When it comes to renting out properties, property owners or landlords often face difficulties in understanding the related tax implications. Some of the most common questions that they have with them are – How much tax do I need to pay as a landlord? What are the available deductions? Who will assist me in computing my correct tax liability? Well, the answer is property accountants.
Know Your Allowances:
As a landlord, there are several expenses in relation to your property that is allowed as a deduction. These expenses are mainly in relation to maintenance and facility that a tenant is provided with. The list includes the following:
•Expenses for water, electricity, gas(if bills are paid by the landlord)
•Expenses incurred for landlord insurance
•Expenses for let-out property maintenance such as wages paid to gardener and cleaner (if mentioned on the agreement)
•Expenses made on legal fees for letting out a property for a year or less
•Expenses made against travel and subsistence while showing house or property visit
•Vehicle running costs (only the proportion used for your rental business) including mileage rate deductions for business motoring costs
•Expenses made as fee payment to the accountant
•Expenses made directly with respect to stationery, phone calls or advertisement for letting out the property.
Flat rate property allowance:
You can get up to £1,000 a year in tax-free allowances for property income. If your annual gross trading or property income, from one or more trades or businesses, is more than £1,000 you can use the tax-free allowances, instead of deducting any expenses or other allowances.
If you use the allowances you can deduct up to £1,000, but not more than the amount of your income. This is known as ‘partial relief’.
Landlord Mortgage Interest Tax Relief:
In 2020-21 from April 2020, you are no longer able to deduct any of your mortgage expenses from directly from rental income to reduce your tax bill. Instead, you’ll receive a tax-credit (reduction from total tax due), based on 20% of your mortgage interest payments.
Rent a Room Scheme:
The Rent a Room Scheme (lodging / guesting) lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else. If earning is less than £7,500, then automatic tax-free exemption applies and you do not need to do anything. In case you earn more, then need to file a tax return and opt for this scheme allowances. There are eligibility criteria that you’re a resident landlord (does not need to be the owner) and you run a bed and breakfast or a guest house. Landlord, cannot use the scheme for homes converted into separate flats.
Repair and Maintenance Costs:
Allowable expenses include the costs of maintenance and repairs to the property (but not ‘capital’ improvements). A repair restores an asset to its original condition, sometimes by replacing parts of it.
Property repairs can include:
•Replacing roof tiles blown off by a storm
•Replacing a broken-down boiler
•Redecoration between tenants to restore the property to its original condition
Replacing a part of the property with the nearest modern equivalent is still a repair if the improvement is incidental to the repair, such as replacing a single-glazed window with a double-glazed window.
Allowances for Replacement of Domestic Items:
As a landlord, there are many people who believe in offering quality service to their tenants. For this purpose, they consider offering them with carpets, beds, curtain, crockery, sofas, etc. With time these items need to be replaced and such replacement cost is allowed as a deduction from the taxable income. For instance, if the landlord buys a new television worth £1,000 while the cost of replacing the existing television was £700, then the landlord would be eligible for an allowance of £700.
There are numerous other ways that an accountant can help landlords to save taxes. Being a professional, they are the best resources to manage finances and avail maximum benefits out of allowed deductions. For a free consultation with our accountant specializing in property rent, click here.