Failing to take your record keeping obligations seriously as a landlord could mean that you pay more tax than necessary, or worse that you could be on the receiving end of a penalty from HMRC.

Buying a property to let – the importance of keeping records from day one

For tax purposes, good record keeping is essential. Without complete and accurate records, it will not be possible to provide correct details of taxable income or to benefit from allowable deductions. Aside from the risk of paying more tax than is necessary, landlords who fail to take their record keeping obligations seriously may also find that they are on the receiving end of a penalty from HMRC.

Recording expenses

A deduction is available for expenses that are incurred wholly and exclusively for the purposes of the rental business. A deduction is available for qualifying revenue expenses regardless of whether the accounts are prepared on the cash basis or under the traditional accruals basis.

Revenue expenses are varied and are those expenses incurred in the day to day running of the property rental business. They include:

  • office expenses
  • phone calls
  • cost of advertising for tenants
  • fees paid to a managing agent
  • cleaning costs
  • insurance
  • general maintenance and repairs

A record should be kept of all revenue expenses, supported by invoices, receipts and suchlike.

The treatment of capital expenditure depends on whether the cash or the accruals basis is used. For most smaller landlords, the cash basis is now the default basis.

Under the cash basis, capital expenditure can be deducted unless the disallowance is specifically prohibited (as in the case in relation to cars and land and property). Under the accruals basis, a deduction is not given for capital expenditure, although in limited cases capital allowances may be available. Capital expenditure would include improvements to the property and new furniture or equipment which does not replace old items.

Records should identify whether expenditure is capital or revenue and also whether it relates to private expenditure so that it can be excluded.

Records should also be kept of replacement domestic items and the nature of those items. A deduction is available on a like-for-like basis.

Start date

Although the property rental business does not start until the property is first let, records should start as soon as expenditure is incurred in preparation for the letting.

As well as allowing relief for expenses incurred while the property is let, relief is also available for expenses which are related to the property rental business and which are incurred in the seven years prior to the start of the business. Relief is given on the same basis as for expenses incurred after the start of the property rental business; expenses can be deducted as long as they are incurred wholly and exclusively for the purposes of the property rental business. Capital expenditure is treated in accordance with rules applying to the chosen basis of accounts preparation.

Relief is available under the pre-trading rules, as long as:

  • the expenditure is incurred within a period of seven years before the date on which the rental business started
  • the expenditure is not otherwise allowable as a deduction for tax purposes
  • the expenditure would have been allowed as a deduction has it been incurred after the rental business had started

Relief is given by treating the expenses as if they were incurred on the first day of the property rental business.

Expenses incurred in getting a property ready to let can be significant. It is important that accurate records are kept of all expenditure incurred wholly and exclusively for the purposes of the let from the outset so that valuable deductions are not overlooked.

Partner note: ITTOIA 2005, s. 57; CTA 2009, s. 61.

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If you receive Universal Credit or any other forms of tax credit, read our blog to check if you need to update HMRC on any circumstance change.

Tax credits – do I have to tell HMRC if my circumstances change?

Tax credits are benefit payments that are paid to people in work who are on a low income or have children. There are two tax credits – working tax credit (for those working but on a low income) and child tax credit (for those on low income, regardless of whether they are working or not, with children). Existing tax credit claimants need to renew them each year.

New claimants must claim Universal Credit rather than Working or Child Tax Credits; eventually, existing tax credit claimants will be moved over to Universal Credit. This is due to happen between November 2020 and December 2023.

Tax credits can go up or down as a result of changes in family or work circumstances.

Changes in that must be reported to HMRC

A tax credit claimant must report any of the following changes in circumstance to HMRC.

  1. Living circumstances change, for example if a partner moves out, or you start to live with a new partner, you get married or form a civil partnership, or you separate permanently, or you divorce.
  2. Your partner or child dies.
  3. A child leaves home or is taken into care.
  4. A child is taken into custody.
  5. A child over the age of 16 leaves approved education or training or a careers service.
  6. Childcare costs go down by more than £10 per week, or you start receiving help with childcare costs.
  7. If you are in a couple, your combined working hours fall to below 30 hours per week.
  8. Working hours fall below the minimum needed for working tax credit, which depend on circumstances.

It is necessary to make a new claim if a relationship ends or you start a new relationship, or if your partner dies.

You must also tell HMRC if any of the following occur.

