Self-assessment tax return – 10 Types of people who may need to file.

Do you need to file a self-assessment tax return?

In the United Kingdom, the self-assessment tax return system is used by HM Revenue and Customs (HMRC) to collect income tax from individuals who have income or financial obligations that fall outside the realm of standard Pay As You Earn (PAYE) taxation. While many people have their taxes deducted at source through their employment, there are situations that require individuals to file self-assessment tax returns.

Our aim is to briefly explain examples of 10 types of individuals who may need to file a self-assessment tax return.

Self-employed individuals

Self-employed individuals, including independent contractors and sole traders, who earn more than £1,000 per annum are required to report their income and expenses through self-assessment.

Making Tax Digital (MTD) will be introduced on April 6, 2026 (individuals with gross income over £50,000) or April 6 2027 (gross income between £30,000 and £50,000). It requires accurate record-keeping, quarterly reports outlining business income and expenses via MTD compatible software, and an annual End Of Period Statement (EOPS) – all disclosed to HMRC. To learn more about it’s impact on self-employed individuals and landlords, check our article.

Partners in a partnership

As a partner in a business partnership, you are eligible to receive a percentage of profits/losses as outlined in your partnership agreement. You must then report this share of profits and losses through a self-assessment tax return.

The partnership is also required to file a separate tax return, in addition to the partners declaring their individual profits and losses. The partnership tax return is used to report the partnerships overall financial activity, including income, expenses and other relevant financial information. HM Revenue and Customs can then ensure that the figures are properly accounted for at both the partnership and individual level.

Shareholders of a Limited Company

Shareholders of a Limited Company may be eligible to receive distributions from these companies in the form of dividends. These amounts must then be reported through your self-assessment tax return as ‘dividend income’. Dividends are taxed at a lower rate than other sources of income, such as income from employment or interest income. For 2023/24 dividend income under £1,000 is taxed at 0% regardless of the tax band the individual is in. Dividend income over this £1,000 will be taxed at the following rates depending on the level of other income received:

• Basic rate band – 8.75%
• Higher rate band – 33.75%
• Additional rate band – 39.35%

When disposing of your shares, particularly if they have appreciated/increased in value, you may encounter a tax liability in the form of Capital Gain Tax.

Individuals are granted Capital Gains Allowance (£6,000 for 2023/24), and if their gains fall below this threshold, they are exempt from paying Capital Gains Tax (CGT). Amounts above this allowance are subject to CGT at either 10% or 20% depending on if the individual is a basic or higher rate tax payer.

Furthermore, exemptions from CGT are typically applicable when gifting shares to one’s spouse, civil partner, or a charitable organisation.

Landlords

UK landlords are obligated to complete a self-assessment by HMRC, this ensures that an accurate declaration of rental income and expenses is made, thereby determining the correct tax liability. However, there are other reasons that an individual may wish to file a self-assessment, such as:

Relief from finance charges (e.g. mortgage interest) is available to individuals as a basic rate deduction (20%) from their final tax liability, i.e. if you pay £2,000 of interest, you may be eligible to claim a £400 deduction from your final tax liability. This relief is limited to the lower of profits from a property and the amount of interest paid. Unused finance charges can be carried forward and utilised in future tax years.

Landlords are entitled to £1,000 per year in tax-free property allowances. This means that if your annual gross income from your properties is £1,000 or less, you do not have to inform HMRC or declare this on a tax return.

However, this allowance can only be used in certain circumstances. You cannot use the property allowance if you:

• Claim the tax reducer for finance costs such as mortgage interest for a residential property
• Deduct expenses from income from letting a room in your own home instead of using the Rent a Room Scheme

Property owners with Capital Gains

When an individual makes a gain on the disposal of their property, there is a legal requirement to report this gain and pay any taxes due. Outside of the legal requirement, some other reasons that an individual should report capital gains are:

• Taxation of Gains: CGT is a tax imposed on the gain made from the sale or disposal of valuable assets like property. Reporting these gains helps HMRC determine the correct tax treatment for the income earned from these transactions, just like any other form of income.
• Claiming relief: Reporting CGT allows property owners to calculate their tax liability accurately. There may be exemptions or reliefs from CGT in specific situations, such as when selling a primary residence or making certain investments. Reporting CGT enables property owners to claim these benefits and reduce their tax liability legally.
• Timely declaration: From the completion date of the property, an individual has 60 days in which to file a Capital Gain on UK Property return. This outlines the gain made on the property as well as any reliefs claimed. Should an individual miss this deadline, HM Revenue and Customs may impose an automatic £100 fine for returns up to 3 months overdue, followed by further penalties if the return remains overdue.

