Advice for those thinking about residential letting

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Moore Thompson Advertising feature By David Turpin FCCA (resident partner, Moore Thompson) and Akhil Choudhury (director, Bowsers Solicitors, Wisbech)

This month the experts from Moore Thompson answer questions on residential landlords.

Q: I’m interested in letting residential property. Where do I start?

A: From a tax point of view, the issues involved in letting residential property can be complex, so before you start it’s an idea to talk to an accountant for advice on the most tax-efficient options for buying and managing the property.

Q: Do I need to tell the taxman?

A: When you start letting the property, you must tell HM Revenue and Customs (HMRC) and report property rental income of more than £2,500 a year on a self assessment income tax return.

If it is less than £2,500, you need to complete HMRC’s form P810.

If you make a loss on renting, you can carry it forward to a later year and offset it against your future profits.

Q: Will I pay tax on all my income from letting out the property?

A: You only pay tax on the profit you make from renting out the property after deducting allowable expenses, which cover the costs involved in the day-to-day running of the property, including: accountants’ fees; buildings and contents insurance; maintenance and repairs; utility bills; rent, ground rent, service charges; council tax; services you pay for, like cleaning or gardening; other costs involved in letting the property, e.g. phone calls or advertising.

Allowable expenses don’t include capital expenditure, like the cost of buying a property or renovating it beyond repairing wear and tear.

However, if you let a furnished residential property, you can also claim ten per cent of the net rent as a wear and tear allowance for any furniture and equipment you provide.

Q: I’m selling a residential property I’ve been renting out. What tax is involved?

A: You may need to pay capital gains tax (CGT) if you sell a property you have been letting at a profit.

You won’t pay CGT if the sale takes place if you lived in the property and sell it within 18 months of the date when you last did so. Prior to April 2014, the period was three years. It may also be possible to reduce your CGT bill by transferring part of your interest in the property to your spouse or civil partner, to make the most of CGT annual exemptions and lower rate bands.