Do you own one or more properties that you rent out?

If so, the chances are that you will have to complete you own tax return.  And, the property section is likely to be one of the most complicated sections that you complete.  However, it is important to remember that there are lots of ways that you can reduce your tax liability from rental income.  Here are our top three ways to save tax.

Maximise your tax expenses

The best and simplest way to reduce your tax bill is to ensure that you have claimed all the tax expenses you incur in renting out your property.  You are able to deduct the following expenses from your rental income:

• Buildings and contents insurance
• Letting agent’s fees
• Interest on any mortgage or loan you have secured on the property
• Maintenance and repairs to the property
• Utility bills and Council Tax
• Ground rent and service charges
• Accountant’s fees
• Other costs of letting the property, e.g. phone calls, advertising

You should remember that only maintenance and repairs are eligible expenses: improvements are not.  You can also only claim the expenses you incur solely for letting your property.  If the expense is only partly for running your property business, or if you use the property yourself, you may only be cable to claim some of the expenses.

Take advantage of tax allowances on furnished holiday lettings

If the property that you rent out is a ‘furnished holiday letting’, either in the UK or overseas, the tax rules are slightly different.

For your property to qualify as a ‘holiday let’ it must be:

• in the European Economic Area
• furnished
• commercially let as holiday accommodation at market rates for at least 70 days per year
• available for letting by the general public for at least 140 days per year

If you own a qualifying furnished holiday letting in the UK or in the European Economic Area you can claim a ‘capital allowance’ for the cost of each item of furniture and equipment you provide with the property. Capital costs include expenditure you make on assets like furniture and machinery.

Use the ‘Rent a Room’ scheme

If you already have a lodger or if you are thinking about letting furnished rooms in your home, you can receive up to £4,250 a year tax-free (£2,125 if letting jointly). This is through the Government’s ‘Rent a Room’ scheme.

The room that you let to a lodger must be furnished. However, if you take advantage of this scheme you can receive up to £4,250 of the income you receive tax-free. Any income you receive from lodgers above this amount is taxed in the normal way.

Save tax

Whatever your property business, make sure that you take advantage of all the property tax allowances and tax expenses that you can.  You could save yourself a fortune in tax.

Taxation dates back as far as the Roman invasion of Britain. Even after the fall of the Roman empire, the Saxon kings kept the taxes, known as ‘Danegeld’ on property as well as a number of custom duties on imported and exported products.

The first modern style of income tax was of a very progressive nature, meaning that the rich paid much more than the poor, who often did not have to pay any tax at all. The Poll tax of 1377 saw the Duke of Lancaster paying 520 times the amount of tax of a ‘common peasant’.

The Birth of the Inland Revenue

The first records of the Inland Revenue date back to 1665 where a board was set up to help finance the high cost of the Anglo Dutch War. In previous years there had been riots around the Smithfields area of London because of new taxes which would have forced a family of 4 to starve so it was decided that a government body was needed to help supervise the collection of taxes.

Types of Taxes

A number of taxes, some more controversial than others, were introduced by the government, including the first land tax in 1692. Other taxes included taxes on houses, windows and dogs!

The modern form of income tax that we are all familiar with was first levied in 1797 and was changed a number of times to help pay for the ever increasing cost of the war with Napoleon. The tax was abolished in 1816 due to its huge opposition and all records were destroyed in the hope that income tax would be forgotten!

Stamp Duty

In 1694 a separate board was set up to help collect stamp duty. The range of products that were subject to stamp duty, increased rapidly through the 18th and 19th century as the governments saw a golden goose to help fund the country’s expansion. Stamp duty was levied on newspapers, advertisements, playing cards, dice, hats and gloves amongst other things. In 1833 the government decided to merge the boards of stamp duty and taxes and in 1834, under the Land Act, the Board of Taxes and the Board of Stamps was officially created.

The Modern Inland Revenue

In 1849 the government created the board for the Inland Revenue after the boards for Excise,  Stamps and Taxes were unified. Finally in 1909 the jurisdiction of excise taxes was transferred to a new board known as ‘The Board of Customs and Excise’.

As you can see the Inland Revenue has a long history dating all the way back to the Roman invasion. Tax is now a part of everyday life and it is inevitable we will see many more changes in the future.

Each year everyone that works in the UK receives a tax free allowance, allowing you to earn an amount tax free. Your tax free allowance is usually allocated evenly throughout the year so that you do not receive it in one lump sum.

The  new UK government  has recently announced changes to the tax free allowance, increasing it from the current rate of £6,475 to £7,475. The increase is great news for low income earners and it will take effect at the start of the new tax year (6th April 2011).

The 15% increase of the personal allowance is a noteworthy change compared to the labour government who decided to freeze the rate from the previous year. Initially the liberal democrats who formed the coalition government with the conservative party wanted to increase the personal allowance to £10,000 but this small increase looks like a compromise.

This change will help everyone apart from the very high earner of the country. People on a  low income will benefit especially including:

• Part time workers
• Working students
• People leaving the country
• People retiring from work

If you are reading this blog from abroad, let us know how your countries tax free allowance compares to ours, we would be very interested to know. Do you think the tax free allowance should be increased further?

