Records in this category
- Taxation of Property Income - I have recently puchased a second home and have let it to tenants; do I need to declare my rental income and what might I have to pay?
- Tax Deductions - What deductions and expenses can I claim against my rental income?
- Rent a Room Scheme - I intend to let a room in my home to a lodger. Do I have to declare the income I receive to HMRC and if so how will this be taxed?
- How long do I need to keep my accounts, invoices and tax records as a property landlord?
- I understand that Capital Gains Tax (CGT) on property sales has undergone some changes since April 6, 2008. How do I calculate my CGT liability after this date?
- Should I buy residential buy-to-lets in my own name or form a company?
- Council Tax - I have let my property for less than 6 months and now the council are telling me that I, as landlord, am liable for the Council Tax, not the tenant. Can this be right? I would not have let for less than 6 months if I had known this.
- Non-Resident Tenant - I let my property for 6 months on an AST but my tenant has not entered the property. The tenant is paying rent but how do I stand with my tenant, Council Tax, utilities bills and the Tenancy Deposit Scheme?
- I want to gift my property to my children but I need to keep living in my home. I would also consider gifting some investment property, but would still need to receive the rental income. Is it possible to do this without a massive tax bill? Would I need to set up a trust?
Taxation of Property Income - I have recently puchased a second home and have let it to tenants; do I need to declare my rental income and what might I have to pay?
As a UK resident with rental income you most certainly do need to declare your rental income. There are severe penalties for not declaring rental income. You also need to declare your income if you receive rental income from properties abroad.
In practice, because you can claim expenses including mortgage interest relief against your rental income, many people don't pay any tax in the early years of letting because they probably make a small loss on the project.
If you have always been an employed person and do not normally submit a self-assessment tax return you will now need to start submitting one - contact your local tax office to inform them about your rental income. You have until 5th October in the tax year following your aquisition and income from property to declare.
Income from property is classed as investment or "unearned" income but under schedule A tax rules expenses are allowable as though the letting were a trade or business, so long as these expenses are incurred 'wholly and exclusively' for the rental "business". Allowable expenses include interest on loans, agents fees, insurance, repairs etc.
You can claim expenses that are allowable against income each year on your self assessment tax return, but you cannot claim costs which are deemed to be capital expenditure or improvements. For example, you cannot claim for furniture, fixtures and fittings, but you can opt to claim for replacements on either a renewals basis or a 10% of annual rent "wear & tear" allowance. Repairs can be claimed for, but not improvements. One exception here might be the replacement of single glazing with double.
If your lettings, after allowable expenses, make a loss in the early years (very likely) you can offset these (pool them) against other rental income (not earned income) or roll them forward to following years.
For those with lodgers in their own homes the rent-a-room allowance (which has not increased in over 10 years) is £4,250. If you are letting furnished holiday accommodation and comply with all the rules this is treated as a full business or trade. Income is treated as earned and can be used for pension contributions. Losses can be set-off against other earned income and any capital gains on disposal or funds transfered to holiday lets from any another business sale can qualify for roll-over relief.
If you receive income from property you let abroad it is calculated in a similar way to UK based lettings but comes under tax schedule D Case V and the holiday lettings rules don't then apply. If you live abroad and earn rental income in the UK there are special taxation schemes (see IR140 below) where income tax is deducted at the basic rate at source either by the letting agent or by the tenants and paid direct to HMRC.
©LandlordZONEâ All Rights Reserved - never rely totally on these standard answers. Before taking action or not, always do your own research and/or seek professional advice with the full facts of the case and all documents to hand.
- Joint & Several Liability - I have signed a tenancy agreement for my student house (sharing with 4 others) and the agreement contains the term "Joint and Several Liability" What does this mean?
- Squatter's Rights - Someone has occupied my property for some time without my permission. Can they claim good title through Squatter's Rights (adverse possession) ?
- Leaving Early - I signed a new tenancy agreement last month and now I find I need to leave. My landlord says I owe him all of the rent - is he correct? I intend to drop the keys through the letter box and walk away.
- Re-development Ground - Section 25 Notice. My landlord has served notice citing the re-development ground as the reason for ending my commercial tenancy, what should I do?
- Tenancy Deposit Scheme (TDS) I believe the TDS scheme commenced on 6th April 2007. How does it work and how will it affect existing tenancies?
115971/87%Last update: 2008-12-10 20:00
You cannot comment on this entry