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Considerations for taxation on rental property

David McManus

David McManus | Personal Tax Manager

Friday 22nd Feb, 2019

With the various recent changes surrounding rental property taxation, it can be complicated to work out exactly what needs to be reported on your self assessment tax return. Below are some things to think about:

Records: The most important thing to remember is that you need to keep good records with regards to your property, including records of the dates the property is let, the rent received, income from services, and expenses to potentially claim. Also remember that, should HMRC decide to enquire into your return, they can do so up to four years after the end of the tax year the return is for (longer if they believe you were careless or deliberately misleading).

Losses: If in one tax year the allowable expenses you are paying out come to more than the rental income you are receiving, the loss can be carried forward to a following tax year. You can’t use the losses to offset other income such as your salary however.

Expenses: There are some expenses that are allowable to offset against rental income received to reduce the amount of income on which tax will be actually due that often get forgotten when making records. This includes any fees from local councils for licenses, motoring expenses/mileage rates for property visits and cleaning, gardening or other property maintenance costs. Also bear in mind that any fees that come from tenants to cover these costs will need to be included in the income amounts.

Mortgage interest: As of 2017-18, the relief available on mortgage interest or financing costs has been reduced (so only 75% of the interest can be claimed) and will continue decreasing before being removed completely by 2020. Instead however there will be a 20% tax credit for your mortgage interest. This may mean that you will be paying more tax on your rental income than in previous years, especially If you are a higher rate tax payer.

Wear and tear: Prior to 2016-17, there was a “wear and tear allowance” of 10% from the net rental income on furnished properties. Now however you may be able to deduct the cost of replacing items (on a like for like basis and not new things you’ve decided to add) in the furnished property such as furniture, furnishings and appliances.

Selling your home and principal private residence relief

The changes to the rules surrounding capital gains tax (CGT) reliefs have continued in this budget in relation to principal private residence (PPR) relief which is available when selling a property which has at any time been your main residence.

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