Although some savings schemes and bank savings plans are tax free, such as cash ISAs, generally any interest you receive on a standard bank account has already been taxed on your behalf at the standard rate of 20%.

If you are a non-taxpayer, for example a child, student or a pensioner on a low income, you need to claim that tax back. Even more importantly, you should make sure that in future, you are paid your interest gross.

How Can I Reclaim That Tax back?

First check on your statement that you have had tax deducted. If the entry is marked ‘net interest’ then you will have had 20% deducted at source on your behalf. You need to contact your local tax office to reclaim the tax paid.

How can I Prevent Tax Being Deducted in Future Years?

Ask at your bank for a form ‘R85 – Getting your interest without tax taken off’. It is a simple form to complete and once done you should not have tax deducted in future. If your circumstances change tax-wise you will need to notify your tax office of the change. If you have children who are non-taxpayers, make sure you complete the form on their behalf.

I Pay A Higher Rate of Tax on my Income. What about my Bank Interest?

Once again you have been taxed at source on any interest credited to your account by the bank. The payment you received is net, not gross, and a standard 20% will have been deducted. If you pay more than 20% tax, you should declare the net interest received on your next tax return and the Inland Revenue will tax you the difference which is due.

Good morning,

While checking through my Email this morning I noticed yet another scam Email, pretending to be from HM Revenue & Customs.

Needless to say, if you get an Email like this, it is a scam. Please do not reply or send any personal information.

Have you received a similar E-mail? Let us know and we can help get the word out.

Tax Refund Notification After the last annual calculations of your fiscal activity, we have concluded that you are eligible to receive a tax refund of 988.50 GBP. Please submit the tax refund request and give us 2-3 days in order to process it. Click here to submit your tax refund request Note : A refund can be delayed a variety of reasons, for example submitting invalid records or applying after deadline. Best Regards HM Revenue & Customs

If you are a resident for tax purposes you need to pay tax on any income you get from rental properties, even if those properties are outside of the country that you reside in. However if you are classed as a ‘resident’ but are either ‘not ordinarily resident’ or ‘not domiciled’, depending on your situation you may only be eligible for tax that you bring into the country.

Letting the Government Know

Many people think that because they own a property in a foreign country that their own countries tax laws do not apply.  This is wrong and generally speaking you will be taxed on any foreign rental income in exactly the same way as you would on any UK properties that you may own.

Preparing Your Tax Return

LIke a property that you may rent in your home country, you need to calculate your income and your expenses. There are a few factors that need to be considered when dealing with foreign property, including exchange rates and currency fluctuations.

You should convert your rental income on the day you receive it, using the exchange rate on that specific day, not when you complete the tax return. The same should be done for any expenses. There are a number of websites that can provide currency exchange rates on specific dates.

Expenses and allowances – what counts?

You are allowed to deduct the same expenses and allowances from foreign owned property as from UK property letting income. This could include travel expenses, property management fees and any non capital repair costs.

You can then declare all your income and expenses on the foreign property pages of your self assessment tax return.

Offsetting Losses

With the subprime crisis affecting not only America but all of the world, one thing not to forget is that any losses that you make from your foreign property can be carried forward to set against any future profits from your overseas properties. However  it is not possible to set  foreign property losses against any profits from property you have have in the UK.

If you have any overseas property and have a question regarding it’s tax implications, let us know in the comments below:

Last week we wrote about how you could inadvertently be giving the government an interest free loan and how to check if you are due a tax refund. This week we are going to write about what you need to do if you -have overpaid tax and how to claim it back.

Claiming Your Tax Back

After you have established that you are due a tax refund you will need to gather all documents required to file a claim. These documents will vary depending on your situation and could include:

• P91 – Employment History
• P45 – Details of employee leaving work
• P60 – End of year tax statement
• Statement of Earnings
• P86 – Arriving in the UK
• P85 – Leaving the UK
• P38(S) – Student exemption form

If you cannot find one of the required documents, it is sometimes possible to obtain a replacement. For example if you cannot find a P45 or P60 you could contact your employer and request a statement of earnings for the years that you were employed. You must request that the statement of earnings is on company headed paper and contains your name and national insurance number. This will then be accepted by HMRC as an acceptable replacement for any missing P45s or P60s. Your employer is required by law to provide a statement of earnings if you worked for them anytime in the last 6 years.  If  you require a statement of earnings, we have a template letter which you use to request this document from your employer. Just send us an Email to: templateletter@taxfix.co.uk and we’ll  forward you a copy.

Completing the Forms

Ensure that you have completed the relevant forms that apply to your situation. Everyone should complete a P91 so HMRC can reconcile their records of your employment with what you have provided. If HMRC have a gap in your employment records they will not issue a tax refund until the gap is confirmed. This can often delay rebates substantially. If you do not understand something on any of the forms leave a comment below and we will be more than happy to assist.

