HMRC are using the new tax year to warn landlords about tax evasion.
HMRC estimates that over 5 million pounds of tax on property income is lost each year by private landlords failing to disclose their income and thus evade paying tax owed. The warning is for landlords both resident and non resident in the UK.
The start of the new tax year is the perfect time for HMRC to issue fresh warnings about its crackdown on tax evasion amongst residential landlords. HMRC investigators are targeting domestic landlords with information obtained from local councils to try and track down landlords evading tax by failing to declare rental income.
Landlords may receive letters from HMRC requesting information on property addresses, letting periods, how many tenants are in the property and details on weekly and monthly rents. More personal questions about how rental property was acquired could also be asked, for example whether it has been purchased, inherited or gifted.
If you are a landlord, you should firstly register for online for self assessment, if you haven’t already. You should keep receipts and other relevant documentation regarding any properties you rent out as there are certain expenses that can be deducted from rental income which can reduce the amount of tax you owe.
In order to calculate the tax owed, the rental income must be added to any other taxable income you earn. The rate of income tax charged will depend on your total income for the tax year, but there are a number of expenses you can offset against your tax liability for rental income.
Examples of such expenses are; costs for repair and maintenance such as plumbing and gardening or like for like replacements such as double glazing for single glazing. Utility bills, buildings and contents insurance and council tax can all be taken into account as well as letting agency, management and accountancy fees. If a property is let furnished a landlord can also offset wear and tear which is normally 10% of the annual net rental income. The cost of improvements to a property cannot be used for tax relief.
Non resident landlords are often due a non resident tax rebate depending on their level of income and tax paid. It is common for rental income to have tax deducted meaning that if eligible a non resident landlord tax rebate can be claimed.
