Tax on rental income is a matter of great importance to many people and the state as well. In this article, we will take a look at some basic items relating to taxation on rental income .Rental income and expenditure is treated separately from trade and other self employed income.
When a person human or corporate rents out a property, they generally get an income from the tenant which is the rent. Very often , the tenant will pay a lot of the bills associated with the property.This could include utility bills, cleaning bills, domestic or commercial rates,Naturally, expenses paid directly by your tenant are not rental expenses for you the landlord.
Expenses you the landlord might pay, are off set against your rental income to get your taxable profit on which you would be liable to pay tax on rental income. These expense could include Gardening, decorating, maintenance, Electricity for communal areas, you might be paying the rates, might be paying all the fixed costs when property is empty, Mortgage interest costs, loan interest on loans to improve the property.
Major works on the property, which result in an improvement to the property, or are necessary to make the property habitable, might be considered to be capital expenditure and therefore not allowable.
In addition to the standard expenses, you get 10% wear and tear allowance on furnished property lettings, the 10% being a percentage of the related rental income for the furnished property only. Ergo, don’t go taking 10% from the incomes of multiple properties where only one is Furnished.
Rental income and expenditure are netted off in an income and expenditure account to get your rental profit or loss figure. this figure is what is taken to your tax computation.. Rental property losses brought forward from previous years can be set off your current rental profits.
If your rental property has made a loss, this loss can be carried forward or , depending on the current tax law at the time,and depending on the type of rental , it might be set against your other income for the year. Currently, tax legislation allows Rental losses to be carried forward to off set against rental profits in the future, thereby reducing the tax on rental income payable.
A common question is whether rental properties attract Annual investment relief or capital allowances, and generally the answer is no, unless the legislation changes. However wear and tear allowance does give relief for some of the fittings in a furnished letting
Furnished holiday letting are treated differently, any property profits or losses under furnished holiday lettings can be treated in a similar way to trade income. Strict rules govern the type of property which would be accepted as furnished holiday letting.
Once your taxable rental income has been determined , it is taxed along with the rest of the income .according to the existing tax rates and allowances.