  1. You go abroad for eight weeks or more.
  2. You leave the UK permanently or lose your right to reside in the UK.
  3. You reduce your working hours to less than 16 hours per week while claiming childcare costs.
  4. You have been on strike for more than 10 consecutive days.

Changes in income, benefits and working hours

If tax credits are overpaid, the overpayment will need to be returned to HMRC. To avoid building up an overpayment which will have to be paid back, HMRC should be notified if any of the following occur.

  1. A change in income (if increases or decreases by £2,500 HMRC should be notified immediately so that tax credit payments can be adjusted)
  2. Combined working hours for a couple who have children are increased to 30 hours a week or more.
  3. You have a baby or take on responsibility for another child.
  4. You start or stop claiming benefits or your benefits change.
  5. You start or stop getting a disability payment.
  6. Your child is certified blind (or is no longer blind).
  7. You start paying for registered or approved childcare.
  8. You stop getting help with childcare.

Time limit for reporting changes

The above changes must be reported to HMRC within one month of the date on which they occur.

Report changes online

Changes can be notified online at www.gov.uk/changes-affect-tax-credits.

Partner note: www.gov.uk/changes-affect-tax-credits

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Read our quick guide to payroll for new employees covering tax codes, the new starter checklist and student loans.

Payroll – how to deal with new starters

From a payroll perspective, there are various tasks that an employer has to perform when they take on a new starter.

For 2019/20 an employer needs to operate PAYE where the employee earns more than £118 per week (the lower earnings limit for National Insurance purposes). However, if any employees earn more than £118 per week, the employer must comply with RTI and report all payments to employees to HMRC (even those below £118 per week).

Work out what tax code to use

The tax code is fundamental to the operation of PAYE and it is important that the correct tax code is used. To ensure that a new employee is taxed correctly, the employer will need to know the correct tax code to use.

If the employee has a P45 and left their last job in the current tax year, the employer can simply use the code shown on the P45. If the employee left their last job in the 2018/19 tax year, the code on the P45 can be updated by adding 65 to codes ending in L, 59 for codes ending in N and 71 for codes ending in M.

If the employee does not have a P45, the employer will need to ask the employee to complete a new starter checklist.

New starter checklist

The new starter checklist enables the employer to gather information on the new employee. Even if the employee has a P45, it is still useful for the new starter to complete the checklist as it contains information which cannot be gleaned from the P45 (such as the type of loan where the new starter has a student loan which has not been repaid).

As far as establishing which tax code to use, the employee will need to select one of three statements:

  • A: ‘This is my first job since 6 April and I have not been receiving taxable Jobseeker’s Allowance, Employment and Support Allowance, taxable Incapacity Benefit, State or Occupational Pension’.
  • B: ‘This is now my only job but since 6 April I have has another job or received taxable Jobseeker’s Allowance, Employment and Support Allowance or taxable Incapacity Benefit. I do not receive a State or Occupational Pension.
  • C: ‘As well as my new job, I have another job or receive a State or Occupational Pension’.

The following table indicates what code should be used for 2019/20 depending on what statement the employee has ticked.

Statement ticked Tax code to use
A 1250L on a cumulative basis
B 1250L on a Week 1/Month 1 basis
C BR

Does the employee have a student loan?

The employer will also need to establish whether the employee is making student loan repayments. If the employee has a P45 and is making loan repayments, the student loan box will be ticked. However, the P45 will not provide details of the type of loan. Student loan information can be provided on the new starter checklist, enabling the employer to ascertain whether the employee has a student loan, and if so what type, and also whether the employee has a post-graduate loan.

Tell HMRC about the new employee

The employer will need to add the new employee to the payroll and also tell HMRC that the employee is now working for the employer. This is done by including the new starter details on the Full Payment Submission (FPS) the first time that the employee is paid.

Partner note: The Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), reg. 67B and Sch. A1, para. 35—44.

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If you’ve received a tax calculation or simple assessment from HMRC, don’t assume that it’s correct – HMRC can and do make mistakes.

Check your tax calculation

Each year HMRC undertake a PAYE reconciliation for employed individuals who are not required to submit a tax return to check that the correct amount of tax has been paid. Where it has not, HMRC will send out either a P800 tax calculation or a PA302 simple assessment.

P800 tax calculation

A P800 tax calculation may be issued if an employee has paid too much tax, or if they have paid too little and the tax underpayment can be collected automatically through an adjustment to their PAYE tax code. There are various reasons why a person who pays tax under PAYE may have paid the wrong amount of tax. This may be because:

  • they finished one job and started a new one and were paid for both jobs in the same tax month;
  • they started receiving a pension at work; or
  • they received Employment and Support Allowance or Jobseeker’s Allowance (which are taxable).

