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Whether you have one property rented out or many there is something you need to think about. As HMRC increases its efforts to target landlords who have undeclared property income, it is vital that they take advice, where relevant. Should HMRC make contact before a disclosure is made, they can go back up to 20 years and charge penalties of up to 100% of any tax due. This is in stark contrast to the 20% penalty under the disclosure. The process can be complicated, so care should be taken in calculating any tax liability.

Any profit you make from renting out a property is part of your income, and as such, is subject to Income Tax. The amount of tax you pay on this is subject to your total taxable income. If you’re eligible, you may also be able to claim Income Tax reliefs, which means that you either pay less tax to account for the money you’ve spent on specific items or get your tax repaid. Sometimes you get these tax reliefs automatically, but there are others you must apply for to be eligible.

In order to calculate your costs, it may be worthwhile setting up a separate account for your rental income. This will stop your various revenue streams from becoming confused, and it may also be easier for you to work out your profit, expenses and other forms of income. It is important to remember that only profits from renting your property are liable for income tax and that to calculate your profits, you will have to deduct ‘allowable expenses’ first.

If your letting activity is deemed as ‘running a property business’, you may also be required to pay Class 2 National Insurance Tax. You will be considered to be running a property business if being a landlord is your primary job, you let more than one property, or you acquire properties with the intention of renting them out.

MAKING A LOSS? If you’re making a loss on your rental properties then you’ll need to deduct any losses from profits and enter the figure on your Self-Assessment form, remembering that your losses can be offset against future profits (by carrying it over to a later year) or against profits from other properties in your property portfolio.

COMPLETING YOUR TAX RETURN? If you complete your Self-Assessment tax returns online, you get an extra three months to submit them. It’s very important your tax return is completed accurately and within the relevant timeframes, otherwise, you can face penalties.

Paigham Mustafa

A final piece of advice is to speak to an accountant about the taxation rules surrounding rental properties. Their knowledge in this area can be an invaluable source of information to help make sure you’re following best practices.

Need some help? For free advice please Contact Bergen Associates: