Property Letting
Buy to let properties have become very popular over recent years but in the current climate many owners are reviewing their options. In light of this it is important to remember that there are tax consequences not just for the final sale (any profit is subject to Capital Gains Tax), but also an income tax charge on any profit made on the letting.
In order to keep your tax bill to a minimum it is important to claim a tax deduction for as many items as possible. Typically, any expenses relating directly to the property and its maintenance can be claimed. We have highlighted in the red box to the right what you can claim as tax deductible expenses against any income received.
Tax deductible expenses
The most common ones include:
- Letting agent's fees
- Legal fees
- Accountancy fees
- Buildings and contents insurance
- Mortgage interest (but not repayments of capital)
- Maintenance and repairs (but not improvements)
- Utility bills
- Service charges
- Council tax
- Other services provided, such as cleaning or gardening
- Other direct costs incurred in letting the property, such as phone calls, stationery or advertising
- Renewal cost of furnishings and equipment
There are a number of other points that a landlord should be aware of:
- Most expenses can be claimed not only for the period of letting but also for the periods preceding and following the letting provided that they relate to the letting.
- Although the costs of improving the property are not allowed for rental income purposes, they are likely to be allowable for capital gains tax purposes and so it is important that records are kept of these costs.
- For furnished let property, an alternative to claiming the actual renewal costs for items is the "Wear and Tear" Allowance. This is a deemed expense, equal to 10% of the gross rents received in the year. Claiming this allowance is often more beneficial than claiming the actual costs.
- It is a legal requirement to retain receipts for letting expenses for a minimum of six years.
- If the property being let is a furnished holiday let, the allowable expenses are broadly similar to those set out above with the exception that the costs of furnishings and equipment are given Capital Allowances - the Wear and Tear Allowance is not available. However, there are other valuable tax breaks for holiday lets because they are treated as trades.
All in all, this can be a tricky area where professional guidance is recommended to make sure you minimise your tax exposure. If you need more information please contact Charles Green on 020 7022 0050.
All in all, this can be a tricky area where professional guidance is recommended to make sure you minimise your tax exposure. If you need more information please contact Charles Green on 020 7022 0050.
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