P800 calculations for 2018/19 are being sent out by HMRC from June to November 2019. 

If the P800 shows that tax has been overpaid, it will say whether a refund can be claimed online. If so, this can be done through the personal tax account. Where a claim is made online, the money should be sent to the claimant’s bank account within 5 working days. In the event a claim is not made within 45 days of the date on the P800, HMRC will send out a cheque. If an online claim is not possible, HMRC will also send out a cheque.

PA302 simple assessment

Instead of a P800 tax calculation, an individual may instead receive a PA302 simple assessment. This is effectively a bill for tax that has been underpaid. HMRC may issue a simple assessment if:

  • the tax that is owed cannot be taken automatically from the individual’s income;
  • the individual owes HMRC tax of more than £3,000; or
  • they have to pay tax on the State Pension.

A simple assessment bill can be paid online.

Check your calculation

If you receive a tax calculation or simple assessment from HMRC, do not simply assume that it is correct – HMRC can and do make mistakes. It is prudent to check that their figures are correct. When checking the calculation, check HMRC’s figures against your records, such as your P60, your bank statements and letters from the DWP. Check that employment income and any pension income is correct, and that relief has been given for expenses and allowances. HMRC have produced a tax checker tool (available on the Gov.uk website at www.gov.uk/check-income-tax) which can be used to check the amount of tax that should have been paid.

If you think that your tax calculation is incorrect, you will need to contact HMRC. This can be done by phone by calling 0800 200 3300. If you do not agree with your simple assessment, you have 60 days to query this with HMRC by phone or in writing. The simple assessment letter explains how to do this.

Partner note: www.gov.uk/tax-overpayments-and-underpayments

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Today’s blog explains how Britain’s most hated tax – inheritance tax – works for married couples and civil partners.

Inheritance tax and spouses and civil partners

Special rules apply for inheritance tax purposes to married couples and civil partners. To ensure valuable tax reliefs are not lost, it is beneficial to consider the combined position, rather than dealing with each individual separately. Married couples and civil partners benefit from exemptions that are not available to unmarried couples.

Inter-spouse exemption

The main inheritance tax benefit of being married or in a civil partnership is the inter-spouse exemption. Transfers between married couples and civil partners are not subject to inheritance tax. This applies both to lifetime transfers and to those made on death.

The inter-spouse exemption makes it possible for the first spouse or civil partner to die to leave their entire estate to their partner without triggering an IHT liability, regardless of whether it exceeds the nil rate band.

Transferable nil rate band

The proportion of the nil rate band that is unused on the death of the first spouse or civil partner can be used by the surviving partner on his or her death. This makes tax planning easier and there is no panic about each spouse using their own nil rate band. If the entire estate is left to the spouse on the first death, on the death of the surviving spouse or civil partner, there will be two nil rate bands to play with.

If the first spouse or civil partner to die has used some of their nil rate band, for example, to leave part of their estate to their children, the surviving spouse or civil partner can utilise the remaining portion. It should be noticed it is the unused percentage that is transferred, rather than the absolute amount unused at the time of the first death – this provides an automatic uplift for increases in the nil rate band.

The nil rate band is currently £325,000.

Residence nil rate band

The residence nil rate band (RNRB) is an additional nil rate band which is available where a main residence is left to a direct descendant. It is set at £150,000 for 2019/20, and will increase to £175,000 for 2020/21. The RNRB is reduced by £1 for every £2 by which the value of the estate exceeds £2 million.

As with the nil rate band, the unused proportion of the RNRB can be transferred to the surviving spouse.

Example

George and Maud have been married for over 50 years. Maud died in 2017 leaving £32,500 to each of her two children. The remainder of her estate, including her share of the family home, was left to her husband George.

George dies in July 2019. At the time of his death, his estate was worth £780,000 and included the family home, valued at £550,000, which was left equally to the couple’s children, Paul and Joanna.

At the time of her death Maud had used up £65,000 of her nil rate band. The nil rate band at the time of her death was £325,000. The transfer to George was covered by the inter-spouse exemption and was free from inheritance tax. Maud has used up £65,000 of her nil rate band (20%), leaving 80% unused. She has not used her RNRB band as she left her share of her main residence to George.

