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HMRC Focuses On Property Lettings

Rise in landlords sparks HMRC campaign

More and more people are investing in second properties, and HMRC have recognised that there may be many people who are not declaring this income via Self Assessment each year.

In their ‘Measuring Tax Gaps 2012’ report HMRC estimated approximately £550m in undeclared property income. Understandably this is an area they want to focus on and so begins their campaign targeting landlords in a bid to raise unpaid taxes.

HMRC are making use of the latest technology to cross-match data and find people who may owe tax from UK or overseas property lettings.

 

Should I be declaring income from property?

Many people simply do not realise they need to be declaring income from property lettings.

If you are renting out a room in your own home for more than £4,250 a year, or renting out part or all of a property you do not live in, then you do need to declare this income on a self assessment return by adding a ‘property’ section.

Similarly, when selling a property (if you own more than one) you may have a Capital Gains Tax liability, and may need to report this to HMRC (see more below).

Note that if you only own one property which you live in and do not rent out any part of (not including lodgers), and you sell this, there are no tax implications and there is no need to report the sale to HMRC.

 

Can I claim any expenses on my property income?

Yes you can! A summary of the reliefs you can claim is below.

 

For renting a room or rooms in your own home:

  • the first £4,250 of any rent received for rooms you let in your own home (this is called the ‘Rent A Room Scheme’)
  • or instead, if it is more advantageous to do so, claim the expenses listed below for rented property you do not live in

 

For renting property you do not live in:

  • letting agents’ fees
  • legal fees for lets of a year or less, or for renewing a lease for less than 50 years
  • accountants’ fees
  • buildings and contents insurance
  • interest on property loans
  • maintenance and repairs to the property (but not improvements)
  • utility bills, like gas, water and electricity
  • rent, ground rent, service charges
  • Council Tax
  • services you pay for, like cleaning or gardening
  • other direct costs of letting the property, like phone calls, stationery and advertising
  • If you are letting out a furnished property you can claim a 10% ‘Wear and Tear’ allowance on the net rental income

 

Expenses which can be claimed and reliefs available when selling a second property, or one which you have not lived in for the entire period of ownership:

  • Private residence relief: available if you have lived in the property during the period of ownership
  • You can also claim periods of private residence relief for the last 18 months of ownership even if you didn’t live there, and for the first 12 months of ownership if you were building or renovating the property, or if you were unable to sell your previous home during this time
  • estate agents’ and solicitors’ fees for selling the property
  • costs of improvement works, e.g. for an extension (normal maintenance costs like decorating are not allowed)
  • Up to £40,000 of Letting Relief on your property gain for periods of time when you were letting property
  • Capital Gains Tax-free Allowance of £11,000 in 2014-15

 

I’m selling a let/second property, I don’t have any Capital Gains Tax to pay on the profit, do I need to include this in a self assessment return?

If you are registered for self assessment already, then yes you do. You need to add the capital gains section, but the answer to each question will be ‘no’ as you have nothing further to report or pay.

If you are not registered for self assessment then there is no need to register if you do not owe any Capital Gains Tax on your property sale.

 

Contact me if you are letting or selling a property and need advice or assistance on what you need to report and what reliefs you can claim.

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