For many property landlords (PL), completing a self-assessment tax return may soon become a thing of the past. Depending upon your particular circumstances, the last one might be in respect of the year ending 5th April 2024.
On the surface this would seem to be a cause for celebration. The reality is the exact opposite. Why? Because, subject to the PL’s situation, they may have to comply with Making Tax Digital (MTD) for Income Tax. This kicks in from as early as 6th April 2024. If you are in a formalised property investment partnership then the deadline date is deferred until 6th April 2025.
If caught by MTD, the PL will be required to keep digital records of their rental income and expenses and make quarterly submissions to HMRC, using compatible software. Failure to comply could result in penalties being incurred.
What circumstance will force a PL to comply?
- If the PL has a rental business as at 5th April 2023, then they will need to comply with MTD from 6th April 2024 if their turnover exceeds £10,000 in the 2022/23 tax year.
Mary has 2 rental properties. One in the UK and the other in France.
Her rental turnover from both of them, for the following tax years, are:
Year ended 5th April 2022 £7,000
Year ending 5th April 2023 £10,500
Mary would need to comply with MTD from 6th April 2024 onwards.
- If the PL commences a rental business after 5th April 2023, the earliest date they would have to comply with MTD would be from the beginning of the third tax year since it started.
Joe commenced his rental business on 6th April 2024.
His rental turnover for the following tax years, are:
Year ending 5th April 2025 £11,000
Year ending 5th April 2026 £12,000
Joe would need to comply with MTD from 6th April 2026 onwards
- If the PL also has a sole trader business, then they have to aggregate the turnover from both to see if there is a requirement to conform to MTD.
- However, if the PL is a partner within a partnership, they will not be required to aggregate the turnover.
Harriet and Henry are partners in a partnership which makes cuddly toys. Harriet also owns 3 rental properties.
Harriet’s rental turnover for the year ending 5th April 2023 is £8,000 and her partnership share for the same period is £6,000.
Harriet would not need to comply with MTD from 6th April 2024 as her own rental turnover is not above £10,000.
- If rental property is jointly owned, but not through a formal partnership arrangement, then one looks at each person’s share of the rental turnover to work out whether that particular individual needs to register for MTD.
- If there is a formal partnership in place, then it is necessary to look at the total rental turnover. If that exceeds £10,000, it would be the partnership, not the individual partner that would be required to comply with MTD from as early as 6th April 2025.
- If you are a non-UK resident PL, you may have to follow the MTD regime if the UK rental turnover figure exceeds £10,000.
- If you run a property investment company, the new rules, at present, do not apply to you.
We can help you source the appropriate software, provide the training (if required), register for MTD and deal with the quarterly submissions and end of year submissions, to ensure that you adhere to the MTD rules. Please do not hesitate to contact us.