Property Taxation Guide
This is a general guide to provide landlords with advice on the taxation issues relating to renting property. For any specific issues you should seek a good local accountant.
Letting income is taxable in the same way that your savings’ interest and salary are taxable. The good news is that you can deduct the vast majority of costs associated with letting to reduce your tax liability, which include:
o The interest component of your mortgage repayments
o Agents fees
o Maintenance costs
o Buildings insurance
o Service charges (for apartments and leasehold property)
o A wear-and-tear allowance for furnished properties of 10% of the gross rent. Alternatively you can claim a “renewals” allowance which are costs associated with replacing furniture or equipment. This is slightly more complex and you should check your claims with an expert. You cannot claim both ‘wear-and-tear’ and ‘renewals’
o Repairs but not improvements. While like-for-like repairs are deductible, any work to “improve” your property is not. For example, replacing an old kitchen with a new kitchen is normally allowed, but extending your kitchen into the side return is an improvement and not an allowable cost. If you are not sure where you stand, take professional advice.
o The direct costs of letting the property, e.g. phone, stationery
You should keep receipts for everything. If you are a joint owner of a home, then your proportion of the rental income is the same as your ownership proportion.
We send all managed landlords a full income and expenditure statement at the end of the financial tax year. Many clients ask us to send a copy to their accountant who will then process the letting income liability.
Non-Resident Landlord Tax
A number of our clients live overseas and we are very experienced at handling all Non-Resident tax issues.
A Non-Resident is defined by HMRC as:
o you left the UK to go abroad permanently or your absence and full-time work abroad lasts at least the whole tax year
o your visits to the UK are less than 183 days in a tax year and average less than 91 days a tax year over a maximum of four consecutive years
If you do not register for Non-Resident Landlord tax exemption, we have to take 20% tax from the gross rent (the income minus allowable expenses) and pay you the net amount remaining. We then send the tax to HMRC. We are audited comprehensively and have to be able to prove to HMRC that we have followed the letter of the law in all cases.
So of course it makes sense to fill out the NRL 1 form (NRL 2 for companies and NRL 3 for trustees) and gain exemption from HMRC. This means we can pay all your rent direct without removing tax. It is better for you and better for us. If you have any questions, please feel free to contact the office.
We are legally obliged to give each Non-Resident Landlord a statement by 5th July detailing the rent paid and tax deducted for the previous financial tax year to 31 March