How can I save tax on rental income?

MrPayless

The situation is as follows.

I have a flat that is currently rented out to tennants. Its the first time Ive done this so Im new to the game so to speak.

I know I have to pay tax on the income generated but is there any (legitimate) way to reduce what I have to pay?

For example would it be better for the rental to be paid to me or is it better if it was paid to my other half who is only working part time or is it best to have it paid to both of us? How can I get advice on whats best for me

The other option is that I owe a mate some money. If he was the direct recepient of the rent would I still have to pay any tax on that money?

Im not looking to defraud the system just want to see if I can reduce the amount I have to pay!

Sarahsaver

I may be venturing into this as well so I am interested. I think you can claim the mortgage interest as an expense, which would lower your tax bill. HM revenue and customs do produce a gripping book all about the tax ins and outs of letting a property. I will dig it out and let you know the reference number.

Somerset

On the rental side, the owner of property must declare the letting income. For example if you own it, then it doesn't matter who the tenant/agent makes payment to, it is your income and you have to declare it.
On the expenses side, you can deduct from the rental income most expenses incurred in derieving that income ie mortgage interest, agents fees, decorating, repairs etc. The rules differ between furnished and unfurnished but as Sarahsaver said, the Revenue have a guide.

Pal

You could always lower the rent....

JanCee

MrPayless wrote:

For example would it be better for the rental to be paid to me or is it better if it was paid to my other half who is only working part time or is it best to have it paid to both of us? How can I get advice on whats best for me

Does your wife use up her full personal tax allowance? If not then it may be worth transferring the property into her name and have the rent paid to her. I don't think it would be sufficient to leave the property in your name and just pay the rent directly to her, this could be seen as tax avoidance.

As others have already posted you can claim all justifable expenses directly related to renting from your tax liability these include;

Insurance, agents fees, interest on mortgage, repairs, cost of landlord's certificates for gas & electric, you can also claim reasonable travelling expenses. If you let fully furnished, you can also claim a 10% depreciation allowance.

As well as the Inland Revs own information I would also recommend The Which?Guide to Renting and Letting.

MrPayless

Thanks all, if the property was let in October, when do I have fill out a return form? THe tennat paid 6 months up front

JanCee

If you mean this October then not until after April 5th 2006. If it was October last year then you need one now. When you phone up & ask for a return you need to ask for the land & property section to be included.

Robert_Sterling_3

JanCee wrote:

I don't think it would be sufficient to leave the property in your name and just pay the rent directly to her, this could be seen as tax avoidance.

Tax avoidance is OK evasion is not.