LET PROPERTY CAMPAIGN – TIP NO. 3
We are delighted to release our third tip in this series, relating to the HMRC Let Property Campaign. Our popular series has arisen at a current time, as we understand that as at 31 July 2014, around 100,000 letters have now been sent to landlords and property investors who have not declared rental income to HMRC. The campaign is expected to last around four years, and the remaining letters are to be sent out at regular intervals. We understand the letters have all been planned and prepared, and it is simply a case of staggering the send-out over an extended period of time. If you have received a letter already, now is the time to take action, as no doubt you will have noticed they only allow you 30 days to respond. For further information on the process, please see our other blogs regarding the Let Property Campaign, in particular, this one, which shows various letters received at certain times during the process of starting a Let Property Campaign disclosure, and completing the process. If you have not received a letter yet, please get in contact with us, as you are in a much greater position coming forward to HMRC, before they come to you.
It is strongly recommended to seek professional tax advice when completing your Let Property Campaign disclosure, and in particular, specialist landlord and property tax advice, a service we are proud to offer here at RITA4Rent. This is particularly important when determining the expenses you may offset against rental income. Expenses are the focus of today’s Let Property Campaign Tax Tip. The higher the expenses, the lower the profits, and therefore the lower tax you would pay. The lower the tax, the lower the penalties and the interest will be. Therefore, it is vitally important to ensure that you are including all the expenses you have incurred, and with reference to our earlier tip, you should have documentary evidence to substantiate this.
There are huge array of expenses you may incur in the course of your letting activities, which may be claimed against rental income. There is no such definitive list, however we explore some of the common expenses which may be incurred as a landlord and property investor:
As a leaseholder, you will no doubt be paying ground rent to the freeholder. These costs are an allowable deduction against your rental income.
Service charges are common transactions amongst landlords and property investors, and if these have been incurred, be sure to include these against your income from property.
A tenant will quite often bear the cost of council tax, water rates, and utility bills, however, if the landlord bears the cost, this may be claimed against your rental income. Please be aware that these costs may affect the wear and tear allowance of a fully furnished property.
Insurances are a common expense for landlords and property investors. The two most common being buildings insurance and contents insurance. These may be included as a cost against your rental income, although you may need to pay heed to the dates in which the invoices relate to, and apportionments may be required.
Landlords and property investors will frequently repair and maintain their property. These costs are allowable, however, you must ascertain definitively that the costs are not of a capital nature. If the costs so relate to capital improvements, such as adding a conservatory on to the property, this would therefore be a retained cost for future use against a potential capital gain on sale, rather than being a cost to offset against your rental income. On the subject of maintenance, in certain circumstances, you may be able to claim for cleaning and gardening costs.
Finance costs are also encountered frequently by property investors and landlords. If your buy to let (BTL) property is financed by a mortgage, every year, your lender should send you an annual statement. Within this, it should state the interest which has been charged. It is the interest element of the mortgage payment which is allowable against your rental income, not the capital element. There is also the potential to make a claim for mortgage broker fees and arrangement fees, as these are costs related to obtaining finance. In certain cases, interest on a loan relating to your letting activities may also be allowable, along with other charges, such as bank charges should you operate a bank account for the sole purpose of the letting business.
Landlords and property investors often use the services of a letting agent to either manage the property or find the landlord a tenant. These types of costs are allowable expenses, and again, may be offset against your rental income.
Of course, should you choose a professional landlord tax advisor such as ourselves to provide you with tax return services or tax advice, then these costs are an allowable deduction against your rental income.
There are various other sundry costs that may be allowable too, including, but not limited to, course fees, landlord association membership (such as the Residential Landlords Association), books, mileage costs, telephone charges, printing, postage and stationery.
Finally, it is also worth considering the wear and tear allowance if applicable, the Landlord’s Energy Saving Allowance, and whether you have incurred any pre-letting expenses.
As stated, this list is not exhaustive.
In the avoidance of doubt, it is always best to seek professional advice from a landlord and property tax specialist. For further information and guidance, please do not hesitate to contact us for an initial discussion.