Frequently Asked Questions - The complete tax service for the residential property landlord domiciled in the UK

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Frequently asked questions

The basics

 

Capital Gains Tax

 

Income Tax

 

The basics

Is my letting income taxable in the UK?

Yes.

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How can I minimise the tax I have to pay?

Deduct the expenses of letting from the gross rents and claim UK tax free allowances.

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What kind of expenses can I deduct?

All the expenses directly related to maintaining and running the property, arranging the lets and collecting the rent. If you borrow to buy the property the interest you pay can be deducted too.

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Am I eligible for any UK tax free allowances?

Yes, if they are not already set against other income.

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Suppose the UK tax authorities don't know about my rental income?

The UK H.M. Revenue & Customs have arranged matters to ensure they will know about it. Your lettings agent makes regular returns to the H.M. Revenue & Customs. It is also a serious offence if you don't tell HMRC.

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How do I register with the UK H.M. Revenue & Customs?

Ask Landlords Tax Services Ltd to complete and submit a form SA1 for you.

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Will I have to make UK Tax Returns?

Yes. Once a year unless instructed in writing by HM Revenue & Customs to do otherwise.

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How will I know I'm paying the right amount of tax?

We will calculate it and advise you.

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Capital Gains Tax

Before buying my investment property I had two abortive purchases. The legal and survey fees amounted to about £1,500. Can I claim tax relief on these?

No, I am afraid not.

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I live in the UK and have owned a property in Coventry, which I have let out for the past five years. I am now thinking of selling it. The current value is about £100,000 more than I paid for it. I have heard that non-residents do not pay Capital Gains Tax (CGT) - should I move overseas?

This is generally far more complicated than is realised. There have been many thousands of pages written on this subject, and the following paragraphs can only give a very generalised and necessarily incomplete view of the rules.

Where you are resident is of importance in this context. The Statutory Residency Test will enable determine your residency. The test is complicated. We will provide assistance in taking the test if you require it.

In summary: Non-resident landlords are generally not subject to CGT on disposals occurring before April 2015. Thereafter they will be liable to CGT on the gain arising after that date.

A disposal after emigration from the UK but before the following 5th April may be subject to CGT.

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I have lived in my property and then moved away and let it out. I am now thinking of selling it. I know I will have to pay tax on the gain in value. What allowances are available against the gain?

The calculation of CGT is quite complicated and it is not possible to deliver an exhaustive lesson on CGT here. The following may be taken as being only the briefest glimpse of some of the allowances and reliefs that may be available in your case. The starting point for calculating the gain is the difference between the cost and the selling price. You may add to the true cost all the legal and other costs of acquisition. The selling price may be reduced by the costs of disposal. Special rules apply to properties owned since before 6th April 1982. The gain is assumed to have accrued evenly over the period of ownership of the property. The gain accruing during the period when it was your principal private residence may be ignored and the gain accruing when you were not resident is taxable subject to the following exemptions and concessions. Where a residence has been the owner's only or principal residence at any time during his period of ownership, the last 18 months (3 years until 5th April 2014) of ownership are treated as a period of residence and the gain accruing then is normally exempt. Certain other absences may count as a period of residence: any absence throughout which the owner is employed abroad, and up to four years for certain work related absences. Some of the above apply where the person is self-employed.

There is also a further relief for owners of properties that have been at some time their principal private residence and which for some time have been let for private accommodation. The gain attributable to the period when the property was let is reduced by the lower of a) £40,000 and b) an amount equal to the part of the gain that is exempt because of the owner occupation.

The interaction of the various reliefs makes this a very complicated subject and the above should not be relied upon when calculating your tax liability. Nor should you assume that all or any reliefs, exemptions, allowances or concessions are available to you. You should always take professional advice specific to your own circumstances.

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Income Tax

I am going abroad to work for three years and want to rent out my home. My letting agent has told me that I will be taxed on my rental income at 20% unless I complete a form now and will then have to complete UK Tax Returns. Is there any advantage to me in dealing with all this paperwork?

Usually the answer is yes. Agents collecting rent for non-resident landlords are obliged to deduct tax at (currently) 20% of the rent after deducting the small number of expenses that they are aware of. The form you are being asked to sign now is the NRL-1 which is an application for relief from the obligation to have tax deducted at source. Once this permission is granted you will have to keep your tax returns up to date or it will be withdrawn. The advantage to you is that the calculation of the amount taxable looks far more attractive. In arriving at the taxable amount you may now deduct all those expenses you have incurred in maintaining the rental income that your agent did not know about. These include the loan interest you have paid on any loan you took out to buy the property or bring it up to its present standard. In addition if you are a EU citizen or a citizen of another qualifying country you will still get all your UK personal allowances to set against your UK income. Currently this will give you an additional amount of £9,440 tax-free. For most people the actual tax paid is considerably lower than if you took the lazy way out and just put up with the 20% deduction.

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I have just furnished a house and put in a new bathroom to rent it out. What allowances do I get for the cost of the furniture and bathroom?

Allowances for capital items are called Capital Allowances. Capital Allowances are not available in respect of furniture or furnishings in a dwelling house. Such expenditure qualifies for a wear and tear allowance equal to 10% of the rent of the property subject to a few small adjustments, but only if the property is fully furnished. In respect of the bathroom and any other items that are an integral part of the building it is important to differentiate between repairs and improvements. No allowance is given for expenditure on improvements (though some relief may be available against Capital Gains Tax when you sell) but expenditure on repairs to such items is normally allowable.

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I intend to buy a property to let. It will need a new kitchen and some treatment of the timber in the property. Will I get tax relief on the cost of this?

Expenditure to make good dilapidation that occurred before you bought the property is normally allowable as long as the property was in a useable state when acquired.

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I live in the UK and rent out a house that I own in my home town. My calculations show that after deducting interest etc I now make a small loss each year. Can I offset this against my other income (salary and deposit interest) in arriving at my total personal tax liability?

No. Generally losses on rental income can only be offset against profits on other rental income of the same year or may be carried forward to offset future profits on lettings.

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I am buying to let a property with a rather complicated legal position. I have been warned that the fees may be quite high. What tax relief do I get on legal fees?

The costs associated with the acquisition of the property are treated as part of the acquisition cost and most are allowable in the calculation of the capital gain arising when you sell. Costs of the first letting are not allowable unless it is for less than a year but the costs of renewing a short lease are allowable.

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I want to rent my property to a relative who cannot afford the full market rent. What are the taxation implications of this?

If you rent a property to a connected person it is likely that the H.M. Revenue & Customs will ask whether the rent being charged is at a commercial rate. If the rent is below the market rate then the allowable expenses may be restricted so that any loss is ignored, and is not available for offset in the year or in any future year.

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Before buying my investment property I had two abortive purchases. The legal and survey fees amounted to about £1,500. Can I claim tax relief on these?

No, I am afraid not.

The taxation of individuals is a complicated subject that can never be exhaustively reviewed in a forum such as this, which may be considered a rough guide only. Accordingly you should not rely upon the foregoing in connection with your tax planning or the taxation position. You should always seek professional advice specific to your own circumstances.