Three tax queries that get landlords in to troubleMake Text Bigger
The tax return deadline is fast approaching and many property investors are tangling themselves in red tape over how to handle some income and expenses.
Here are some quick answers to some frequently asked questions:
Who has to pay tax on a rental property profits?
Whoever owns the property pays the tax. If a couple own a property 50:50 and the rents make a profit, then both have to declare 50% of the profits unless they have written permission from the taxman.
Mistake to watch for – one owner is a higher rate (40% or more) taxpayer and the other is a lower rate (20% or less) taxpayer. The owners can’t opt who pays tax on the profits just to suit them – the ownership split decides who pays tax.
How do new landlords claim pre-letting expenses?
A property rental business starts from the date of first letting – that’s the day the first tenant starts paying rent. If a landlord has spent money on getting the house ready to let, these expenses are reclaimable.
Repairs and refurbishment costs go in to the accounts as if they were spent on the first day of the business providing:
- The cash was spent within seven years of the first letting date and you have a receipt
- They haven’t been claimed before
- You would have been able to claim them if the business was running at the time the money was spent.
Bear in mind improvement costs – that’s adding something that wasn’t there, like a conservatory – do not go in the rental accounts but are logged to claim against capital gains tax.
Only day-to-day repairs, like renewing a roof, painting and decorating or installing a like-for-like kitchen are allowed.
Claiming abortive costs
If you spend money on buying a property to let out but the purchase fails to complete, then you can’t claim any expenses.
Many investors try to claim travel and subsistence for viewing properties with a view to buying. These expenses can’t be claimed either.
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