Do you own a property that you let out?
If so, and your property profits are over £2,500 per year, you will have to complete a self assessment tax return. Before you do so, however, read our top 10 things to remember when completing the property pages of your tax return.
1. Claim fees as tax expenses
You can claim certain fees as allowable tax expenses. These include lettings agent’s fees, accountant’s fees and legal fees for lets of a year or less, or for renewing a lease for less than 50 years.
2. Allocate the expenses to the right tax year
Remember that you must allocate expenses to the year they apply to. It doesn’t matter when you pay the expenses; it matters when they arose.
3. Fill in the correct pages
Whether you are filing a paper based tax return or you are submitting your tax return online, remember to complete all the relevant property pages.
4. Don’t include improvements
Whilst repairs and maintenance to your rental property can be deducted as tax expenses, improvements cannot. HMRC consider improvements to increase the value of a property and so you cannot claim for the cost of these. If in doubt, check with HMRC.
5. Total all property income
For the tax year 2009-10, if your total income from UK property is below £68,000, you can group all your property income and expenses as a single total on your tax return. If it is over £68,000, you have to show your expenses separately.
6. The ‘Rent a Room’ scheme
If you rent a furnished room in your home to a lodger, the first £4,250 of income that you earn from this letting is tax free (£2,125 if let jointly).
7. Furnished holiday lettings
If a property that you own is considered a ‘furnished holiday letting’ in the UK or Europe, it is treated differently for tax purposes. Make sure you complete the appropriate pages of your tax return.
8. Keep records
If you own a property that you let, make sure that you keep records of your rental income and tax expenses for at least six year. HMRC can request confirmation of any figures that you provide during this time.
9. Don’t forget to claim all your tax expenses
To reduce your tax liability, make sure that you include all the allowable tax expenses for renting out a property. These include buildings and contents insurance, mortgage interest, repairs, maintenance, utility bills, Council Tax and ground rent.
10. Beware of claiming if you use the property
You can only claim tax expenses that are incurred solely in the running of your property letting business. For example, if you use the property yourself or the expense you incur is only partly related to the rental property, you may only be able to claim a portion of it.