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Filing Deadline

UK Tax Deadline January 31st

Property Ownership in the UK

U.K. Income Tax on Rental Income

Rental income derived from a UK investment property is taxed at the marginal rate of tax in the U.K. between 20% and 50% depending on the levels of rent received.

Therefore, if you have submitted an NRL1 Form and you received rents without deduction of tax from your tenants from 6 April to 5 April in the following year, you will need to determine if you are liable to UK tax. This is done by calculating the gross rental income less your personal allowance and allowable expenses.

If you have, you must submit an income tax return to Inland Revenue by 31 January following the year of assessment.

Some individuals who are not resident in the UK for tax purposes are not sent an annual tax return automatically, even though they have UK rental income. This is because many non-residents will have sufficient UK personal allowances to cover any liability (see below).

Personal Allowance and Deductible Expenses

Irish Landlords will be entitled to a personal allowance, which can be deducted from rental income to significantly reduce any UK tax liability.

The following expenses can also be deducted when working out the profit on which you will pay tax:

  • Advertising your property
  • Accountancy fees for preparing rental income accounts
  • Interest paid on any loan used to acquire or improve the property. (Note: The residence status of the lender does not affect the taxpayer's right to an interest deduction in computing the profits or losses of their rental business).
  • Similarly, interest payable under hire purchase agreements or on an overdraft is deductible where the asset is used for business purposes.
  • Costs incurred in obtaining loan finance for a rental business are generally deductible in computing rental business profits provided they relate wholly and exclusively to property let out on a commercial basis. These costs include loan fees, commissions, guarantee fees and fees in connection with the security of a loan.
  • Insurance of both the property and its contents.
  • If the property is let furnished, legal fees in respect of disputes with tenants are allowable.
  • Utility Bills such as, Gas, Electricity, Telephone, Water Rates.
  • Council Tax bills paid by the landlord.
  • Maintenance fees, such as gardening, cleaning etc.
  • If the property is let furnished an allowance is made for the cost of the furnishings. This is either the actual cost of replacements each year or 10% of the annual rental income.
  • A certain deduction for capital allowances.
  • Management company charges.
  • Agency fees paid.
  • Legal fees for lets of a year or less, or for renewing a lease for less than 50 years.
  • Maintenance and repairs (but not improvements).
  • Rent, ground rent, service charges.

    It is an Income Tax relief and not a Corporation Tax relief introduced to encourage landlords who pay Income Tax to install cavity wall insulation and loft insulation in let residential property. Expenditure on these items cannot normally be deducted when calculating taxable profits and it is not eligible for capital allowances.

    A landlord can claim for installing loft or cavity wall insulation in any residential property that they let. The maximum amount that can be claimed is £1500 for each building that contains residential property. This is called the Landlord's Energy Saving Allowance.

  • The cost of rent collection is generally deductible in computing rental business profits provided it relates wholly and exclusively to property let out on a commercial basis.
  • Repair means the restoration of an asset by replacing subsidiary parts of the whole asset. An example is the cost of replacing roof tiles blown off by a storm.

    If a significant improvement of the asset beyond its original condition results - this will be classified as capital expenditure rather than a repair. For instance, there will be a capital improvement if the taxpayer takes off the roof and builds on another storey.

    Examples of common repairs which are normally deductible in computing rental business profits include:

    • Exterior and interior painting and decorating
    • Stone cleaning
    • Damp and rot treatment
    • Mending broken windows, doors, furniture and machines such as cookers or lifts
    • Re-pointing, and replacing roof slates, flashing and gutters

Generally expenses that are incurred wholly and exclusively for the purposes of the rental business; and are not of a "capital" nature, are allowable.

Please note:
Records should be kept of all expenditure incurred in connection with the letting.

Value Added Tax (VAT)

If any expenses that are deductible in computing the profits of the rental business have borne Value Added Tax (VAT) and that VAT cannot be relieved as "input tax" because, for example, the landlord is not registered for VAT, the deductible expense is the amount inclusive of VAT.

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