FAQ
Frequently asked questions and our expert answers to guide you in your residential letting business.
The basics
Is my letting income taxable in the UK?
Yes.
How can I minimise the tax I have to pay?
Deduct the allowable expenses of letting from the gross rents and claim UK tax free allowances.
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, finance charges and loan interest are not deductible, but limited relief is available for loan interest and other finance costs. See Finance cost relief.
Am I eligible for any UK tax free allowances?
Yes, if they are not already set against other income.
Suppose the UK tax authorities don’t know about my rental income?
The UK H.M. Revenue & Customs (HMRC) have arranged matters to ensure they will know about it. Your lettings agent makes regular returns to HMRC. It is also a serious offence if you do not inform HMRC.
How do I register with H.M. Revenue & Customs?
Ask Landlords Tax Services to complete the forms for you. This is free of charge if we then go on to prepare and submit one UK tax return for you.
Will I have to make UK Tax Returns?
Yes. Once a year unless instructed in writing by H.M. Revenue & Customs to do otherwise.
How will I know I’m paying the right amount of tax?
We will calculate it and advise you.
Get in touch today to find out how we can help you with your Tax Return
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.
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?
Disposals by non-residents of UK residential property occurring after 5th April 2015 and other UK land and building after 5th April 2019 are subject to CGT on the gain that has arisen after that date. The gain that arose before that date will generally not be subject to UK tax. However, to qualify you would have to be non-resident for at least five full tax years.
Moving abroad for five or more years is a life-changing decision for most people and not one that should be driven by tax considerations. Residency is determined by a complicated set of tests contained within the statutory residency test.
Capital Gains Tax is in itself a complicated subject. Residency is also a very complicated subject. The interaction of the two means you must get specialist help if you are seriously considering moving abroad to save tax.
Let us help you with your Capital Gains Tax calculation
When do I have to tell HMRC about a disposal of a property?
UK residents must use the CGT report and pay system to notify HMRC of a disposal of UK residential property and pay any tax due within 60 days of the transfer (completion). The disposal is reported again in the annual tax return. Disposals of other property including residential property overseas are only reported in the annual tax return.
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 Capital Gains Tax (CGT) is 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 in the property 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 9 months 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, and you were sharing it with your tenant 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 for the shared period c) the taxable gain attributable to the shared period.
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.
Get in touch today to find out how we can help you with your Capital Gains Tax calculation
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?
The answer is “yes” because since April 2010 all non-residents with a source of income in the UK have been obliged to register for self-assessment and to file tax returns annually unless HMRC says, in writing, that they do not need to do so. 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 unless HMRC advises them in writing not to do so. The form you are being asked to complete 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 normally 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. If you borrow to buy the property, finance charges and loan interest are not deductible, but limited relief is available for loan interest and other finance costs. See Finance cost relief. In addition, if you are a EU citizen or a citizen and resident 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 £12,570 tax-free (£12,570 for 2023-24). 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. And of course the 20% deduction does not let you off making Returns.
Get in touch to find out how we can help you with your Tax Return
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. 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. Replacing an old and worn bathroom suite and redecorating the bathroom is normally allowable.
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.
I am buying a property to let 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.
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 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.
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.
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 usable state when acquired. The real test is whether you bought the property at a discount because of its poor state of repair.
I have bought a house really cheaply because it is in a terrible state. Will I get tax relief on the cost of repairing it?
Imagine two houses next to each other. One is your house which needs a new roof, the windows don’t open or are broken, the WC is smashed and the doors don’t shut. Then imagine the house next door which has been kept as well as you can with four boisterous children, but which could really do with a bit of re-decorating. You bought at a substantial discount compared with the “normal” selling price in the immediate area because of the run down condition. It was not usable. HMRC considers that the cost of making good those items that caused the property to be sold at a discount are part of the capital cost. These will normally be allowable against the capital gain you may make when you sell the house. The cost of bringing the family house next door up to a pristine standard to let it out is normally allowable against rents because the work is confined to redecoration etc.
