FAQs

Q. How can I minimise the tax I have to pay?

A. Deduct the expenses of letting from the gross rents and claim UK tax free allowances.

Q. What kind of expenses can I deduct?

A. All the expenses directly related to maintaining and running the property, arranging the lets and collecting the rent. If you borrow to buy the property the interest you pay can be deducted.

Q. Suppose the UK Tax Authorities don’t know about my rental income?

A. The UK H M Revenue & Customs has arranged matters to ensure they will know about it. If you don’t register with the UK H M Revenue & Customs, your lettings agents will have to deduct tax at basic rate (currently 20%) from your gross rent with little allowance for expenses before they send you what’s left.

Q. How do I register with the UK H M Revenue & Customs?

A. Southbrook Business Solutions Ltd will complete a form SA1 and submit it to HMRC for you.

Q. What are the benefits of making UK Tax Returns for the Landlord?

A. You get your rent less the agent’s charges and expenses, without deduction of tax. You pay your tax based on the income less all the expenses at a later date. Professional attention can lower tax bills.

Q. I am an overseas Landlord that is thinking of taking advantage of this sudden surge in value over the last 12 months by selling up. But some of my London colleagues have mentioned that overseas landlords could be subject to Capital Gains Tax?

A. From 6th April 2015 all non resident landlords will be liable to pay Capital Gains Tax.

Q. I want to rent my property to a relative who cannot afford the full market rent. What are the taxation implications of this?

A. If you rent a property to a connect person it is likely that HMRC will ask whether the rent being charged is at a commercial rate. If the rent is below the market rate then the allowable expenses may be restricted so that any loss is ignored, and is not available for offset in the year or in any future year.

Q. I am going to abroad to work for three years and want to rent out my home. My letting agents have told me that I will be taxed on my rental income at 20% unless I complete a form now and will then have to complete UK Tax Returns. Is there any advantage to me in dealing with all this paperwork?

A. Usually the answer is yes. Agents collecting rent for non-resident landlords are obliged to deduct tax at (currently) 20% of the rest after deducting the small number of expenses that they are aware of.

The form you are being asked to complete now is the NRL-1 which is an application for relief from the obligation to have tax deducted at source. Once this permission is granted you will have to keep your Tax Returns up to date or it will be withdrawn. The advantage to you is that the calculation of the amount taxable looks far more attractive. In arriving at the taxable amount you may now deduct all those expenses you have incurred in maintaining the rental income that your agent did not know about.

These include loan interest that you have paid on any loan you took out to buy a property or bring it up to present standard. In addition if you are a UK citizen or a citizen and resident of another qualifying country you will still get all your UK personal allowances to set against your UK income. Currently this will give you an additional amount of about £10,000 tax-free. For most people the actual tax paid is considerably lower than if you took the lazy way out and just put up 20% deduction. The 20% deduction does not let you off making returns.

Q. I travel to the UK each year to check up on the property and use the opportunity to visit the family. Is the cost of travel allowable?

A. It is not only non-residents who incur travel expenses in looking after their investment property. The rules are more or less the same for both non-residents and for residents of the UK. An expense is allowable for tax purposes if it was incurred wholly and exclusively for the purposes of maintaining the property income. Clearly whether a landlord lives in London or Singapore, if he travels to Bradford only to attend to his let property there, the cost of the travel is normally allowable.

If he stops off to do Christmas shopping or to visit a friend then the expense is not allowable because it was not incurred exclusively for the purpose of marinating the rental income. If the gentleman from Singapore travels to London where he visits his family then take a taxi for a journey where he only deals with the let property only the taxi fare will be allowable.

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