Residential Lettings FAQ's
I am considering buying an investment property.What do I need to do about tax?
Letting residential property is treated as a single business, and taxes are due to be paid on profits. If you are UK resident then you need to advise HM Revenue & Customs (HMRC) of this activity within 3 months of letting the property also you need to apply for self assessment, which means completing a tax form each year. If you make losses then they can either be offset against profits made from any other properties that you own and let out. If your lettings business is a single property then tax losses can be offset against profits generated in future years.
I am being posted to the USA with my Company and I'm considering letting my property - what tax advice can you give me.
Even though you will be living abroad for a period of time profits arising from letting your property will be liable to UK income tax on profits after allowing for personal allowances. If you will be abroad for a period of at least 6 months then it will be deemed that your normal place of abode is outside of the UK. In order to avoid having a 20% deduction to your rental income being made by your property manager or tenant it is worth registering as onto the Non Resident Landlord scheme before you move abroad. To be accepted onto the scheme by HMRC you must satisfy one of the following criteria:
- Your tax affairs are up to date
- You have never had any income from property or other sources in the UK
- You do not expect to be liable to UK income tax for this year
Your taxable profit from property letting is added to your overall income. If this is more than your tax allowances you'll pay tax on it at your normal Income Tax rates. If you let property jointly with someone else, when you fill in your tax returns, you should each show your share of:
· the income and expenses
· the profit (or loss)
What paperwork should I keep?
You'll have to keep records of your property letting business for six years after the tax year they're for. You need them to back up the figures you put on your tax return. Your records should include details of:
· All the rent you receive and the dates when you let the property
· Any income from services provided to tenants
· Your business expenses
· Rent books, receipts, invoices and bank statements
Can I offset losses against Pay As You earn (PAYE)?
Losses from a letting business cannot be offset against PAYE. However if you're employed, or getting a pension through PAYE, and your taxable income from property is less than £2,500 pa your PAYE tax code can be adjusted to collect the tax on your property income each year.
What expenses can I offset against rental income ?
Expenses incurred wholly and exclusively in running the business can be offset against income e.g.
· Mortgage interest
· Repairs but not improvements
· Allowance for ‘wear and tear’ on furnished lettings
· Letting agents fees
· Accountants fees
· Buildings and contents insurance
· Services e.g. gardening and cleaning
· Council tax
(this is not an exhaustive list)
However please note that repairs carried out before the letting period commences are disallowed for setoff against rental income even though the same repair might be allowable during the rental period. (read Tax for Landlords page for more information)
I have rented out my property for 10 years and its value has increased significantly do I have to pay tax when it is sold?
Yes it is likely that you will have to pay capital gains tax. The calculation is broadly:
· The sales price for the property less cost of selling e.g. agents fees, solicitor fees etc.
· Less the cost of the property plus fees, stamp duties, improvements made to the property and repairs undertaken before the property was let.
· There are further potential allowances available depending on whether the property was ever the main residence plus the annual capital gains allowance currently £10100 per person owning the property
I can't sell my property and I'm thinking about letting my house and renting a property in a cheaper area.
In the current economic climate the growth in numbers of accidental Landlords is a more common scenario. Whether or not the idea works for you will depend on the rental value of your property and the cost of rentals in the area that you choose to move to. When preparing your budget it is important to take account that income tax at your marginal rate will be payable on rental profits, yet you will not receive any income tax relief on the cost of rentals that you will pay.
Disclaimer: *** Information provided here is given without any obligations and we will not accept any claims or liabilities for any damages as a result of you relying on the information given here.***
