Tax return

[Renee the Levitator]

Hello Ladies and Gents

I need a little help before I incur the wrath of the Iron Chancellor!

I currently live in a service families quarter, but rent out my previous family home because of the nature of our business.

Do i need to submit a tax return for the previous financial year, even though my rental income income, after agency fees and VAT does not cover my mortgage outgoings?

I am not having too much luck trying to find an answer on the Inland Revenue website!

[PPRuNeUser0211]

Renee,

Believe you do (not an IFA by the way!). The point is to prove to the tax man on paper that incomings<outgoings. The tax deductable bits are the fees you pay to the agent, any furnishings you may pay for if you're renting it furnished and the interest you're paying on the mortgage (note interest only and not capital repayments iirc).

Hope this helps

Target

[donardboy]

RTN,

If I understand your circumstances correctly I would strongly advise in completing a self-assessment to incorporate your rental income. If your outgoings, at present, are more than your income you may be able to carry forward a credit to future financial years if you intend to continue letting your property. It is worth having a look at the IR Property Income Manual http://www.hmrc.gov.uk/manuals/pimmanual/index.htm
Best of luck
DB

[FJJP]

A few years ago I was in a similar position [not an IFA, by the way].

I hired an accountant to do my tax return for the first year. Then, having seen what it was about, I was able to do it for myself in subsequent years. OK, it cost a few hundred, but I felt it was worth it as a one-off.

Alternatively, researching through Google for the subject of, say, landlords, rental income, etc, would probably throw up a plethera of sites which would tell you what you can and cannot set against the rental income for tax purposes.

[gijoe]

Renee,
You do need to fill out a tax return because rental income is deemed as unearned income and needs to be declared...some people choose not to declare this sort of income and..uhem..that is up to them.
If the taxman finds out then a backdated bill and/or fine might be imposed...and some interest added because the IR can!
What has been said about carrying losses forward is perfectly true. What is also true is that you can claim as expenses things like the cost of calls to your letting agents, postage costs, the costs of drawing up agreements, a proportion of the costs of getting online because you need to communicate with your agent etc.
An added advantage of filling out the tax return is your ability to list other business expenses and have them deducted from the amount of tax you have to pay. Things like membership fees of Royal Societies and Institutions as long as they are recognised by the IR as needy for your job. But it also means that if you do a course and need to buy stationary and other stuff that you can put these down as legitimate business expenses. You can also claim the difference between MMA and the current MOD rate (26.2p per mile I think) ie. 40 - 26.2 = 13.8p for every mile that you have claimed on a F1771. A couple of years ago I tried it on with haircuts and boot polish saying that I needed both for my job but that didn't go for it.
It is not that hard and well worth the effort. My advise, and like others I am not an IFA, if you want to do this is to write to the IR telling them that you have let you house out. They will then get you to do a tax return at the end of the next financial year.

[Top Right]

RTL,

To add to Target's and DB's advice, you can also allow the following for offsets: any insurance you pay both on the bldg and as a landlord, travel to visit the property (nominally 2 trips per year I think - await incoming), and 10% wear and tear on the rent you receive. Also, any decorations you add, or works/repairs to the property are also deductible.

As DB says, you can carry credit forward to the next tax year if rent income<your costs. But it's also accumulative. I didn't carry forward in the second year, and IR rang me up to point it out, ie I'd done my self-assessment wrong to my own detriment. So, for as long as my interest is greater than my rental income (and add in the extra allowances), I seem to be accumulating a credit that'll help me in the long-run.

TR

[Ginseng]

This is all good advice. Yes, you must submit a tax return. As far as Hector is concerned, you are running a letting business, even if you are only letting out your own home. Like any small business, with a turnover of less that £15,000 per year, you only have to keep simple accounts of income against allowable expenditure, and enter the resulting profit or loss on the "Income from property page of the tax return. You do not have to send the accounts and supporting paperwork to hmrc, but you must keep them for inspection, if required, for at least 6 complete tax years. Among the allowable expenses are:

Letting agent's/rent collection fees and marketing costs(including VAT).
Legal costs for setting up and extending tenancies.
Mortgage interest payments.
Buildings insurance premiums.
Contents insurance premiums to cover your possessions remaining in the house.
Fees for annual gas safety check (a statutory requirment on landlords).
Electrical safety checks.
Repairs and maintenance (but excluding any costs which hmrc designate as being an "improvement" of the property).
Maintenance/replacement costs for furnishings if you let the property furnished. You may either claim reasonable actual costs, or a nominal 10% annual depreciation allowance - you should agree with hmrc which one you will claim, as they will normally expect you to be consistent year-on-year.
You may claim reasonable costs for redecoration between tenancies where the costs are necessarily incurred to render the property marketable to a new tenant. In practice, if you have a very long-running tenancy, it may be reasonable to redecorate occasionally to maintain the quality of the property and justify the rent charged. Don't be afraid to negotiate this with hmrc over this. In my experience, they are reasonable about it.
Accountant's fees if you need to incur them.
Sundries (postage, telephone etc where costs are necessarily incurred by your rental business.


As said above, if you make a loss, you can carry this forward year-on-year to offset agianst the next rental profit you make.

It sounds daunting, but it really isn't that difficult. If you a higher-rate taxpayer, and you have a partner/joint owner who is not, consdier whether it is in your interests to apportion ownership of the property in a way that makes best use of both yout tax allowances. hmrc will normally assume a 50/50 split for joint ownership, but will accept something different if you can prove that you really have separated the legal ownership into unequal shares.

Regards

Ginseng