The accidental landlord: getting your tax returns right

After several hours spent hunched over my computer, surrounded by crumpled receipts, old invoices and bank statements I’ve finally completed my tax return for the year ended April 2012. I don’t have an accountant, I managed just fine on my own, using my daughter’s old Early Learning Centre toy cash register as a calculator, although it was a bit annoying when the cash drawer flew open every time I pressed the ‘Total’ button.

I’ve finished the return well before the January 31 deadline for those submitted via the HMRC website. Take that, Mr Taxman, you won’t get to fine me for being late, not this year. I’m also hugely relieved when I click on the “View your calculation” box to see that the tax I owe is less than I’d dared hope.

See, completing a tax return for property income isn’t that difficult. I don’t know why people get their knickers in a twist about it, especially as the HMRC website does the maths for you, instantly.

But then, hmm, I hesitate before clicking on “Submit your return”. Something doesn’t feel right. Do I really only owe such a small amount of tax? Obviously I don’t want to pay more than necessary but if I’ve made an error on my tax return it might spark an Inland Revenue investigation faster than I can say Jimmy Carr.

I decide to have a congratulatory cup of tea and a custard cream before I click Send. I’ve just bitten into my third biscuit when it dawns on me. I’ve done it all wrong.

As a landlord, you’re allowed to deduct from your tax any expenses incurred in letting your property, including agency fees. However, you can’t deduct the VAT element of any expenditure. This is one of the reasons I don’t like to use letting agents – 20 per cent of the cost is not tax deductible, but I’d forgotten this when filling out the tax return.

A good way to cut the tax on buy-to-let income is to do some property repairs before the end of the tax year. Until April 2015, you can also deduct up to £1,500 per property for energy-saving improvements. However, you can’t off-set the cost of any other improvements. Instead, these should be deducted from capital gains tax when you sell up.

I’d accidentally deducted from my rental income the £1,000 I’d paid for a large sash window to be renovated after the cords snapped, but the cost included replacing the lock and adding new window catches, which were non-tax deductible.

Landlords are allowed to deduct interest on any borrowings related to a rental property, such as a mortgage or bank loan. This is the case even if the mortgage or loan is secured against another property, in my case my own home. However, you can only deduct the interest element, not the repayment portion. Inevitably, this had also slipped my mind.

My last mistake was to deduct about £500 for a new bed and mattress. Landlords can deduct the cost of replacing furniture (but not the initial cost of furnishing a property), but, to make things easier, the Inland Revenue gives them the option of claiming a 10 per cent wear and tear allowance instead. Once you’ve claimed one or the other, you’ve got to stick with it every year. As I’ve previously claimed the wear and tear allowance, I can’t now claim for the new bed.

So now I have the tedious - and not to say taxing - task of going back through my return and amending the figures. I’ll get there in the end, although I might invest in a new calculator.

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