The summer is a popular time to move house, and in the current market property owners may decide to let rather than sell their former home. We explore some of the myths about letting property. We also have a reminder about the deadline for reclaiming overseas VAT, which is less than two months away. Finally, there is some news concerning Simple Assessments which are about to be issued by HMRC.
Below is just an extract from last week’s tax tips email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)
Myths about letting
HMRC has released some examples of common errors made by property owners when they let out their property. Many of these people do not consider themselves landlords as they did not set out to make a profit from their property. Your clients could fall into any one of these situations:
People serving in the armed forces, or who work for multinational companies, may be required to relocate to another country for significant periods. Where their UK home is let out the rent should have tax deducted by the letting agent, or tenant, under the non-resident landlord scheme, unless the landlord has been granted gross payment status under that scheme. The landlord also needs to declare the rental income on their UK tax return.
Pub landlords who live above their pub may let out their former home. Even if the rent income only covers the mortgage payments on the property, the whole amount of income and expenses must be declared on the owner’s tax return.
Parents may buy a property for their offspring to live in while at university. Where the property is also let to other students, who pay rent to the parents, that income must be declared on the parents’ tax returns. As the property is not the main home of the parents the rental income does not fall under the £7500pa rent-a-room relief exemption.
An individual partly funds the cost of their room in a residential care home by letting their former home. Although all the rental receipts are used to pay for the care home fees, the rent must be declared on the recipient’s tax return, and tax will be payable on the profits.
A property is inherited by siblings, and one of those individuals organises for it to be let out. The rent received belongs to all the siblings in proportion to their beneficial interests in the property, and should be reported on their tax returns as such. It is possible for the siblings to change the ratio in which the rental income is divided between them, if a declaration is made.
If the property owner has not declared their rental income correctly they can make a full disclosure using the let property campaign disclosure service. Where the under declaration applies only to the last tax return, that return can be amended within one year of the filing date. Our tax investigation experts can advise on the best course of action.