On George’s death, the executors can claim the unused portion of Maud’s nil rate band and RBRB. The nil rate bands available to George are as follows:

Nil rate bands £
George’s nil rate band 325,000
George’s RNRB 150,000
Unused portion of Maud’s nil rate band (80% of £325,000) 260,000
Unused proportion of Maud’s RNRB (100% of £150,000) 150,000
Total £885,000

As George’s estate on death is less than the available nil rate bands, no inheritance tax is payable.

Partner note: IHTA 1984, ss. 8A, 18.

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Do you avoid these five common mistakes when you’re computing your business profits?

Avoiding common errors when computing business profits

HMRC produce a range of Toolkits for agents, which highlight errors commonly made in returns so that agents can take steps to avoid them. The business profits toolkit provides guidance on errors that are found in relation to business profits for small and medium-sized businesses. They are helpful to anyone computing taxable business profits.

Risk area 1 – Record keeping

Good record-keeping is essential for business profits to be calculated correctly. Poor records may result in sales or allowable expenditure being omitted from the accounts, with the result that the level of profit or loss is incorrect.

Risk area 2 – Business income

The profit or loss will only be correct if all income is included in the accounts. Unless the business is an unincorporated business that has opted to use the cash basis, business income should be included on an accruals basis, matching the income to the period in which it was earned.

Not all sources of business income will be immediately obvious – the income of the business may, for example, include scrap sales, contra sales or barter arrangements. Cash sales may also be overlooked.

Risk area 3 – Expenditure

To ensure that the profit is not overstated, all allowable expenditure should be taken into account. However, a deduction is only permitted for expenses which are wholly and exclusively incurred for the purposes of the business. Attention should also be paid to specific prohibitions, such as for business entertaining.

Purchases and expenses should be reviewed to ensure that they have been included.

Sole traders and partnerships comprising individuals can use simplified expenses rather than claiming actual expenses.

Risk area 4 – Stock and work in progress

Where the business is one that holds stock, care must be taken to include it at the correct value – this is the lower of cost and net realisable value. Errors will arise if stock is overlooked or valued incorrectly.

Work-in-progress can be a complex area and advice should be taken to ensure that the treatment is correct.

Risk area 5 – Miscellaneous items

Miscellaneous areas should also be considered. These may include a review of post-balance sheet events and consideration as to whether any adjustment to the accounts is required. Staff costs should also be reviewed and amounts unpaid nine months after the end of the period should be added back. As far as directors are concerned, consideration should be given to the date on which amounts are credited to the director’s loan account.

Partner note: HMRC’s Business Profits Toolkit – see www.gov.uk/government/publications/hmrc-business-profits-toolkit.

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Make sure to share this article with anyone you know who runs a family business – so they can take advantage of the many ways to lower their tax bill!

Optimising tax-free benefits in family companies

Making use of statutory exemptions for certain benefits-in-kind offers an opportunity to extract funds from a family company without triggering a tax charge.

The essential point to note is that to make the tax saving, the benefit itself, rather than the funds with which to buy the benefit, must be provided.

Mobiles

No tax charge arises where an employer provides an employee with a mobile phone, irrespective of the level of private use. The exemption applies to one phone per employee.

A taxable benefit will however, arise if the employer meets the employee’s private bill for a mobile phone or if top-up vouchers are provided which can be used on any phone

Example

John and Jan Smith are directors of their family-owned company. Their two children also work for the company. The company takes out a contract for four mobile phones and provides each member of the family with a phone. The bills are paid directly to the phone provider by the company. The bills are deductible in computing profits. Each family member receives the use of a phone tax-free, which means they do not need to fund one from their post-tax income.

Pension contributions

Pensions remain a particularly tax-efficient form of savings since nearly everyone is entitled to receive relief on contributions up to an annual maximum regardless of whether they pay tax or not. The maximum amount on which a non-taxpayer can currently receive basic rate tax relief is £3,600. So an individual can pay in £2,880 a year, but £3,600 will be the amount actually invested by the pension provider. Higher amounts may be invested, but tax relief will not be given on the excess. Any tax relief received from HMRC on excess contributions may have to be repaid.

Pension contributions paid by a company in respect of its directors or employees are allowable unless there is an identifiable non-trade purpose. Contributions relating to a controlling director (one who owns more than 20% of the company’s share capital), or an employee who is a relative or close friend of the controlling director, may be queried by HMRC. In establishing whether a payment is for the purposes of the trade, HMRC will examine the company’s intentions in making the payment.

