Landlords' Accounting Services

Some landlords who do not use a landlords' accounting service are unaware of a number of the taxation changes applying to property income. 

Tax is charged on the annual profits or gains arising from any business carried on in order to obtain rents or other receipts from any property in the UK.

It includes both furnished and unfurnished properties.

Basis of Assessment

Income tax is assessed on the full amount of profits arising in the year of assessment (i.e., there is a deemed annual accounting period ending 5th April).

The profit should be computed using normal accounting principles in particular the accruals basis should normally be applied.

However, where total gross rents do not exceed £15,000 a year HMRC will accept computations on the basis of amounts received and paid, with no adjustments for amounts in arrears or in advance, providing the cash basis is used consistently and does not give a materially different result from the statutory method.

Cash Basis (turnover <£15000) Income and expenses are recognised only when cash is received or paid out

Accruals Basis

Income and expenses are recognised when a sale is agreed, even though as yet no cash has been received or paid out.

Income Chargeable

• Rents from furnished, unfurnished, commercial and domestic premises and from any bare land;
• Any separate sums received from the tenant for the use of furniture in a furnished property
• Rents, Ground rents and feu duties
• Premiums received on the grant of leases
• Income from the grant of sporting rights
• Income arising from allowing waste to be buried or stored
• Income from allowing a 3rd party to use your land, e.g. film crew
• Grants received from local authorities
• Rents received through enterprise zone trust schemes
• Income from static caravans or houseboats
• Service charges if received from tenants
• Refunds or rebates of rental business expenses, previously allowed for tax insurance recoveries under policies providing cover against non- payment of rent

Allowable Deductions

When calculating rental profits you can deduct expenses as long as they are

• Incurred ‘wholly and exclusively’ for business purposes and
  
• Are not of a capital nature

Wholly and Exclusively

For an expense to qualify the business purpose must be the sole purpose.

Any non-business or private use prevents any deduction where the business element cannot be distinguished.

However, where a definite part or proportion of an expenses is exclusively incurred for the purpose of the business, a deduction of that part or proportion can be made e.g., telephone expenses.

Capital Allowances

An election can be made to claim capital allowances on plant and machinery used for the maintenance of premises, but not assets that are covered by the 10% wear and tear allowance.

Carrying Losses Forward

All losses brought forward from previous years can be set off against future income from the business.

Contact us if you have any further questions relating to your landlord tax.

Page content supplied by: TWDaccountants of www.twdaccountants.co.uk

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