Responsibilities Accounting and Tax Advice for Landlords

If you are a property owner and planning to let out single property or multiple, you need to consider several points in order to become a landlord. This article responsibilities accounting and tax advice for landlords is a step by step guide and will help you to learn.

Following are the key steps that needs to understand before becoming a landlord.

If the terminology landlord fascinates you and you want to become one, then this is a suitable article that will help you to learn how to become a landlord. This article will guide and provide landlords with advice on concerning key questions. A practical step on how to create property portfolio and start renting.

“A landlord is an entity (person or business who) provides accommodation to another person or group of people against rental money for a specific duration.”

Since rental properties are in high demand in different areas of the country. So, if you intend to buy-to-let mortgage or you’re ‘accidental landlord’ (for example, inheriting a property or renting out your main residence while waiting for a buyer), becoming a landlord could be ideal for you.

Note: this guide focuses on renting out a property that is ready to let.

This article will cover:

  1. Landlord responsibilities in the UK

In England, landlords are responsible for the following themes: deposits, finance, property, safety and tenants.

As a landlord, you are expected to practice and fulfill these responsibilities to the best standards.

Deposits

  • There are 3 government approved schemes named as My Deposits, Deposit Protection Service or the Tenancy Deposit Scheme in which you are required to hold tenant’s deposit.
  • You must inform your tenants in which scheme you are going to hold their deposit at the time of signing the agreement or not later than 30 days period if not at the time of agreement.
  • If you are using an agent, you can ask if they will deposit into the scheme on your behalf. However, there may be a fee for putting the deposit in to some scheme.
  • There is a penalty for not putting the deposit in the scheme and landlord may not be able to defenestrate the tenants.
  • Deposit protection schemes are for the repairs and maintenance of the property in case of any damage by the tenants, not for securing the property.

Finances

  • It is important to keep financial records as they would be required when completing tax return. You can do this yourself or hire the services of a qualified accountant.
  • If you have not purchased your property under buy-to-let mortgage, then you are required to inform your mortgage provider and ensure they are agreed to this. Agreement is usually given for a specific time period, for a fee.
  • You are required to keep an inventory count of what’s in your property, especially in case of furnished rentals.
  • You may be required to pay income tax and Class 2 NI contributions (if your rental property is counted as running as business).

Property

  • It is your responsibility to do the required repairs weather it is exterior or the structure. You are also responsible for maintaining the property such as heating, electricity, hot water system, bathroom installations. Being a landlord, it is your responsibility to ensure the high standards of safety and to ensure that the property is safe and fit to live.
  • All repairs must be carried out in reasonable time frame depending on nature and severity of a problem. Before entering the property and carrying out any maintenance work, you are obliged to give an advance notice (minimum 24 hours) to seek their permission before stepping into the property.
  • As a landlord you are also accounted for the actions of letting agents as they are acting on your behalf.
  • If your property remains unoccupied for a period of 45 days or more, you are required to have unoccupied property insurance.
  • You may be required to make reasonable adjustments to your property if renting it to a person with disability. Reasonable adjustments refer to providing handrails, a walk-in shower or a temporary ramp. This doesn’t include any structural changes to the layout.

 Energy performance certificates

  • An energy performance certificate (ECP) is a measuring scale to assess the property’s energy performance It is between A (best) to G (Worst) on a scale. It should be arranged before property is ready to rent. A certificate is valid for 10 years.
  • From 1 April 2018, it is required to have a minimum of E rating for new or renewed tenancy lease to be issued.
  • EPCs must be displayed in the property where they can be easily seen. They can be found near the boiler, meter or in the kitchen.

 Safety

  • If your property has gas appliances, an annual gas safety check is required to provide by a registered Gas-Safe engineer.
  • It is landlord’s responsibility to ensure fire safety that includes provision of fire escape route, compliance with fire safety regulations for furniture and ensuring that property is fitted with working smoke alarm.
  • Landlord is also responsible to ensure electrical safety by making sure that electrical appliances are safe to use and meet the required standards.
  • Make sure that property is fitted with working carbon monoxide alarm.
  • Operating manuals and guides for appliances should be provided.
  • If your tenants are experiencing any health and safety hazards (such as a gas leak, or vermin) they can lodge a complaint you to the local environmental health department.
  • Landlords are responsible for authorizing health and safety inspections. These can be issued by the local council on the request of tenants if the council think it’s necessary.