Pension contributions will be viewed in the light of the overall remuneration package and if the level of the package is excessive for the value of the work undertaken, the contributions may be disallowed. However, HMRC will generally accept that contributions are paid ‘wholly and exclusively for the purposes of the trade’ where the remuneration package paid is comparable with that paid to unconnected employees performing duties of similar value.

Other tax-free benefits

Subject to certain conditions being satisfied, other tax-free benefits that a family company may consider include:

  • bicycles or bicycle safety equipment for travel to work
  • gifts not costing more than £250 per year from any one donor
  • Christmas and other parties, dinners, etc, provided the total cost to the employer for each person attending is not more than £150 a year
  • one health screening and one medical check-up per employee, per year
  • the first £500 worth of pensions advice provided to an employee (including former and prospective employees) in a tax year
  • medical treatments recommended by employer-arranged occupational health services. The exemption is subject to an annual cap of £500 per employee

Employing family members, and providing them tax-free benefits, often enables a family-owned company to take advantage of the lower tax rates, personal allowances and exemptions that may be available to a spouse, civil partner, or children. In turn, this arrangement can help reduce the household’s overall tax bill.

Partner Note: ITEPA 2003, s 244, s 308C, s 319; BIM46035, BIM47105

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Do you spend more than 6 months of the year outside the UK? Make sure you’re compliant

Non-residents landlord scheme

A non-resident landlord is a landlord who lets out property in the UK but spends more than six months in the tax year outside the UK. A special tax scheme – the non-residents landlord scheme – applies to these landlords. Under the scheme, tax must be deducted by a letting agent or tenant from the rent paid to the non-resident landlord and paid over to HMRC.

Tenants

A tenant falls within the NRL scheme where the landlord is a non-resident landlord and the rent paid to the landlord is more than £100 a week. Where the rent is less than £100 a week (£5,200 a year), the tenant is not required to deduct tax from the rent (unless told to do so by HMRC). The tenant is also relieved of the obligation to deduct tax if HMRC have notified the tenant in writing that the landlord can receive the rent without tax being deducted; however the tenant must still register with HMRC and complete an annual return.

Where the tenant pays rent to a letting agent, it is the letting agent rather than the tenant who must operate the scheme.

Letting agents

Letting agents must also operate the NRL scheme where they collect rent on behalf of a non-resident landlord, regardless of how much rent they collect (unless HMRC have informed the letting agent in writing that the landlord can receive the rent without tax being deducted).

A letting agent is someone who helps the landlord run their business, receives rent on their behalf or controls where it goes and who usually lives in the UK.

Complying with the scheme

To comply with the scheme, tenants and letting agents must

  • register with the HMRC Charity, Savings and International department within 30 days of the date on which they are first required to operate the scheme– letting agents should use form NRL4i and tenants should write to HMRC
  • work out the tax to be deducted each quarter
  • send quarterly payments of tax deducted to HMRC Accounts Office, Shipley
  • send a report to HMRC and the landlord by 5 July after the end of the tax year on form NRLY
  • provide the non-resident landlord with a certificate of tax deducted each year (on form NRL6)
  • keep records for four years to show that they have complied with the scheme

Calculating the tax

Tax should be calculated on a quarterly basis on:

  • any rental income paid to the landlord in the quarter
  • any payments that they make in the quarter to third parties which are not ‘deductible payments’

Deductible payments are those that the tenant or letting agent can be ‘reasonably satisfied’ will be deductible in computing the profits of the landlord’s property rental business. Reassuringly, in their guidance, HMRC state that they ‘do not expect letting agents and tenants to be tax experts’.

The quarters run to 30 June, 30 September, 31 December and 31 March. The tax deducted must be paid over to HMRC within 30 days of the end of the quarter.

The non-resident landlord

The non-resident landlord can set the tax deducted under the scheme against that payable on the profits of his or her property rental business. Partner note: The Taxation of Income from Land (Non-residents) Regulations 1995 (SI 1995/2002).

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A quick guide to what should be included when calculating the profit or loss for a property rental business.

Property income receipts – what should be included?

When calculating the profit or loss for a property rental business, it is important that nothing is overlooked. The receipts which need to be taken into account may include more than simply the rent received from letting out the property.

Rent and other receipts

Income from a property rental business includes all gross rents received before any deductions, for example, for property management fees or for letting agents’ fees. Other receipts, such as ground rents, should be taken into account.

