Landlords and Property Tax

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Property tax

The UK Landlord has some of the lowest tax rates in Europe, but one of the most complicated systems. UK residents pay tax on the profit they make from renting property. There are special rules for calculating profit. The profit is then added to other income and taxed at the individual’s highest rate.

Gains on disposal of property are taxable but if you have ever lived in the property there may be substantial reliefs available.

Let us make sure you don’t miss out on any of the allowable expenses, reliefs, allowances or exemptions.

 

WHAT WE CAN DO FOR YOU

We offer the quick and easy way through the minefield of UK tax for landlords. If you live in the UK and have any income that is not taxed or is not taxed at the right level you are obliged to tell HM Revenue and Customs about it and for most this means you will have to complete a tax return.

If you are a landlord living in the UK and receive more than £2,500 in rent in a year you have to complete a tax return. Below this you should tell HMRC who will collect any tax due through your PAYE coding if you have one. You must tell HMRC if you receive over £1,000 rent in a year.

 

RENTS & ALLOWABLE EXPENSES

Rents less allowable expenses are taxable as part of the taxpayer’s total UK income. The main rule for allowable expenses is that they must be wholly and exclusively incurred in the course of the letting business though some relaxation of this rule may be available in specific circumstances. It is important to differentiate initial and capital costs from running costs. Capital costs and set-up costs, which are capitalised, are usually relieved for tax purposes against the calculation of the gain on sale of the investment property. The cost of improvements is normally treated as increasing the base cost of the investment.

One of the biggest expenses will often be the mortgage or loan interest. From 5th April 2020 none of the interest is allowable in calculating profit, but 20% of the interest paid is potentially available to be deducted from your tax bill and what is not used is carried forward to the next year.

The lettings agent will incur other costs and as long as these represent routine maintenance these too will normally be allowable. The replacement of furniture and equipment on a like-for-like basis is fully allowable. No allowance is given for the cost of initial furnishings or equipment. Get in touch today to find out how we can help you with your letting business accounts.

 

WHAT HAPPENS WHEN A PROPERTY IS SOLD?

If you are disposing of a UK residential property you MUST report the transaction and pay any tax due within 30 days of transfer (completion). In addition, such a transaction plus disposals of any other type of asset must be reported with the annual Self-Assessment tax return.

On disposal of the property by a UK resident, any increase in value is potentially subject to Capital Gains Tax. The gain is calculated by comparing the sales proceeds with all the acquisition costs. Some reliefs are available and there is a personal annual exempt amount. Substantial reliefs are available if the landlord has lived in the property at any time as his only and principal private residence. Get in touch today find out how we can help you with your Capital Gains Tax calculation.

 

WHAT MAKES AN INDIVIDUAL UK RESIDENT?

You are probably resident in the UK if you normally live in the UK and only go abroad for holidays and short business trips. You are always resident if you spend 183 or more days in the UK in the current year. If you believe you may be non-resident then you must pass several precise and very complicated tests – please contact us.

 

WHAT IS THE ANNUAL TAX ON ENVELOPED DWELLINGS (ATED)?

If you are a landlord, we offer a very quick and easy way for you to deal with your UK tax obligations. We deal with our clients by email and so there is no need to take time off work to visit the accountant.

If you own your property through a company and it was worth more than £500,000 on 1st April 2017 then you have to make the Annual Tax on Enveloped Dwellings (ATED) returns each April. If the property is not let or is not a development property you may have ATED to pay. We can create and file your ATED returns for a low fixed fee. Don’t get caught out!

We have the expertise and experience to deal with the UK tax affairs of landlords quickly and easily. To find out more about how we can help you click here.