This article covers the very basics of residential property income tax. We highly recommend the appointment of an accountant to look after your property tax affairs.
Residential property rental income is taxable. In a nutshell the profit of your rental property activity will be taxable. The profit will be added to any other income that you may currently have and taxed accordingly.
To calculate your profit you will need to consider:
1. Your property income: This will be the rent received
2. Your property expenditure: This will include:
- The interest of any mortgage against the property: Please notice that only the ‘interest’ element of your mortgage payment will be deductible from tax. Any payment of ‘capital’ or ‘principal’ cannot be offset against tax.
- Any fees paid to your letting agent, i.e. Martin & Co (Aberdeen).
- The cost of any repairs to the property building, fixtures and fittings (but not improvements)
- The cost of replacing any furniture (but see note 1 below)
- The cost of building, content, or rent guarantee insurance that you may have for the property.
- The cost of any maintenance or care services that you may have for the property.
- The cost of any utility bills, council tax, block factoring service that you may have paid.
- The cost of any professional service that you may use, i.e. legal costs, accountancy.
Note: If you are letting your property on a ‘Fully Furnished’ basis, you could claim an equivalent to 10% of the collected rent against tax for ‘Furniture wear and tear’. However if you elect to use this allowance, you will not be able to claim the actual cost of repairing or replacing furniture when this actually happens.
If your rental income (not profit) in a year is above £2,500 you must report it in a Self Assessment tax return. For annual rental income below £2,500 you need to simply fill in the form P810.
A Self Assessment tax return normally covers the period from 6th April to 5th April of the following year. It has to be submited (and any due tax paid) by the following 31st of January. For instance, rental income (and expenditure) corresponding to the period from 6th April 2013 to 5th April 2014 must be declared in a Self-Assessment tax return that needs to be submited (and any due tax paid) by 31st January 2015.
Again, this is just a very basic idea of taxation and property rental income. We strongly recommend you to appoint a accountancy firm to look after your tax affairs. We highly recommend Mint Accounting (www.mintaccounting.co.uk) who we have used for years. They offer first class service at a competitive price.
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