Advice for Landlords
It is surprising how many Landlords do not realise what expenses they are entitled to claim against their rental income.
Whether you are a new landlord with one property or have a portfolio of properties, you need to be aware of and claim for, all allowable expenses available.
Claiming allowable expenses will reduce your taxable profit or increase the loss that can be carried forward to the next tax year and result in minimising your tax liability.
It may be that you are not currently making a profit on your rental property, however this doesn't have to result in unclaimed expenses. The losses can be rolled forward year on year until you make a profit at which point you can use the accumulated losses against the profits.
At Tax Advantage our extensive expertise and knowledge in property tax will provide you with a hassle free tax and accounting service so you can get on with being a landlord. Having extensive experience with Non-Resident Landlords and Overseas Holiday Lets we offer an unrivalled service.
1. Claiming expenses
Expenses fall in to two categories ‘Revenue’ and ‘Capital’.
Any revenue expenses can be deducted from rental income for tax purposes thus reducing the amount of tax paid on profit or increasing a loss.
If you can claim large costs as 'revenue' costs rather than 'capital' costs, then you can reduce your annual property income tax bill in a big way.
It is not always easy to determine whether a cost is of a revenue nature or of a capital nature.
For example, if you have a new conservatory built, or a new bedroom added, then this is clearly an improvement to the property and is a capital expense. This is because it has enhanced and increased the value of the property and is considered an ‘improvement’ as opposed to a repair.
Consider the replacement of windows. If you currently have rotten single glazed windows, then you will be able to replace them with UPVC double glazed windows. HMRC now consider such expenditure as revenue (repair) rather than an improvement even though the property has been ‘improved’ by replacing single glazing with double glazing. Therefore the cost of replacing windows is deductible against rent.
If you have a part furnished or unfurnished property and you need to renew an item in the propety you cannot claim the cost of replacement, this followed the withdrawal of the repairs and renewals basis concession which allowed self-employed people and landlords of residential properties to claim the cost of replacing items rather than capital allowances.
Self-employed people must claim capital alowances against plant and machinery they use, landlards of residential property cannot do this as the use of capital allowances are not permitted against plant and machinery in a residential letting.
However, you can still claim the cost of repairing items, for example, if you need to repair a stand alone fridge at a cost of £50 this would be allowed, if you need to replace the stand alone fridge the cost of replacing it is not allowed. However if the fridge is integral to the kitchen then the cost of replacement is allowed as a repair to the kitchen.
Claiming expenses against residential property letting can be a minefield and we will be happy to discuss your situation with you and advise you accordingly. Contact us today.
2. Claiming tax relief on all your property expenditure
Remember that if you have incurred a revenue expenses in letting out a property, you can offset it against the rental income.
This means that you can continue to lower your tax bill - legitimately. Most property investors are aware that they can offset mortgage interest, insurance costs, rates, the cost of decorating/repairs, wages and costs of services etc.
But so many property investors fail to claim the following costs, which, when added together, can provide a significant tax saving:
- Travel costs to the investment property
- Advertising costs
- Telephone calls made in connection with the property
- Cost of gas/electric safety certificates
- Bank charges incurred
- Professional fees for example Accountancy and Legal Fees
- Subscription to property investment magazines, products and services
3. Rental losses
If you have made a loss on your rental property then you can roll the loss forward to the next tax year, any future losses continue to accrue until you start to make a profit. During the tax year in which your property generates a profit you will be able to offset losses from earlier years against the profit.
Losses generated from a UK or EEA holiday let can be set off against general income. If you have a holiday let in the UK or within the European Economic Area (EEA) then you will be able to offset any losses arising against your other income therefore saving you tax. The rules on losses from UK or EEA holiday lets will change from April 2011, from then losses can only be used against future profits from the same business. This brings the treat of such businesses in line with the current rules for holiday let businesses outside of these areas.
In order to take advantage of accruing losses you must notify HMRC of such losses, the easiest way to do this is via completion of a Self Assessment Tax Return.
For a quote on Tax Advantage preparing your accounts and tax return please complete the contact form and we will get back to you.
4. Married couples and rental property
If you and your spouse hold a property jointly the income/expenses will be split 50:50 even if the property is held in unequal proportions. You can elect to have the income taxed in same proportion as the percentage of legal ownership of the property, you do this by making an election to HMRC to disclose the income on the same basis as the share of legal ownership.
Should the property be held in equal shares then it is still possible to make an election to apportion the income in unequal shares. To do this you must have a Solicitor draw up a declaration of trust which states the "beneficial ownership" of the property between spouses, Once the split is agreed the declaration of trust states who is entitled to what, the original document must be sent to HMRC along with the election form. The new income split will only take effect from the date HMRC agree the split. For help on doing this please use the contact form and we will get back to you.
5. Wear & tear allowance (furnished property)
If you let out a fully furnished property then you have the option of claiming a 10% wear & tear allowance as a 10% deduction against rental income.
The definition of ‘fully furnished’ for the purpose of claiming wear & tear would be to a level akin to a holiday let. Part furnished properties do not attract this allowance.
Wear & Tear allowance is used to cover the cost of repair and replacement for soft furnishings, white goods, televisions, and other chattels. You cannot claim the cost of renewing any items that are covered under wear & tear.
Once you start to rent out a fully furnished property you have to make the choice between claiming the renewals basis or wear & tear. It is usually most beneficial to claim wear & tear as you can realise this allowance immediately were as on a renewals basis you have to wait until you repair or replace it, you cannot claim the cost of buying the item initially.
You will still claim the renewals basis for items not covered under wear & tear, these will be integral fittings in the property, a fitted kitchen, bathroom etc.
Tax Advantage can help you with all your property taxation issues please use the contact form and one of our team will get in touch with you.