Guide to taxation for Landlords - source Silver Levene

Tax Tips
Records should be kept of all expenditure incurred in connection with the letting. The following expenses can 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 Insurance of both the property and its contents, if it is let furnished Legal fees in respect of disputes with tenants Gas, Electric, Telephone, Water Rates, Council Tax bills paid by the landlord Other services provided by the landlord 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.

Liability to United Kingdom Income Tax

• Rental Income is taxable as unearned income assessed under Schedule A. National Insurance Contributions are not payable on rental income and it does not qualify as earnings for pension purposes.·       
• Landlords should declare the income on their annual tax returns. If a Landlord has not previously received a tax return the Inland Revenue should be notified if their rental income gives rise to a liability to tax. Financial penalties and interest can be charged by the Inland Revenue for failure to complete tax returns.·       
• Non-UK resident landlords are also liable to UK income tax on income from properties within the UK and must file a UK Tax Return.·       
• The letting agent, or if no agent is acting, the tenant, must deduct basic rate tax (currently 22%) at source and pay this over to the Inland Revenue. This obligation is removed if the landlord registers with the Inland Revenue under the Non-Resident Landlord Scheme and a tax exemption certificate is issued to the agent.·       
• A landlord may apply to the Inland Revenue to receive his rents without the deduction of tax provided his UK tax affairs are up to date or if he does not expect to be liable to UK tax.·       
• Non resident Landlords who are European Economic Area Nationals or come under certain other categories will be entitled to personal allowances (£4,385 for the 2000/01 Tax Year), which can be deducted from rental income to significantly reduce any UK tax liability.·       
• The tests for determining an individual’s residence status are complex. However for the purposes of the Non-resident Landlord Scheme an individual is regarded as Non UK resident if they are outside the UK for more than six months.
  
• Self-Assessment also applies to non-resident landlords who may be required to file annual tax returns with the Inland Revenue.

Taxation of Income from Land (Non-Resident) Regulations 1995

• When a landlord lives abroad they still have to pay UK income tax on rents from properties in the UK.
• Where Estate or Letting Agents collect rents, the Inland Revenue holds them responsible for tax liability arising in connection with that letting, unless the Landlord has received a tax exemption certificate from the Inland Revenue to receive rents without tax deducted.
• A tax exemption certificate can be obtained by completing Form NRL 1 2 or 3, which is available from our negotiators and sending the form to the relevant Inland Revenue office.
• If a Non-resident Landlord collects their own rent, the Tenant is responsible for paying tax on the rent to the Inland Revenue quarterly.
• Therefore the Tenant is entitled to deduct tax from the rent at the prevailing basic rate, unless the Landlord has received permission from the Inland Revenue to receive rents without tax deduction.
• The Landlord must provide the Tenant with a copy of the Inland Revenue’s exemption certificate.Any tax paid to the Inland Revenue on the Landlord’s behalf is held as a tax credit against the Landlord’s final tax liability as determined under Self-Assessment.A Client’s tax communications for the year must be dealt with by their Accountants, as we cannot undertake to do this on their behalf.
• This information is provided by Silver Levene, Chartered Certified Accountants who can be visited at www.silverlevene.co.uk (site currently being redelevoped).  If you require any further information on the taxation of rental income you can contact Sophie Adair on 020 7383 3200 or sophie.adair@silverlevene.co.uk .

This information relates to lettings of UK property only and is based on Inland Revenue regulations extant at 30 April 2000 and is subject to change. Silver Levene accept no responsibility for any action taken or not taken on the basis of this information.

Please also read Information on double taxation (link to TaxIreland.ie)