Below are the most common questions we have been asked regarding tax and accountancy. If you cannot find the answer you are looking for, please click here to contact us directly.

This is the faq section for Landlords Tax FAQ

• If expenses cover the rents I receive do I have to declare anything to the HMRC?

  Many individuals who are letting a property fall under the misconception that if the expenses cover the rents they receive, then they have nothing to declare to H M Revenue & Customs. Unfortunately, this is not the case.

  If you are letting a property and receive rental income then you are required to notify HMRC within 6 months of the end of that tax year. So for example if you commence to let a property in June 2009 you have until 5^th October 2010 to inform HMRC. Failure to do so can result in penalties being charged equivalent to the amount of tax liability due on the income.

  Depending on the amount of rents you are receiving will depend on whether you will be required to file a self assessment tax return, or whether HMRC can include a restriction in your PAYE tax code to collect the tax due. The self assessment guidelines state that if you have income from property of £2500 (after deducting allowable expenses) you will be required to complete a tax return. However, even if you do not have to file a return, you will still be required to notify HMRC of any rental income you receive below this figure.

  Some landlords who do not use a landlords' accounting service believe that if the mortgage payments for the property exceed the rental income received, they will not be required to declare the income as they are not making a profit, but this is not true and the following are areas of concern:

  a)     Unless a self assessment tax return is submitted annually including the rental income and expenses, they could be losing out on losses arising from the rental property each year which they can then carry forward year on year to set against any future profit arising from rental business. These can mount up and reduce the need to pay tax in the period when a profit first arises.

  b)     If the mortgage is not an Interest only mortgage then part of the monthly repayments are related to reducing the balance outstanding on the mortgage and as such are capital repayments and not allowed as a deduction against the rental income. Only the actual interest charged can be deducted and as this may be less than the rents received creating a profit that needs to be declared and a charge to tax.

  c)     If the mortgage includes a re-mortgage amount for items other than related to the rental business e.g. to buy a car, then the amount of the interest related to this additional borrowing is not allowed as a deduction against the rental income.

• My business is an agency that provides rented holiday accommodation to UK holiday-makers. My commissions are less than the VAT registration threshold, so I am not VAT registered. What contracts and invoices do I need to put in place to avoid charging VAT to either my clients (the landlords) or to the holiday-makers who rent the properties?

  You want to stay under the VAT threshold, so you need to prove to the VATman that you are an agent working on behalf of the landlords, and are not a re-seller of holiday accommodation.
  
  You should have a written agreement with each of the landlords that clearly states that the landlord is the principal who is making a contract with the holiday-maker, and you are their agent.
  
  All invoices you issue should show your fees as separate items to the cost of the holiday accommodation.
  
  If the holiday-maker pays you for the use of the holiday-let, the bill they pay should clearly show the amount due to the landlord, and the amount due to you as the agent. Ideally the two amounts would be shown on separate invoices.

• What happened to the Furnished Holiday Lettings rules in the Budget?

  The tax rules and exemptions for furnished holiday lettings (FHL) remain in place and unchanged at least until 5 April 2011 (1 April 2011 for companies). However, the Government has said that it will consult on changes to the FHL rules to be introduced from 6 April 2011.Those changes are likely to include a restriction on how losses from FHL can be set off, and a tightening of the conditions which will allow the tax relief’s for FHL to be claimed.

• My family has invested in rental properties over a number of years. Some properties are held in my name alone, others are owned jointly with my sister. The properties held with my sister have made losses in the last year. Can I set those losses against the profits made on letting the properties held in my own name?
  

  Yes you can. All your UK property interests are treated as one property business. So the net income from your own properties is amalgamated with your share of income and expenses from the jointly held properties, and the total needs to be reported on the property pages of your tax return. The Taxman will not treat jointly held let properties as being a partnership, unless the letting of the property is ancillary to a proper trading business.
  
  

• I have a holiday cottage that just managed to qualify as furnished holiday lettings as it was let for 70 days in 2010/11. How will it be taxed in 2011/12 and what tax relief will I get for any loss I make on that property?
  

  The Government is expected to announce changes to the way profits and losses from furnished holiday lettings are taxed, with effect from 6 April 2011. The proposals include increasing the number of days the property must be let per year from 70 to 140. Unless you manage to let your holiday cottage for the new number of qualifying days (expected to be 140) in 2011/12, it will be taxed just like any other let property. This means any loss you make on the letting can only be carried forward and set against a profit you make from your lettings business in the future.
  
  

• Have the rules on Furnished Holiday Lettings changed? (FHL)

  Historically, income from Furnished Holiday Lettings(FHL), in the UK has broadly been treated as

  trading income, with certain specified tax advantages, although it

  remains chargeable as property income. The rules are to be changed,

  partly to encompass the requirement to extend relief to FHL in the

  European Economic Area (EEA).

  The law will be changed by the Finance Bill 2011 so that:

  • FHL in both the UK and EEA will be eligible as qualifying FHL within the (revised) special tax rules. This is the current situation but is not within the legislation
  • The minimum period over which a qualifying property must be available for letting to the public in the relevant period is increased from 140 days to 210 days in a year with effect from April 2012
  • The minimum period over which a qualifying property is actually let to the public in the relevant period is increased from 70 days to 105 days in a year with effect from April 2012
  • Losses made in a qualifying UK or EEA FHL business may only be set against income from the same UK or EEA FHL business (existing rules allow set-off against general income)
  • A ‘period of grace’ will be introduced to allow businesses that do not continue to meet the ‘actually let’ requirement for one or two years to elect to continue to qualify throughout that period.