Tax for landlords

Income tax for landlords
Capital Gains Tax for landlords
Landlords living outside the UK

Income tax for landlords

It is advisable to consult an accountant who can offer professional advice on tax matters. Proper advice can help save you money and maximise the return on your investment.

UK landlords will need to inform HM Revenue & Customs (HMRC) of rental income received and then pay any tax due on it. Regardless of whether you are employed, HMRC generally sees the income you receive from letting a property as 'unearned'.

You will have to pay income tax on the profit you make from letting property. The 'profit' is the rental income, less certain deductions you can make for 'allowable expenses'.

What are allowable expenses?

Expenses related to 'maintaining' the property are allowable; expenses related to 'improving' the property are not.

As a general rule, the expenses you can deduct from rental income include:

letting agent fees
accountancy fees
buildings & contents insurance
interest (but not capital) payments on property loans and mortgages
maintenance and repair (but not improvement) costs
utility bills
rent, ground rent and service charges for leasehold properties
council tax
services such as gardening or cleaning
other direct costs of letting the property (such as phone calls and stationery)

Furnished properties

When you let a furnished property, the cost of the furniture is regarded as capital expenditure and is therefore not an allowable expense.

There are two ways to offset the expense of providing furniture:

To deduct 10% from your rental income, as a 'wear and tear' allowance.
Alternatively, you may deduct the full cost of replacing items as and when you need to replace them.

Losses

If expenses and capital allowances in any one year are greater than the rental income received and you make a loss, you are not able to set this off against any other form of income.

You are permitted however, to carry the loss forward and set it off against profits made on letting property in future years.

For more information visit www.hmrc.gov.uk/incometax/basics.htm or contact us on 0800 756 6210.

Capital Gains Tax for landlords

Capital Gains Tax (CGT) is payable when you sell an investment property. The liability for CGT is calculated on the profit made when the property is sold or otherwise disposed of.

The detailed calculation of the taxable capital gain arising on the disposal of an investment property is complex and should normally be undertaken by an accountant.

Reducing your CGT Liability

There are a number of expenses that can reduce the profit you make when disposing of a property:

Any capital expenditure on improving the property (such as installing central heating or double glazing). The cost of maintaining such items is not a capital expenditure but can be offset against your rental income to reduce your income tax liability.
Professional fees such as charges made by solicitors, financial advisers, surveyors and mortgage specialists to facilitate the purchase and disposal of a property.
If at some point, you have lived in the property you are disposing of, whether before or after renting it out, it is possible to further reduce the amount of tax you have to pay.

For further information, contact your accountant, visit www.hmrc.gov.uk/cgt/ or contact us on 0800 756 6210.

Landlords living outside the UK

Even if you live outside of the UK during the tenancy, you remain subject to UK income tax on rents received.

If you live abroad for more than six months each year, your letting agent has to deduct basic-rate income tax from any rent collected on your behalf. You may apply to HMRC for approval to receive your rental income without tax deducted. We can supply the forms required.

If your application is successful, we will be able to pay your rent to you without deducting tax. Although the rent is paid without tax being deducted at source, it remains a taxable income which you must include on your annual tax return.

For more information visit www.hmrc.gov.uk/cnr/nr_landlords.htm or contact us on 0800 756 6210.

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