Property rental and tax return

aetc

Hi,

I would like to get some advice on whether I need to complete a tax return. I am a regular employee (never been self-employed, etc) and 20% rate taxpayer, and have never completed a tax return as it has always been handled by PAYE.

I own a flat 50-50 with my sister (used to live in it 2009-2012, now BTL mortgage and rented out as of Aug 2012). The rental income is around £300 per month each. I make and receive all flat payments and pay my sister her due income on a monthly basis (there have been a few one-off payments for small purchases / maintenance but not much cost). I have some other savings in tax free ISAs and a regular savings account that has tax deducted at 20%.

Does my change in circumstances to the flat rental mean I now need to complete a tax return? If so, what sort of timeline am I looking at, in terms of tax years, deadlines etc, given the Aug 2012 start of renting out the flat?

AndyJR81

You have to complete a tax return if EITHER:

Your gross rents BEFORE expenses are more than £10,000 per year, or

Your net rents AFTER expenses are more than £2,500.

At £300 pm you're looking at £3600 per year so first condition is not met. If your mortgage interest (note only interest not capital) and other expenses exceed £1,100 each then you won't need to do a return, but you STILL need to notify HMRC of the income so that they can collect the tax via your PAYE code, as even if you don't submit a return the income remains taxable.

If your net is more than £2,500 you will need to register for self-assessment. You do this by completing form SA01 from HMRC website, and you need to do so by 5 October this year. The return and any tax due would need to be in by 31 January next year, assuming you submit online.

aetc

Thanks, AndyJR81. I think you're right that the first condition won't be met, but the second condition will. I assume that as these figures cover only me, I simply divide any income/outgoings in two for my half of the rental income?

I've looked into the allowable expenses and I can see expenses I'm incurring that are allowed - eg. letting agent's fees. Are the following included: flat management company's service charge (which includes buildings insurance and a cyclical fund for communal area maintenance/up-keep)? Inventory clerk's services? Purchases for flat - a hoover, patio furniture?

John_Pierpoint

Can we take it that you are renting out a furnished flat ?

The following questions are aimed more at eventual Capital Gains Tax/Inheritance Tax liability:

Your joint names are registered at the Land Registry, as the legal owners of this flat ?

Might this be an inheritance from someone or do you have a mortgage that is partially financing this venture?

Has this flat been your (plural) principle private residence, if so between which dates ?

Do you understand the difference between expenditure that is a capital improvement rather than a revenue dilapidation?

AndyJR81

Hi again

Service charges/ground rents - yes allowable
Bulidings insurance - allowable
General repairs (eg paying a painter to redo walls) - allowable
Travel costs - charge 45p per mile for travelling to and from property
Advertising fee - allowable if you have paid an agent/paper etc to advertise

If you are furnishing the flat and letting it out as so you can claim a 10% (of gross rent) wear and tear allowance as an additional expense. If you opt not to then any renewals of furniture will be allowed but not the cost of initially furnishing. As the poster above has said general repairs and maintenance are fine to claim but nothing that would improve the capital value of the property (this would instead be offset against the sales proceedsfor CGT purposes). So if you ripped out a basic kitchen and replaced it with a hi-tec state of the art self cleaning one you wouldn't be able to claim that against rental profits

Have a look at the guidance on tax aid http://taxaid.org.uk/situations/property-owner/rental-income-and-expenses

nomunnofun

AndyJR81 wrote: »

If you are furnishing the flat and letting it out as so you can claim a 10% (of gross rent) wear and tear allowance as an additional expense.

Actually it is 10% of (gross rent less normal annual charges such as rates/council tax) if these expenses are paid by the landlord.

AndyJR81

nomunnofun wrote: »

Actually it is 10% of (gross rent less normal annual charges such as rates/council tax) if these expenses are paid by the landlord.

Yes actually that is spot on. In practice most landlords these days don't, and where they do they usually recoup it from the tenant, although I actually used to live in a furnished flat where the rent was 'all inclusive' so I guess it would have applied for my landlord!

chrisbov_2

I receive rent from one property I also have a job and pay tax through PAYE. Can anyone explain why I have to report all of my income on self assessment rather than just the rental income. After all HMRC have all my PAYE details.

Hugh13

Quite!... and good luck.

I am in the same situation. Last year I was paying some unpaid tax through PAYE and completed a SA return for my property. I got a refund from the SA, then a payment demand for the amount already being deducted through PAYE.

I queried it of course and was told by PAYE they couldn't tell how much I owed until the two accounts had been merged.

00ec25

chrisbov wrote: »

I receive rent from one property I also have a job and pay tax through PAYE. Can anyone explain why I have to report all of my income on self assessment rather than just the rental income. After all HMRC have all my PAYE details.

very simple. HMRC do not have the time or staff to calculate everyone's tax for them, that is the meaning of self assessment you do the work for them

your rental income may be the amount which tips you over to the next tax bracket therefore HMRC need you to declare total income received so they can, if you are unlucky enough to be selected check it (in superficial or considerable detail as the mood takes them) rather than them calculate it from scratch