Due to the decline in property prices over the last year, we have seen an increase in the number of people renting their properties instead of selling at a loss. If you are making a profit of over £2,500 on the rental of your property you will need to complete a tax return.  We have compiled a list of five tips for any landlords that needs to complete  a tax return this year:

1. Make the most of your allowable tax deductions:

You can reduce your tax liability by offsetting any expenses that you accrued. These could include:

• letting agent’s, and lawyers/legal fees
• building and contents insurance costs
• loan interest
• maintenance and repairs -improvement costs are not allowed
• rent, ground rent and property service charges
• Council Tax
• advertising your property to rent
• other costs such as phone calls

 2. Offset loses from other properties

If you are lucky (or unlucky, depending on how you see it!)  to be renting more then one property you can offset losses from one property with gains from another. Also losses which relate to capital allowances may be offset against total income of the current year or subsequent years.

3.  Keep records

If the profit from your property rental is less than £2,500 and you are employed, you can ask for a change in your tax code instead of completing a tax return. Either way, make sure that you keep a record of all your income and expenses for at least six years, as the Inland Revenue could ask at any time to see your figures.

  4. Rent a Room

If you really dislike paying tax on your property, one way around it is to rent out one of the rooms instead of the whole property.  The government have introduced a tax exemption to anyone who rents a room in their house for up to £4,250 a year.  However if the property is jointly owned then this exemptions is cut in half to £2,125.

 5. Gain on Capital Gains

Capital gains on your primary principle residence (PPR) are free from capital gains tax. If however you rent your property you would be forgiven for thinking that the property is no longer your primary residence.  If the property has ever been your PPR, then it is always deemed to be your PPR for the last three years of ownership even if you have rented it out.

Related Articles:

• Tax returns for rental properties
• Inland Revenue property Tax returns

Please note that all the information above and contained on this site is for general reading purposes and should not be regarded as tax advice or help. You should not rely on the above data or information to make (or not make) any personal financial decisions. Always remember to get professional advice for your own particular situation.