Tax advice for landlords

Tax advice for landlords of residential property is perhaps not the most exciting of topics to talk about but nonetheless, proper advice in this area is absolutely vital to avoid paying too much tax, or falling foul of the HMRC.

We would always advise landlords to engage with a professional lettings agent who can guide through the process and may have links with specialist tax accountants.  Here at CBRE we have a good knowledge of tax regulations for landlords but will always pass our clients over to a recommended firm of accountants where appropriate.

Income tax is assessable on the rental profits from property for all owners of UK residential property, regardless of the country of residence, apart from company owners who will pay corporation tax.  These rates will vary from 20% to 45%.  It is incredibly important for non-resident landlords to register with the Non Resident Landlord Scheme, NRLS, to allow the letting agent to be able to pay them their rents gross.  There will still be a requirement to file a tax return in the UK but without the NRL approval, the agent is obliged to deduct tax at 20% before paying rents over to the landlord overseas.  Many overseas landlords fall foul of this and needlessly have tax deducted at source rather than paying via a tax return.  A good agent or accountant should guide a landlord through this process.

Gross rents can be reduced, i.e. tax liability reduced, by deducting certain allowable expenses, which are subject to rules from HMRC.  For example the following expenses that a landlord incurs should be deducted:

  • Managing agents fees (e.g. for property management and lettings fees)
  • Service charges
  • Insurance
  • Repairs / Maintenance
  • Where property is furnished, a wear and tear allowance of 10% of rents per year is available, although this relief is being removed in 2016
  • Mortgage interest.  This relief is being gradually reduced until 2020 when only basic rate relief will be available.

The following expenses are not be deductible:

New furniture or appliances.  This is to change in 2016 when they will generally be deductible on a replacement basis.

Improvements to the property.  Although may be allowable under separate capital gains tax rules

These are just a small part of the overall tax implications for landlords, and as can be seen the rules are reasonably complex, but the advice and guidance of a professional agent will be really worthwhile.

(Please note that this information, current in September 2015, is only advice and CBRE cannot be held legally liable. Should you wish to discuss tax advice further please get in touch with our lettings team who will be able to direct you to a recommended accountant firm.)