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Property Income & Tax
Income tax is payable on the net income from property letting irrespective of where you live. It is your responsibility to inform the Inland Revenue of your letting income whether you are a Resident or a Non-Resident landlord. It is important to note that the Inland Revenue do have the right to ask the agent to disclose the names of all landlords.
Generally, expenses can be deducted as long as they are wholly and exclusively laid out or expended for the purposes of the property business and they are not of a capital nature.
These allowable expenses include such things as:
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Water rates and water services charges (where the letting contract specifies that these are to be borne by the landlord)
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Costs of advertising for new tenants, for example adverts in newspapers but not if it is capital expenditure, for example permanent signs or equipment
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Incidental repairs and maintenance such as replacing a broken window, but not capital improvements
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Loan interest (subject to certain conditions)
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ground rent
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Costs of providing services included in the rent (electricity, cleaning etc.)
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Legal and accounting charges
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Agent's fees
The Inland Revenue also allows a deduction for wear and tear of furniture, fixtures and fittings. This is when the property is let furnished and no claim is made for the cost of replacing existing furniture, fixtures and fittings.
For many tax payers, these expenses and the wear and tear allowance can exceed their income, extinguishing any tax liability.
Expenses not allowed by the Inland Revenue:
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Cost of preparing a property for letting
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Expenditure on initially furnishing or improving the property
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Capital repayment elements of mortgages
Non-Residents
If
you are non-resident (which means you live abroad permanently, or
go to work abroad for a lengthy period) then, like a U.K. resident,
the excess of income over allowable expenses is subject to U.K.
income tax.
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The agent who collects rent for the non-resident landlord must deduct tax at source from his income and pay the tax deducted to the Inland Revenue unless specifically exempt by written authority from the Inland Revenue not to do so.
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It is possible to apply to the Inland Revenue for the agent to be exempt from withholding income tax at source. This exemption is however granted at the Inland Revenue's discretion.
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At the end of each year, your tax position must be resolved with the Inland Revenue. As with the resident landlord, this usually involves submission of a U.K. tax return showing details of your letting income and expenses. If you have approval to receive rents gross and do not submit annual tax returns to the Inland Revenue you may be infringing tax regulations and furthermore any exemption that may have been granted may be withdrawn.
Tax Tips
Our advice
is simple:
Under no circumstances should you conceal property income from the
Inland Revenue.
If you are not U.K.-resident, ensure you apply to the Inland Revenue
for rents to be received gross as early as possible. There is no
advantage in delaying.
Take steps to mitigate your tax liabilities by seeking professional advice from a reputable firm of accountants who will advise on Income Tax and Capital Gains Tax issues.
Retain all invoices
for sundry expenses such as ground rents, repairs, etc. and ensure
that the nature of the work is clearly stipulated on the invoice.
If you require further assistance, please contact our office or
click on the link below for the H M Revenue and Customs web site.
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