The little-known perk landlords filing their tax return need to be aware of

Landlords could be missing out on thousands of pounds in tax relief if they forget to check and claim a little-known entitlement in their tax return.

Those in receipt of rental income before expenses of over £10,000 must complete a self-assessment each year.

Many landlords know that they can claim expenses for the general maintenance of the property they are renting out – including repair costs, contents insurance and agency and property management fees.

If only part of the expense is used for renting – for example, because the property is also used for private purposes – then that part can be deducted from their income.

But there is another tax relief that many are at risk of missing out on.

Nearly half a million households fell into rental arrears during the pandemic as unemployment soared, according to a report by the think tank the Resolution Foundation.

Landlords who lost rental income between April 2020 and April 2021 may not realise they can still claim tax relief for those periods, as rental losses made in the previous year can be offset against profits made in the current or future tax years.

Chris Etherington of tax firm RSM said it caught many of his clients out because HMRC’s systems will not recognise a loss from a previous year unless it is entered by the taxpayer. So it is up to the taxpayer to find details of their rental income and report this on their tax return.

“Some landlords could therefore be missing out on utilising previous losses against their rental profits,” Mr Etherington said.

Landlords should also bear in mind that the rules around buy-to-let mortgage interest tax relief changed in 2020. Landlords used to be able to deduct mortgage interest repayments and allowable expenses from their rental income.

But Mike Hodges of Saffery Champness, an accountancy firm, said landlords should remember that since the government phased out the relief, this is no longer the case. Instead, taxpayers are limited to a 20pc tax credit on their mortgage interest payments.

This is less generous than the previous scheme. Mr Hodges said. “Higher or additional rate taxpayers can find themselves paying tax even where they have not made a financial profit, especially with interest rates on the rise which will start to bite in the current tax year.”