The once buoyant buy-to-let market is but a distant memory, but if you’re still aspiring to a property empire, here’s our good tax housekeeping guide…
1. Proof of rental income. Keep records of all rental income – this may be statements from your letting agent(s) and/or rent books/invoices to tenants – although most landlords do not raise an invoice for rent, so you will instead need to supply bank or building society statements, plus paying in books to show any cash received.
2. Details of capital costs. Keep details of any assets you purchase for the property such as furniture and equipment. If your rental property is fully furnished, you can claim 10% of the net annual rent for wear and tear of furnishings (the net rent is the rent your receive less any expenses you pay). Alternatively, you can claim a renewals allowance. This covers the cost of replacing furniture or equipment less any money you received for the old one and anything extra you paid for a better one. Note that you can only claim one of these allowances and it must be the same one each year.
3. Details of all ‘allowable expenses’. This is not an exhaustive list but as a general principle, gather records of all property related purchases and expenses – and also record how they were paid. Expenses that you can deduct from letting income (unless it’s under the Rent a Room scheme) include:
• letting agent’s fees
• legal fees for lets of a year or less, or for renewing a lease for less than 50 years
• accountant’s fees
• buildings and contents insurance
• interest on property loans
• maintenance and repairs to the property (but not improvements)
• utility bills (e.g. gas, water, electricity)
• rent, ground rent, service charges
• Council Tax
• services you pay for e.g. cleaning or gardening
• other direct costs of letting the property e.g. phone calls, stationery, advertising, etc
Numbers Game… £1.6trillion is how much VAT has raised since it was introduced in April 1973
Good to know… HMRC‘s latest clampdown campaign focuses on property tax evasion, examining the sales of both UK and overseas properties (which are not the individual’s main home) where capital gains tax is due on any profits made. Properties include buy to let, holiday homes or a property disposed of as a gift. Those making voluntary disclosures will be offered preferential terms with lower penalties up to the 9th August 2013 – however, after this period significantly harsher penalties and in serious cases criminal prosecution will apply to tax avoiders identified by the campaign. For property and CTG advice, contact the Evans Entwistle tax team.