Tenants

As a landlord, it is your responsibility to check that every tenant has a right to rent. You must check their original passport and other identity document (such as driving license or Biometric Residency Permit etc.), making copies of inspected documents and notes of when the check was performed.

All tenants who are aged 18 or above (including those who are not named on the tenancy agreement) living in the property are required to undergo right to rent checks.

It is a criminal offence to rent to those having no right to rent and can incur fine upto £3,000.

The most common type of tenancy is an assured short hold tenancy (AST). Normally, it last for 6 to12 months and requires the tenant to pay a damage deposit. Other options are assured tenancy and a Regulated tenancy which offer tenants long-term rights. These agreements were created between 15 January 1989 and 27 February 1997. They can exist after this date if notice was provided in writing by the landlord or tenancy agreement was already in place with the same accommodation and landlord.

When each tenancy begins you must provide: the EPC, the gas safety certificate (if there are gas appliances in the property). You should provide a copy of the most recent How to rent government guide (for AST agreement that started on or were renewed after 1 October 2015).

You must provide a court order and a written notice for evicting tenants. There is a different procedure for evicting tenants in England and Wales, Scotland and Northern Ireland.

Deposit paid should be protected by one of the three government approved schemes that were mentioned earlier. It can be difficult it it’s not done to evict tenants or to end the lease.

It is tenant’s responsibility to keep the property neat, clean, tidy and livable. That includes changing light bulbs and responsible for any damage they cause during their tenancy period.

  1. Landlord registration and regulation

As a landlord, you will be required to comply with all the registration and regulation processes depending on the location of your property. For England, Wales, Scotland and Northern Ireland; there is a different process. Your local council will decide the regulations specifically in England whereas in other parts of United Kingdom, it is the local parliament that governs.

You must have landlord insurance to protect your building and its contents and it will also provide emergency assistance and this regulation remains the same across the country.

The table below will assist you to understand how you can become a landlord based on location of your property. Landlords in Scotland are required to register.
Letting agencies are encouraged to do so but it’s not legal binding. In addition to a license, landlord registration is required for HMO (house of multiple occupation), if needed.

In England, landlord registration is not compulsory. However; you can voluntarily join such organizations. National Landlord Association (NLA) or Residential Landlord Association (RLA) are common examples who aid and advice against an annual fee. This can be useful, especially if you are planning to manage the property yourself and to show your credibility to perspective tenants. It is important to note that your landlord registration will need to be renewed. The validation period varies on the location of your property however, it’s usually between 3 to five years. If your property is in an area where its compulsion to have a registration and you don’t, your property couldn’t be rented out. There is a penalty to rent out the unregistered property. Penalties such as fines and ban from renting.

What is the Deregulation Act 2015?

There are some key aspects that landlords should be aware of in this wide-ranging piece of legislation. These include:

  • Tenancy Deposit Scheme: Deposits received should be held in either of government approved schemes.
  • Section 21: Section 21 explains when and how landlords can evict tenants and specifies that landlords must meet certain legal duties before being able to serve tenants with a Section 21 notice.
  • Prescribed information: It is advised that at the start of an AST the landlord must provide tenants with a copy of the How to rent: the checklist for renting in England
  • Retaliatory eviction: if local council sends a notice to landlord regarding an outstanding repair, tenants can’t be served with a section 21 notice within 6 months to evict the property.

Things to remember:

HMRC: HMRC is the tax department for the UK and it stands for Her Majesty’s Revenue and Customs. You’ll be required to contact them to find out more about completing tax returns and paying Income Tax as a landlord.

Insurance providers: You are required to have specialist landlord insurance at the time of renting your property out to protect your property, income and investment. Insurance Providers can offer cover for buildings, contents (for furnished rental properties) and loss of rent as well as legal protection.

Your local authority: your local authority is responsible for key services such as council tax and rubbish collection, so you should inform them that your property will be rented out.

As specialist Accountants for landlords, we would strongly advice to leave the tax part to us, the professionals. We have decade of experience dealing with accounting and tax affairs landlords and property investors. If you need help with your income tax or self assessment , call us for further advice and tax planning.

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