When you rent out property you may have to pay tax. But the rules on paying tax on rental income can be quite complicated, especially as they often change.
To help those of you who are unsure about your tax obligations, Chris Barwick, tax manager from Sheards Accountants in Huddersfield, has put together some top tips to help you avoid any property tax pitfalls:
+ Keep all of your records up-to-date and accurate. This is not only important in order to stay organised and have information at your fingertips, it’s also a requirement to keep certain documents by law and for tax purposes.
+ A tax return must be completed if your gross income is in excess of £10,000, ornet profits exceed £2,500. Anything below these figures should be discussed with HMRC over the telephone, although they may still request a return.
+ Any losses arising can be carried forward and offset against future profits from the same property, so keep notes of these.
+ Keep in mind that the initial cost of furnishing a let property is not an allowable expense. Replacement furniture relief is only available on a like-for-like basis.
+ Check your Energy Performance Certificates (EPCs), as these are only valid for 10 years and should be at least an E rating. It is illegal to rent out a property without one. Check out the EPC Register online, which gives you all the information you’ll need to find an accredited energy assessor or to retrieve an existing EPC.
+ Capital Gains Tax is payable on the disposal of a property which is not your main home. Additional reliefs are available on properties which were once your main residence, but have since been let out.
+ As a landlord, it’s inevitable that you’ll incur expenses. However, the good news is that you can claim back allowable expenses to reduce your tax bill!These could include buying and selling costs (legal and agents), as well as certain property improvement costs. Make sure you keep a clear record of all these!
+ Landlords of houses of multiple occupancy (HMOs), identified as properties rented out to five or more non-related individuals, must apply for a licence from their local council and meet certain standards and obligations, such as providing safety certificates and maintaining smoke alarms.
+ Making tax digital is being phased in and will affect landlords with gross rental income in excess of £10,000. This will require a quarterly submission to HMRC using cloud-based accounting software and an end-of-year declaration, therefore I would strongly advise to start using/looking at relevant software in preparation.
+ Seek professional advice from an accountant, estate agent and lawyer to get the most out of being a landlord, whilst making sure you are being compliant at all times. Consider joining a landlord association, which builds your reputation and makes you more appealing to potential tenants.