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What is property income for tax purposes
UK rental income, overseas rental income and income from leases (selling, extending, variation, granting at undervalue)
What are my tax obligations
Each year, you need to calculate your profits, complete a self-assessment tax return and pay tax (normally by 31 January)
Jointly owned property
Each owner has to pay tax on on their share of income. The same applies to a husband and wife.
Property tax reliefs
_____________________________________ A taxpayer can reduce the tax payable by taking advantage of the tax reliefs available. It is important to navigate this carefully because there are a number of traps. For example, tax relief on interest is restricted and expenditure on extending a property is not immediately tax deductible.
Property losses can be set off against property income. Excess losses can be carried forward against future property profits. Property losses cannot be set off against your general income.
Any expenses you incur in the property lettings business are tax deductible. Special rules apply to capital expenditure, bad & doubtful debts, entertainment, gifts, expenditure on "integral features" and interest.
Finance costs for residential properties are restricted to 20%. This means you could end up with a tax charge, even if you haven't made a profit.
Rent a room
If you let a furnished room to a lodger in your main residence, you are entitled to tax relief on the first £7,500. You cannot deduct expenses from this amount.
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What about capital gains tax on property?
_______________________________________ When you sell a property, any profit you make will generally be taxable at 28%. Selling, transferring or gifting property are all "taxable" events, even if no money changes hands.
Tax is paid on the difference between the selling price and the price you purchased the property. You have 60 days to report and pay the tax to HMRC.
Tax is paid on the difference between the selling price and the price you inherited the property. The valuation of property at death can often be a subjective area.
Most gifts are between families and the "market value" rule will apply on the discount. This means the discount can be subject to tax.
Capital gains tax reliefs
The first £10,600 of any gain is tax free. If property is owned jointly then both taxpayers get this relief against their share of the profits.
Any expenditure that didn't qualify for tax relief when you were renting the property, could apply now.
Main residence relief
Significant tax relief is available if you occupied the property as your home at any time through the ownership period.
Furnished holiday lettings
Special rules apply for commerical letting of a furnished holiday home. The tax rate could be as low as 10% and "roll-over" relief could be available.
Read our blogs on topical capital gains tax issues and question from clients