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Landlords – are you deducting buy-to-let insurance costs from your tax return?

Landlords across the UK are scrambling to complete their tax returns. Self-assessment registrations must be completed by October 31st, and online tax returns should be submitted and paid for by January 31st. Any profit landlords make from a UK-based property portfolio is subject to income tax.

While the majority of landlords seem to be aware of their taxation requirements, HMRC is running an 18-month campaign to encourage landlords to disclose undeclared rental income, warning landlords to come to tax collectors “before they come for you”.landlord insurance

HMRC believes that it can recoup as much as £500 million in unpaid annual tax and is aware of 1.5 million landlords who are not declaring rental profits, claiming that in autumn 2013, around one-third of landlords were not declaring their rental income.

However, just because some landlords are not paying enough tax does not mean that you should pay too much tax! Buy to let insurance policies and other expenses are deductible, and these deductions could lead to sizable savings on a landlord´s tax bill.

While we at Total Insurance would recommend that you speak with HMRC or a qualified accountant about tax deductions in order to avoid any problems, landlords can typically deduct the following expenses from their rental income when calculating their income. This list is not exhaustive!

  • Building insurance
  • Contents insurance
  • Any other landlord insurance expenses
  • Insurance claim fees
  • The interest of any loans used for home improvements, mortgages and house purchases
  • Letting fees and management fees
  • Accountant fees
  • Water rates and utility rates, provided that these bills are paid by the landlord
  • Leasehold maintenance and ground rent charges

With all these expenses, landlords will naturally want to keep detailed records of any expenditure relating to their property portfolio, as this will make the tax return considerably easier to successfully complete and will help them minimise their tax liability.

HMRC warned landlords that, if they fail to pay the tax they owe, they could face a penalty of as much as 100% of the tax that is outstanding. Landlords that have avoided paying tax on their rental income in recent years are advised to contact the HMRC immediately in order to receive “more favourable terms” – essentially, a substantially-reduced penalty.

But landlords who are already confident that they have fulfilled their tax obligations should still complete their returns as quickly as possible, as their tax for the tax year ending April 5th 2014 is almost due.

It might seem a relief to landlords that their landlord insurance is tax-deductible, but investors who take out the most favourable buy to let insurance policies will be able to recover a greater chunk of their rental income than those with more expensive policies. If you want to save money on your landlord insurance, then give Total Insurance a call today!

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