High earns (>£100k)

For those earning over £100,000, HMRC’s stance is that you must file a self-assessment. Your Personal Allowance is reduced by 50p for every £1 that your income exceeds £100,000. This means by £125,140 your allowance is zero. For example where an individual’s gross income is £110k, there personal allowance would be adapted by £5,000, making their final personal allowance £7,570 for tax year 2023/24. HMRC’s requirement of this submission is to ensure that individuals are correctly repaying their personal allowance, especially if it was claimed.

Non-resident landlords

Non-resident landlords are required to file a self-assessment in the UK. This requirement ensures compliance with UK tax laws, specifically the Non-Resident Landlord Scheme (NRLS). This scheme obligates landlords living abroad but earning rental income from UK properties to report their profits and pay any applicable tax.

UK law seeks to collect tax on the rental income before it is paid to the overseas landlord under the NRLS, it does this by imposing an obligation on the UK letting agent to withhold tax on the rental income before it is paid to the overseas landlord. Where there is no UK letting agent, the tenant themselves may withhold tax personally if the rent they pay to the overseas landlord is more than £100 a week.

Tax withheld by the letting agent or tenant can be utilised as a deduction against the overseas landlord’s UK tax liability when they complete a UK self-assessment tax return (SATR). The Non-Resident Landlord Scheme NRLS does not alter the taxability of UK Property income, regardless of whether it is taxable or not.

As with UK based landlords, self-assessment allows landlords to claim deductions for allowable expenses related to their rental properties, reducing their taxable income.

Foreign income earners

UK residents are liable to UK taxes on all worldwide income and gains. Examples of foreign income and foreign gains include:

• Earnings relating to work duties performed in another country (even if this is for a UK employment, or the earnings are paid in or from the UK);
• Profits from running a business in another country;
• Income from renting out a property in another country;
• Gains from selling overseas assets, for example, a house or shares;
• Interest income on savings in overseas bank accounts;
• Overseas pension income;

Filing a self-assessment is essential for taxpayers to claim foreign tax credits or exemptions, preventing double taxation on their overseas income and gains. Additionally, it facilitates compliance with international tax agreements and treaties.

For residents who are non-domiciled, the UK tax owed on foreign income and gains can sometimes hinge on whether funds or assets are bought into the UK. Under the remittance basis of taxation, UK tax is levied on UK income and gains in the tax year they occur, while foreign income and gains are only subject to UK tax when they are brought (or ‘remitted’) to the UK.

Beneficiary of a Trust

The tax treatment of funds received as a beneficiary of a trust, known as a ‘distribution’, varies depending on the type of trust and the nature of the payment, specifically whether it constitutes an income distribution or a capital distribution. Some examples of different treatments are:

Interest in possession trust

Beneficiaries of an interest in possession trust are typically liable for income tax on any income/gain generated by the trust. This includes interest, dividends, rental income and other forms of income that is generated. Each beneficiary must report their share of income on their individual self-assessment tax return as if they had incurred the income/gain directly.

Discretionary trust income

If your payment is from a discretionary trust, then the trustees will pay tax at the additional rate (45%) on the income before it is paid to you. The Trustees are obligated to provide you with a Form R185 (trust income), indicating the distribution amount, which is treated as having undergone a tax deduction at a rate of 45% (applicable for the 2023/34 tax year) before it is paid to you. If your tax rate is lower than the deducted tax on your trust income, you can potentially qualify for a tax refund.

For this type of trust regardless of the type of income actually received from the trust, you are treated as receiving one type of income, which would be ‘trust income’.

High Income Benefit Charge

Should you or your spouse/partner receive child benefit in the tax year, you may need to file a self-assessment to repay part or all of it.

The high-income child benefit tax charge, effective since 7 January 2013, reclaims child benefits via self-assessment when either you or your partner’s adjusted net income exceeds £50,000.

The charge reduces child benefit entitlement by 1% for every £100 of income above the £50,000 threshold.

For example, if your spouse receives £1,000 in child benefit, and your adjusted net income is £54,000, your benefit will be reduced by 40%, resulting in a £400 charge collected through your self-assessment tax return.

Individuals with diverse sources of income, such as self-employment, rental properties, investments or foreign income, often have complex financial situations that the Pay As You Earn (PAYE) system isn’t equipped to handle. Filing a self-assessment tax return (SATR) is the most appropriate way to report all aspects of your financial affairs accurately.

Do you need to file a Self-Assessment Tax Return? and need some help then contact a member of the team

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