Sending off Your Tax Refund Application

You will need to send your application with a cover letter (we can send a template if required) to your tax office. To find the address of your local tax office you will need your PAYE reference code which can be found on your wage slip. Input your PAYE reference code into the tax office locator tool on HMRC’s website. The address you are given is where you should send your application. Be sure to make a copy of  all documents for your own records.

Wait for your Tax Refund!

It takes the Inland Revenue 4-8 weeks to even open your application. Therefore if you are missing a document or form they will send a letter asking for the missing document. Even if you send the form the next day, you will be waiting another 4-8 weeks for them to open your reply! Assuming you send all relevant documents you should get your refund cheque within 4-8 weeks. This timeframe could be increased as backlogs grow during busy periods such as the tax return deadline in January at the end of the tax year in April. Also, some refunds go through extra security checks which can also increase the time  it takes to get a refund.

If you have not heard anything after 6 weeks, it is advisable to call your local tax office to enquire about its status. This can often help in speeding up your refund.

During the next few weeks, people throughout the country will receive a P60. This document provides a statement of the amount of tax you have contributed to Alistair Darling’s coffers throughout the past 12 months.

Over £300,000,000 goes unclaimed in overpaid tax each year. Receiving your P60 is the perfect time to ensure you haven’t given the government an interest free loan.

What causes an Overpayment of Tax?

If you were in continuous employment over the past 12 months, you most likely paid the correct amount of tax. However, errors can often occur when people switch jobs, or are made redundant.

A report by PricewaterHouse Cooper states that last year 62% of companies cut staff, this coupled with a number of high street brands going into liquidation, could result in more people becoming eligible for a tax refund.

Other reasons you could have overpaid tax include:

• Leaving the UK part way through the tax year
• Earning below the tax free allowance (currently £6,475)
• Being on an emergency tax code
• Retiring from work

How to Calculate Your Tax Refund

Your P60 should look similar to the image below:

To calculate whether you paid too much tax, note your total pay for the year and the total tax deducted from your wages and Input these two amounts into an online tax calculator. Then press ‘calculate’ and this should show you instantly whether you paid too much tax.

In the second part of this blog series we will show you how to claim back any refund for yourself from HM Customs and Revenue.

The number of international students in the UK and the US has reached records numbers and it’s increasing despite the global recession. Many overseas students can legally work in the country they are studying in, helping them pay for the high cost of living abroad. However, manyare paying unnecessary tax because they are earning below the tax free allowance. This blog post will help provide a number of tips for international students who are studying overseas:

1. Can Overseas students claim back all of their tax?

It depends. If for example you are from the US , studying at Cambridge university on a student visa for a year, you may be eligible to work for a certain number of hours per week. If over the course of the year you earn below the tax free allowance (currently set at £6,475 ) you will be able to claim back all of the tax that you paid. If you earn more you can still make a claim, but your refund may not be 100% of the tax paid.

2. But  foreign tax systems are confusing!

It can be, and that is often why many international students forget or simply don’t go to the trouble of making a claim. The reality is that it does not have to be complicated and you could claim hundreds or thousands of pounds, which would go to a nice trip before returning home. We often find that overseas students have other things to worry about, like arranging shipping back to their home country or end of year exams and fail to submit their claim before they go home. Don’t let you rebate go unclaimed, claim your tax refund today.

3. I studied abroad 3 years ago, can I still make a claim?

Even though the tax year might be over and you may be back home you can still make a claim for previous years. We recommend that you make a claim as soon as possible because deadlines to make a claim are constantly changing. Try and find any tax documents you were given, as this will speed up your claim. If you can’t find your tax documents, write a letter to the company that you worked for and ask for a replacement or a statement of earnings.

4. Will claiming a rebate effect my eligiblity to come back and visit?

When you claim a tax refund you are claiming back an overpayment of tax, money that is rightfully yours. Claiming a tax rebate does not change your visa or eligibility to work or live anywhere.

Related Articles:

• International student tax rebates
  
• Claim tax back when leaving the UK
  
• Non reident tax rebates

You should seek the advice of a trained professional for your individual circumstances. None of the above can be taken as advice, it is merely informal.

We got an Email this week from a visitor who received this Email, asking if it was genuine:

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From: customers@hmrc.gov.uk
Subject: Please Submit Your Refund Payment
Date: Tue, 23 Mar 2010 15:08:02 +0200

Dear Applicant:

Following an upgrade of our computer systems and review of our records we have investigated your payments and latest tax returns over the last seven years

our calculations show you have made over payments of 256.99 GBP
Due to the high volume of refunds due you must complete the on line application, the telephone help line is unable to assist with this application.
In order to process your refund you will need to complete the attached application form.

Your refund may take up to 3 weeks to process please make sure you complete the form correctly.
As we are upgrading our records we require the completed form showing your full current details by 1 April 2010

Please submit the form attached to confirm the refund.

S. M.Roberts
Senior Manager
HM Revenue & Customs

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© Copyright 2010, HM Revenue & Customs UK All rights reserved.
TAX REFUND ID: A29R119

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Needless to say this Email is not genuine and if you receive an Email like it you should not respond and forward it to HMRC. If you find any similar Emails, let us know so that we can keep the public up to date with these scams.