Deposits

The treatment of deposits can be complex. A deposit may be taken to cover the cost of any damage incurred by the tenant. Where a property is let on an assured shorthold tenancy, the tenants’ deposit must be placed in a tenancy deposit scheme.

Deposits not returned at the end of the tenancy or amounts claimed against bonds should normally be included as income. However, any balance of a deposit that is not used to cover services or repairs and is returned to the tenant should be excluded from income.

Jointly-owned property

Where a property is owned by two or more people, it is important that the profit or loss is allocated between the joint owners correctly. Where the joint owners are married or in a civil partnership, profits and losses will be allocated equally, even if the property is owned in unequal shares, unless a form 17 election has been made for profits and losses to be allocated in accordance with actual ownerships shares where these are unequal.

Where the joint owners are not spouses or civil partners, profits and losses are normally divided in accordance with actual ownership shares, unless a different split has been agreed.

Overseas rental properties

Where a person has both UK and overseas rental properties, it is important that they are dealt with separately. The person will have two property rental business – one for UK properties and one for overseas properties. Losses arising on an overseas let cannot be offset against profits of a UK let and vice versa. Proper records should be kept so that the income and expenses can be allocated to the correct property rental business.

Furnished holiday lettings

Different tax rules apply to the commercial letting of furnished holiday lettings and where a let qualifies as a furnished holiday let it must be kept separate from UK lets that are not furnished holiday lettings. Likewise, furnished lets in the EEA must be dealt with separately from UK furnished holiday lets.

Getting it right

Good record keeping is essential to ensure that not only that all sources of income are taken into account, but also that any income received is allocated to the correct property rental business.

Partner note: HMRC’s property rental toolkit (see www.gov.uk/government/publications/hmrc-property-rental-toolkit).

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If you use the property rental toolkit, do you think it’s useful?

Using the property rental toolkit to avoid common errors in returns

HMRC’s property rental toolkit highlights errors commonly found in tax returns in relation to property income. The toolkit can be used to help avoid those errors, some of which are discussed briefly below.

Computation

For unincorporated property businesses, the default basis is the cash basis where the qualifying conditions are met and the landlord does not elect to use the accruals basis. Where the business has moved into or out of the cash basis, transitional adjustments may be needed.

In some circumstances, a trade of providing services may be carried on in addition to the let of the property; and in some cases, the letting may amount to a trade.

It is important the correct computational rules are used.

Record keeping

Poorly-kept records may mean that things are overlooked – income may not be taken into account and allowable expenses not claimed. Property disposals may also be missed.

Property income receipts

All income which arises from an interest in land should be included as receipts of the property rental business. Receipts can include payments in kind (maybe work done on the property in lieu of rent). It should be noted that casual or one-off letting income is still treated as income from a property rental business.

Profits and losses from overseas lets, from furnished lettings and from properties let rent-free or below market rent should be dealt with separately. For other UK lets owned by the same person or persons, income and expenses are combined to work out the overall profit or loss for the property rental business.

Deductions and expenses

Expenses incurred wholly and exclusively for the purposes of the property rental business can be deducted in the computation of profits. Problems may arise where an expense has both a business element and a private element (for example, a car or phone used both privately and for the business). A deduction can be claimed only for the business part where this can be identified and meets the wholly and exclusively test.

The way in which relief for finance costs is being given is shifting from relief by deduction to relief as a basic rate tax reduction. Ensure that the split is correct for the tax year in question and relief given in the right way.

Allowances and reliefs

There are various reliefs that may be available to those receiving rental income.

Rent-a-room relief is available where a room is let furnished in the taxpayer’s own home, enabling receipts of £7,500 a year to be enjoyed free of tax.

The property income allowance of £1,000 means that rental income below this level does not need to be returned to HMRC. Where income exceeds this level, the allowance can be deducted instead of actual expenses where this is beneficial.

Capital allowances can be claimed in certain circumstances. They are available on certain items that belong to the landlord and which are used in the business, for example, tools, ladders, vehicles, etc. However, they are not available for domestic items in a residential property for which a replacement relief is available instead. Capital allowances are similarly not available for plant and machinery in a residential property unless it is a furnished holiday let.

Losses

Property rental losses must be treated correctly. They can only be carried forward and set against future property profits of the same property rental business.

Checklist

The checklist within the toolkit can be used to ensure that everything has been taken into account and that nothing has been overlooked.

Partner note: HMRC’s property rental toolkit (see www.gov.uk/government/publications/hmrc-property-rental-toolkit).

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