Tax Tips For The Property Sector
We all know the world of tax is a minefield, and businesses in any industry that don’t regularly review their finances run the risk of being either non-compliant or paying more tax than they need to. The following tips have been prepared to help you be rest assured that your Property business is running as tax efficiently as possible.
As a landlord, rental profit is calculated by deducting any ‘allowable’ expenses from the amount of rental income received
Any ‘allowable’ expenses should be incurred wholly and exclusively for the purpose of renting the property. Examples of expenses include landlord insurance, accountants' fees, repairs to the property & management fees.
If the allowable expenses are greater than your rental income, you will have made a loss. You can only offset that loss against any profits that arise from the same rental business in future years.
From 6 April 2017 you can now get up to £1,000 a year in tax free allowances for property income. This applies to those that where annual gross property income is £1,000 or less, you will not need to tell HMRC. You cannot use this allowance on income from letting a room in your own home under the rent a room scheme.
There are changes to mortgage interest relief and these changes began in April 2017.
The new rules allow you to claim a percentage of mortgage interest only and a portion of the interest payments qualify for the new tax credit. Since April 2020, you can no longer deduct any mortgage interest payments from your rental income and instead you receive a 20% basic rate relief tax reduction.
Tax Year | Percentage of Finance Costs Deductible From Rental Income | Percentage of Basic Rate Tax Reduction |
2017-18 | 75% | 25% |
2018-19 | 50% | 50% |
2019-20 | 25% | 75% |
2020-21 | 0% | 100% |
The 10% wear and tear allowance is no longer available and instead has been replaced with ‘replacement of domestic items relief’ from 6 April 2016. Unlike the wear and tear allowance, the replacement relief applies to unfurnished, part furnished or fully furnished dwellings. Examples include: moveable furniture, furnishings and household appliances.
If you would like to speak to one of our property tax specialists, please don’t hesitate to get in touch.