are difficult to understand and pay. Unfortunately, they have to be endured by anyone who earns an income. The tax for landlords are those taxes that are levied on every income that a landlord makes. Rental properties are viewed as a source of revenue just like any other jobs. Therefore, they must be taxed. The rate of income tax on rental properties has been changing in the past few years. Keeping up with the changes can make these taxes difficult to understand. What a landlord needs to know is the tax group that he is placed in every year. This is what underlies your obligation as a taxpayer.
When and How to start planning taxes?
Payment of tax begins right when you start renting out your property. You must tell the HM Revenue and Customs (HMRC) that you are renting your property. Because if the complexity if landlord’s income taxes, you may not know that you actually own the HMRC some taxes. This usually happens to new owners who build their properties and start renting them out without consulting the HMRC. HMRC will take legal action against you if you start renting without paying taxes. It is important for a landlord to consult the HMRC whenever he realises that he has not paid taxes since he started renting out his property. The earlier you make contact, the more chances are that the HMRC will let your fault slip. Otherwise, if he HMRC finds you renting out an untaxed property, they may charge you some penalties.
Levels of Taxation
The most important thing that you need to know is the tax bracket you are in. Every income above a given amount is taxable. Once your income reaches a taxable income, you should expect the HMRC to knock on your doors. Even taxable incomes are grouped into levels. There are three levels of taxation. Each of these levels are determined by the amount of money that a landlord makes from his property. The more you make, the more taxes you will have to pay.
The very first level of income tax is the basic income tax. This is just a step higher than personal allowances. Personal allowances and tax reliefs are other complications of taxation that you will need to know about. The basic tax is the tax that is charged on a landlord who earns anything between £11,000 and £43,000. Tax charged on any income owner income that falls within this level is 20% of the income. An owner who earns £30,000 will be charged £6000, and £8000 for the one who makes £40,000. All these rates fall within the 20% tax rate and attract a tax of 20%. The 20% rule applies to all landlords earning incomes that fall within the basic tax rate.
The other two rates of taxation are the higher rate that attracts 40% tax and the additional rates that attract 45% tax. It is important to know which tax rate you fall in. You should also know of tax allowance that the HNRC can give you.