rental income tax

jt2007

sorry if this is a tired thread. I have done my research but often find conflicting information. im about to fill in my forst SA for rental income. I know I can use all my expenses comprising repairs and fees such as remortgage fees, service charge fees as well as 10% wear and tear allowance. but have questions/advice to ask on two points

1. I am also told I can claim using my home as an office at a cost of £208 a year. I can find this mentioned on old hmrc links but not the most recent onen has it therefore been abolished?

2. rent received is £600 a month. mortgage is £300 (interest only) and service charge £100 a month. so over the year ive made £2400 but bought furniture out of this. my wife is on maternity and money is tight therefore would appreciate any advice to reduce my tax bill. the 10% allowance and some expenses reduces the profit to £1400 but I'm in the 40% tax bracket so stand to lose £600 making it a very disappointing low income for us. id be a lot happier not losing that £600! is there anything im missing in expnses claimed which would help me if people don't mind sharing their tips. if not, no problem I just thought I would check first!
any help appreciated
thanks
jt

booksurr

1. no you cannot claim £208 pa home office use . The £4 per week rule is for employees use , you are not an employee

however, as you doubtless undertake some admin related to your rental business at home you are entitled to claim for the costs of such activity as a business related cost. Although rental income is not classed as self employment neither is it employment, it is its own special category, nevertheless the principles are the same, your costs must be wholly related to the rental business, ie technically they should be calculated as exact apportionments of your home expenses. In reality this is a grey area, so HMRC are known to turn a blind eye if you simply claim the flat rate it allows employees to claim. it is your self assessment, suck it and see, but if challenged you may lose - is it worth the risk?
http://www.hmrc.gov.uk/manuals/eimanual/EIM32815.htm

2. you are claiming W&T, you absolutely cannot therefore claim the furniture purchase costs on top. As for other ideas lots of lists of them on the web - here is a start: https://www.gov.uk/renting-out-a-property/paying-tax

jt2007 wrote: »

my wife is on maternity

who owns the rental property ? if its just you alone then fair enough but if your wife is a co owner then the income must be split 50/50 by default unless you register a Form 17 with HMRC. There are also CGT advantages to having the wife listed as co owner provided it was not solely your own main residence before you got married, if it was then it is CGT dis-advantageous making her an owner after the event but that may be outweighed by the income tax saving (although given your numbers I doubt it )

jt2007

thanks for the help. I guess its not worth the claim for your home as an office. but the link you have seems old so the wording about employees seems old. it still adds to £208 a year but as im. ot registered as a business I guess im not an employee so cant claim that either?

The second point ... yes I can't claim furniture as wellsas wear and tear. I was trying to show how low my profits were after the cost of the furniture. so was looking for other expenses to reduce the tax. maybe experience will help me in time

the flat is owned 50/50. we lived there three years then moved out and got married. so we will be doing an SA each. but from what you're saying its better to be in one name because we weren't married at the time? did you say not being married affects the long term capital gain allowances?

jt2007

ah I understand point 3 now...dont list her after getting married. that aspect is fine we were listed joint owners when we bought the place ao we want to keep it that way for when we sell.

so just point one I'm still unsure on. do I claim this that rate or a proportion of the flat rate because I certainly do a lot of work at home but the link seems old and can't find anything at the minute

thanks for your help

jjlandlord

You can claim for using your home as office.

If you do claim the £208 mentioned HMRC should no investigate at all. If you claim more it should be reasonable and you should be able to show it.

Make sure you do not reserve a room exclusively for business purposes, though.

On the topic (with discussion):
http://www.property118.com/claiming-home-as-office-expenses-for-landlords/29305/

jt2007

thank you. I know this was previously the case but can't find up to date infonon hmrc. do you know where it be so im confident I won't be challenged for claiming this?

jjlandlord

All government websites are moving to gov.uk so it is a bit of a mess at the moment.

HappyMJ

You are supposed to claim your office expenses to the penny...but as £4 a week is reasonable you could claim that and they won't worry about it. Then saying that you actually need to be doing enough admin work at home to warrant the claim. A phone call from a desk once a month chasing outstanding rent and an annual phone call to the gas engineer to get your gas safety certificate wouldn't justify having a home office. I would just claim the actual phone call costs if they are itemised on your monthly bill and leave it at that.

jt2007

I dont think I will claim it its not worth muddying waters.
I do have receipts mostly for paint etc which constitute repairs. I had to replace taps and shelves as well as lampshades..are these allowable as they were to replace damaged ones?or will they come under the 10% wear and tear claim?
thanks

Kynthia

You cannot claim for replacement of furnishings while also claiming the allowance. However I would claim for the taps as they are integral to the property and not a furnishing that would be removed by a tenant or owner when moving out or selling, therefore not covered by the allowance.

booksurr

jt2007 wrote: »

ah I understand point 3 now...dont list her after getting married. that aspect is fine we were listed joint owners when we bought the place ao we want to keep it that way for when we sell.

technically you are running a business however, as you appreciate, it is not set up like any other kind of business (company, sole trader , self employed etc) nonetheless the principles applied by HMRC to a business are equally valid on a rental "business". You can claim the £4 on the basis HMRC turn a blind eye to that as it is the rate they regard as "acceptable" for an employee and therefore allow any one else to also use that rate. That said, as noted by others, if you don't use that much cost then you would ethically have trouble claiming it, but HMRC shouldn't care !

re CGT, I have confused you. I read it that both you and your partner were co owners before you got married? At that stage you both lived in it as your respective main homes and so on that assumption each of you establishes a private residence relief entitlement. You then moved out, subsequently got married, and set up the marital home elsewhere.

On the basis it was the main home of both of you then you MUST now keep it in co ownership otherwise your CGT exposure will dramatically increase. The point is there must be continuous ownership so that each of you preserve your respective Private Residence Relief entitlements. With PRR established, each of you then gets Letting relief (worth up to £80k for a couple) and so PRR + LR means your CGT will be zero or very low when you finally sell.

If those assumptions are correct then the income must be split between you and her 50/50 unless you go through an additional step to notify HMRC of an unequal split - ie you complete a Form 17. If you do a Form 17 and own it as tenants in common then split must reflect the actual % each of you own. If owned as joint tenants then it is 50/50 by definition unless you also complete a declaration of trust along with the Form 17.

You will each have to do your own tax declarations - depending on the figures you may need to submit a tax return (your share is >£10, gross rent or £2.5k net profit) or simply submit a letter if below thiose limits and let HMRC decide what it wants you to do. As one of you is a HR taxpayer it is almost certain that person will be made to do a tax return so as to capture any other income you also have.

jt2007 wrote: »

I had to replace taps and shelves as well as lampshades..are these allowable as they were to replace damaged ones ?or will they come under the 10% wear and tear claim?

those would count as repairs so are not part of the W&T allowance.