UK Resident Individual
 |
| Overview |
| Forms to get you started |
| Fees |
| Frequently Asked Questions |
| HMRC Guidance |
| Rates & tables |
| Maintaining your records |
 |
 |
| Overseas Resident Individual |
| UK Resident Company |
| Overseas Resident Company |
| Company Info |
|
Overview
The taxation of rental income
This overview relates to Schedule A Business, which is applicable to most individual landlords. Hotels and Guest Houses are excluded from these general rules.
Rents & allowable expenses
Rents less allowable expenses are taxable as part of the taxpayers 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. 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.
The two biggest items allowable as a deduction in calculating taxable net rental income will often be loan (or mortgage) interest and travel where the cost is attributable solely to maintaining the rental income. The lettings agent will incur other costs and as long as these represent routine maintenance these too will normally be allowable. Capital Allowances may be claimed to cover the depreciation of the plants, machinery etc.
Basis of determining "rent"
The rental income for small lettings (under £15k p.a.) is normally calculated as the cash received. Taxable rent from all other lettings are taxable on an earned or receivable basis though relief is normally given for non-recovered rental.
Losses
Special rules apply to the treatment of losses. While profits are added to a taxpayer's income and taxed at the taxpayers highest rates, losses generally may not be set off income from other sources other than some types of other property income. Losses may be carried forward to offset future profits, with some restrictions on the type of profits they may offset.
Tax Returns
All UK residents with un-taxed income are obliged to request and complete an Income Tax Return. The landlord's Tax Return must include the additional property pages. All Income Tax Returns must be filed by 31st January following the end of the Tax Year (the previous 5th April) The calculation of the tax liability takes into account all the landlord's other income and allowances, and for this reason is necessarily complicated.
Sale of the Property
On disposal of the property 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. The principal relief is Taper Relief (the longer the property is owned, the lower the effective rate of tax) and a personal annual exempt amount. Further substantial reliefs are available if the landlord has lived in the property at any time as his only and principal private residence.
This note is provided as a general overview. It should not be relied upon for taxation purposes, as it cannot provide a complete analysis of the law in any particular circumstance. Taxation is complex and the client should take advice specific to his/her own circumstances. Landlords Tax Services Ltd cannot accept any responsibility for any loss suffered as a result of reliance on the foregoing overview. We will be pleased to advise on any individual situation.