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Renting Out Property? – Then Understand the Rules!

I don’t know if it’s me or not, but there seems to be more and more people renting out properties, it appears as if we are becoming a nation of landlords. This is a big shift from nearly 25 years ago when we appeared to be a nation of shopkeepers (who can ever forget Ronnie Barker as ‘Arkwright’ and David Jason as ‘Granville’ in the sit-com ‘Open all Hours’ – ok, perhaps you are not as old as me, so check out UK Gold on Sky from time to time, for some of the classic episodes!).

Anyway, there are several reasons why people have rental properties. -

  1. They could have been left a property in a Will.
  2. Or gifted from an elderly parent to avoid Nursing Care Fees (be careful here this is not as clear cut as people think, – but at JCL (Jones Cooper Limited) Accountants we do have a solution up our sleeves for anyone interested in hearing more?)
  3. It could be an investment choice, looking for an uplift in the value of the property in the future.
  4. Or they may have moved and couldn’t sell their original property and decide to rent rather than reduce their resale price.
  5. Or simply, it could just be a case of wanting to generate a better rate of return than being offered by their savings at the moment.

So What Are The Rules?

1. Income Tax on Rental Income

If you decide to rent a property you must declare this rental income to HMRC on a Self-Assessment Tax Return, whether you make a Profit or not.

If your rental property is currently in a Loss situation, e.g. your rental income is less than the interest part of your mortgage, you must still declare and record the Loss with HMRC. This will allow these Losses to be offset against the future rental Profits for the property, and so saving you Tax!

Don’t be fooled in believing HMRC will not find out about your Rented Property – as a starter, they are going round all the Lettings Agents and asking for the lists of people renting out property.

Yes, HMRC are becoming more like Big Brother every day with eyes and ears all over the place! Big Brother, hmmm now I seem to recall a reality TV programme of that same name. This was not compulsory viewing in the Cooper household, so thankfully I can honestly say I have never watched a single episode of Big Brother, (give me a Tax Book anytime!)  But for you avid reality TV fans, I believe Big Brother now appears on the obscure Channel 5 (along with Chelsea’s Europa League Cup Matches!). Yes, I know this sounds a bit like sour grapes after Chelsea have just thumped Leeds 5-1 in the old League Cup, but us Leeds fans do need a bit of light relief from time to time, and seeing Chelsea in the Europa Cup does give us a little smile! (money can’t buy you everything).

Anyway, back to the Rental Properties………….

2.  What Rental Expenses can be claimed?

The following can be offset against your Rental Income:

  • Mortgage interest (but not the capital element)
  • Letting agent fees
  • Repairs and maintenance of the property, e.g. gas checks, decorating
  • Building and contents insurance
  • Services, such as cleaning or gardening
  • Council tax and utilities
  • Rent, ground rent and services charges
  • Other direct costs of letting the property such as mileage to check on the property, advertising etc.
  • And of course, your Accountancy fees!

3. Sale of the Property:

Any Gain you make on the sale of the property is subject to Capital Gains Tax (CGT), and so should be declared on your Self-Assessment Tax Return Forms.

If the Gains are a Ronnie Corbett or Willie Carson (ie small!), then they do not need to be reported on your Tax Return. For CGT purposes ‘small’ means less than the annual CGT exemption of £10,600, assuming you have no other Capital Gains in the same Tax year.

There are also other Reliefs available to reduce the Chargeable Gain, such as PPR Relief and Lettings Reliefs, but those do depend upon individual circumstances.

But, the good news is there are some Tax Planning angles you can take advantage of to reduce the amount of CGT payable. But you would need to contact us at JCL (Jones Cooper Limited) Accountants, before putting the property up for sale so we could advise you further.


Rickey Cooper FFA, FMAAT, ATT

JCL – Jones Cooper Limited

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