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Tax Returns

Tuesday, 28th April, 2015

As we come to the end of another tax year we must now turn our attention to the income that we have received from our lettings. Whilst most of us would prefer to ignore this task there is no choice but to submit a tax return to HM Revenue & Customs. 

When running any business it's important to ensure tax returns are accurate and paid on time. Letting a property is no different. 

HM Revenue & Customs (HMRC) treat a UK rental property as if it were any other trade. Even if you are renting your family home, renting a room in your home to a lodger or you only have one rented property, you still need to disclose any income of this type to HMRC. There is no minimum rental amount allowed; all rental income must be declared with no exceptions. Even if you are not making a profit, you must disclose the income to HMRC. 

The most frequently asked questions are: 

What Do I Do First? 
The first step is to contact HMRC and advise them that you are now receiving untaxed rental income. 

What Do I Need to Submit to HMRC on an Annual Basis? 
HMRC requires a personal tax return to be submitted every year, which runs from 6th April to 5th April. In order to prepare the tax return, you will need to keep records to compile the rental accounts. These rental accounts will form the basis of your personal tax return. You will need to declare all income and expenses incurred each tax year. You will also need to declare any other income or gains, along with the rental income for the year. 

What Records Should I Keep? 
You should keep records of rental income, letting agent's fees, mortgage/loan interest charges, service charges and ground rents, repairs and maintenance, utility bills and charges, renovations work, insurance, accountancy and legal fees to name but a few. 

What Can I Claim? 
You can claim for the headings listed above. There are various allowances available to you, depending on how your property is let, e.g. furnished or unfurnished. You can also choose a claim structure for "wear and tear" on a furnished let property. The claim structure in place with HMRC is rather complex so you may wish to seek professional assistance. You can also claim Landlord's Energy Saving Allowance (LESA), which provides a deduction on certain types of insulation in the residential property you let. You can learn more about LESA on: www.landlords.org.uk/library/financial/landlord-energy-saving-allowance. 

What is a Personal Allowance? 
A Personal Allowance (PA) is a tax-free amount of income that you are allowed to receive each year. It is a common misunderstanding that a PA is given for each type of income. Due to this misunderstanding, some landlords believe they don't need to declare their rental income as it falls below the PA threshold. This is not the case. You are entitled to one PA per tax year which is offset against your total combined income. 

How Much Tax Will I Pay? 
The answer to this question will of course depend on your level of income each year.


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