Tax obligations of the lessor

You – the owner of their property in the UK and decided to rent it out. Now, you can rightfully be referred to as “Landlord” and join the society of Landlords the UK, which provides help to its members, advising them on legal matters and assists in finding tenants.

However, the proud title of the Landlord includes additional responsibilities related to the calculation and payment of taxes. In this article, we’ll explain what tax liabilities might arise from a person renting their property in the UK.

The obligation to pay taxes the owner of residential property may occur in the following cases:

1. StampDuty.

When you bought your property, you need to pay the so-called “Stamp Duty Land Tax” , more commonly known as Stamp Duty . This is not a tax in the conventional sense, and Stamp duty. Read more about Stamp Duty you can read on our website : What is a “Stamp duty”

2. IncomeTax.

Income tax. When you rent your property to rent, you must pay income tax on the rent. The basic rate of income tax is 20%. If you are a taxpayer with a higher rate, then you pay 40% of income. For the current 2013-2014 tax year the obligation to pay income tax at the higher rate occurs with any income above £41450.

It is recommended to create a separate account where you will consider your rental income separate from other income. Thus, you will not be confused, these income and expenses income and expenses from other activities.

You must understand that the income tax is levied only on income from renting property, not the entire income. You need to take your income from the lease of property and we subtract them from the “allowable expenses”. The difference will be the base for income tax.

What costs can be taken into account when calculating income tax on rental property?

Allowable expenses are:

a) the Interest on the mortgage obtained on this property.

b) Insurance of the building and its contents.

c) the Legislation provided for payments

d) Municipal tax

e) travel Costs spent to collect the rent.

f) Cost of maintenance of the property

g) Expenses on advertising, aimed at the surrender of its property lease.

Until 2015 you can also ask for help in the Service of Conservation of Energy. Under this system, you can apply for reimbursement of your expenses for the insulation of attic, floor and walls and the design of this project in the property. You can receive a maximum of £1500 for one property.

Tax administration the UK will take any expenses that you have incurred in performing their duties as the owner of the property as “allowable expenses.” Using these costs you can significantly reduce your income tax from rental real estate for rent.

Capital costs

It is necessary to distinguish between current expenditure and capital expenditure.

Current expenditure is the cost that you are constantly on the maintenance of the property and can be read out, calculating income tax.

Capital expenses are costs that increase the value of the property – for example, repair or extension. These costs cannot be taken into account when calculating income tax, but they can be taken into account when calculating the tax on capital gains when selling your property.

Tax benefits when you lease a furnished property

If you rent your apartment or house in the UK furnished then you can claim “depreciation deduction”, which is 10% of the net rent per year. To calculate the net rent it is necessary to take the amount of rent for the year and subtract any costs that you pay.

There is an alternative – you can seek a tax benefit related to the replacement of furniture ( but if you then sell the furniture to arrive should be considered income)

In this case, you should choose what you prefer – to take account of wear or to obtain a benefit for the replacement of furniture. You must carefully weigh all options and decide which of these tax exemptions you prefer, that is, from which option you will get the maximum benefit.

Two options at the same time with one real estate object is invalid.

3. Capital Gains

Sale. The tax on capital gains.

When it came time to sell, you become liable to pay tax on capital gains if the property is sold more than its initial cost.

Read more about tax on capital gains, please visit our website: Tax on capital gains in the UK

Tax reduction on capital gains

As in the case with income tax, you can reduce the basic value, which is the tax on capital gains.

The permitted expenses that can be taken include:

a) payment to the lawyers and the act of reception-transmission

b) the Fee estate agents

c) Costs incurred in improving real estate (capital expenses)

d) an Advertising campaign aimed at selling real estate

e) Stamp duty.

f) If you sold real estate losses, you can offset the losses on account of capital gains on any other object, or in the future.

A very important point – you don’t pay tax on capital gains if it is your main residence. This rule is known as “Allowance for personal housing.” If you live in your home and sometimes rent, you can claim tax benefits within the last three years.

For example, you own the house for 10 years. During this time, you two years, lived in it, and the rest of the time – 8 years leased. You can claim tax relief for 5 years (two years of your stay plus an additional three years). This means that only half of your profits from the sale will be taxed on capital gains.

There are a number of ways to reduce your tax on capital gains. For more detailed advice you will need the help of an independent financial consultant.

Filling in tax Declaration

Once you have bought a property in the UK, you usually notify the tax authority about the fact you are a taxpayer.

If your rental income exceeds the threshold of £15,000 a year, you must complete the full tax return. If your income is below the threshold of £15,000 a year, you only fill out 4 pages of the Declaration.

In return you will also be able to reflect in its profit or losses obtained from the sale of your property.

Getting financial advice

The tax liabilities of property owners in the UK are quite complex and varied. This guide gives the basics, but if you have trouble with the filling of Declaration and calculation of your tax payments, you should seek the assistance of tax experts who will evaluate your tax liabilities based on your individual circumstances.

® Helen Antre 13.08.2013 G.