 |
Letting Property The Tax Position |
| A frequently asked question is "as a
landlord will I have to pay tax on my rental income?" The simple answer is
"yes", but "it depends"! |
Income Tax
Income Tax must be paid on the net income from letting a property irrespective
of whether youre a resident or non-resident. As a managing agent we are often
required by the Inland Revenue to disclose the names of all our client
landlords. The letting income on which you will be taxed is the net income from
the property; that is the gross income less allowable expenses which are
incurred in letting the property. These usually include:
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Loan Interest
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Insurance, ground rent, service charges
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Costs of providing services which are included in the rent e.g. water, gas
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Accounting and legal costs
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Costs of repairs, renovation and redecoration.
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Agents fees.
In addition, there is an allowance for wear and tear relating to furniture,
fixtures and fittings but only if the property is furnished and no charge has
been levied for damage to these items.
There are few problems for most landlords in connection with income tax on
rental property, and in many cases these expenses and allowances can exceed
their income and remove any tax liability.
Please note there are certain expenses that are taxable including, Preparing a
property for letting
However given the importance of this issue and its complexity we would recommend
seeking professional advice from a tax specialist.
Non Resident Landlords
If you live abroad or are working abroad for an extended period you will
normally be required to pay income tax on the net rental income. As a managing
agent, Pattinson Rentals have certain obligations relating to the collection of
income tax from non-resident landlords.
Pattinson Rentals are required to deduct tax (equivalent to the basic UK rate or
tax), and pay this to the Inland Revenue unless we receive specific written
exemption from the Inland Revenue not to do so. This exception must be applied
for by the landlord using the relevant form which we will provide you with. If
exemption is granted, this will allow us to pay you rent without deduction of
tax. Note that at the end of each tax year your position must be addressed with
the Inland Revenue by submitting a UK tax return stating rental income details
and expenses. If you receive rent gross and fail to submit your tax return your
exemption may be withdrawn.
We would strongly advise seeking professional advice from a tax accountant if
you are a non-resident.
Taxation Tips
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Never conceal rental income from the Inland Revenue.
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Non-resident landlords must ensure they apply to the Inland Revenue for
exemption so that rent can be paid gross.
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Appoint a reputable, specialist tax accountant.
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Retain all documents and invoices relating to rent and repairs etc.
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Retain copy of detailed inventory which may help avoid disputes over
replacement costs which are allowable if no wear and tear allowance is
claimed.
If in doubt seek professional advice from a reputable tax specialist /
accountant.