property lets & furnishing/income tax question

[CraigW]

Dear all,

Can you offset the cost of furnishings for a rental property against your income tax liabilty from said property >?

[fade2grey]

if I remember correctly you can offset a wear & tear value (I think calculated as a percentage of the rental) off the profits.

I'm sure Someone will be along shortly with a more accurate answer.

[Eric Mc]

If the property is a designated "furnished let" - which it sounds like to me, there are two options open.

Option 1 - each year you can offset the purchase cost of replacement furniture against the rental income

Option 2 - you do not offset the actual cost but instead an annual 10% Wear And Tear allowance is claimed against the rental income.
The 10% is calculated against the Gross Rental Income MINUS any rates, council tax or water charges paid for by the landlord.

Edited by Eric Mc on Tuesday 18th November 15:51

[CraigW]

thanks chaps. In short yes, renting it fully furnished, but wondered if I spend say £5k furnishing if I can then offset that angainst the income tax I'd owe.

[Eric Mc]

Option 1

If you go down this route you will need to stick with it for future years i.e. you will not be able to claim the 10% Wear and Tear allowance.

[Wings]

I have been a landlord for more than 10 years now, and the accounts for those same years, show a considerable advantage for taking the annual 10% Wear And Tear allowance on/against the rental income.

Whilst I personally find that many tenants today are looking for unfurnished accommodation, the same is also an advantage to me, since I do not have to worry about the fire safety/regulations of furnishings etc. etc. The only items I supply are carpets and curtains, with the same on average having a 10 year life span.

[CraigW]

so with the 10% rule I only pay 90% of the income tax or am I being thick

[Wings]

CraigW said:

so with the 10% rule I only pay 90% of the income tax or am I being thick

After also deductions of any “other” expenses, such as Ground Rents, Rates, Insurance, Repairs, Maintenance, Renewals, Finance Charges including interests from Banks/Building Societies, Legal and other Professional costs, Services costs Gas/Electric and Water (these only when the property is vacant), Wages and other expenses.

[Eric Mc]

Wings said:

CraigW said:

so with the 10% rule I only pay 90% of the income tax or am I being thick

After also deductions of any “other” expenses, such as Ground Rents, Rates, Insurance, Repairs, Maintenance, Renewals, Finance Charges including interests from Banks/Building Societies, Legal and other Professional costs, Services costs Gas/Electric and Water (these only when the property is vacant), Wages and other expenses.

And.... you then pay tax on the net rental profit left over after all these deductions have ben taken off. The amount of tax arising on the remaining profit will depend on whether you are a basic or a higher rate tax payer i.e. the tax might be calculated at either 20% or 40%.

If, after all the rental deductions have been made, your rental property has produced a loss, the loss can be carried forward gainst rental profits arising in the next and future years.

[trooperiziz]

Eric Mc said:

Wings said:

CraigW said:

so with the 10% rule I only pay 90% of the income tax or am I being thick

After also deductions of any “other” expenses, such as Ground Rents, Rates, Insurance, Repairs, Maintenance, Renewals, Finance Charges including interests from Banks/Building Societies, Legal and other Professional costs, Services costs Gas/Electric and Water (these only when the property is vacant), Wages and other expenses.

And.... you then pay tax on the net rental profit left over after all these deductions have ben taken off. The amount of tax arising on the remaining profit will depend on whether you are a basic or a higher rate tax payer i.e. the tax might be calculated at either 20% or 40%.

If, after all the rental deductions have been made, your rental property has produced a loss, the loss can be carried forward gainst rental profits arising in the next and future years.

I've started renting out one of my properties this year (as I suspect have many people, due to not being able to sell it in the current market!), so what is my next step regarding tax?

I have statements from the managing agent on a monthly basis with their fees, any costs incurred and rental income etc...
I have my own spreadsheet which I started up a couple of years back that details all my own income and outgoings, so I know what's going in and out every month and to whom.

I haven't filled in a self assessment form for a couple of years as my tax situation has been extremely simple (Sorry Eric, I know i'm a bad boy )

Do I just need to request a self assessment form and fill it in, how easy is it to fill in regarding all the info on this thread? My rental income will be making a loss at the moment, so i'd like to store that loss for future years when it turn into profit (is that how is works?)

Any advice geared towards an idiot who can just about count, would be appreciated

[Eric Mc]

The onus is on the taxpayer to contact the Revenue to let them know that a Self Assessment tax return will need to be made. You should have contacted them within a few months of deciding to rent out the property.

[trooperiziz]

Eric Mc said:

The onus is on the taxpayer to contact the Revenue to let them know that a Self Assessment tax return will need to be made. You should have contacted them within a few months of deciding to rent out the property.

It is a few months since I started renting the property

My question was about how easy is it to fill in the self assessment forms?

[Wings]

trooperiziz said:

Eric Mc said:

The onus is on the taxpayer to contact the Revenue to let them know that a Self Assessment tax return will need to be made. You should have contacted them within a few months of deciding to rent out the property.

It is a few months since I started renting the property

My question was about how easy is it to fill in the self assessment forms?

Taking advantage of having a partner, I am able to share my tax liabilities/profits with my partner. So for our profits on the BTLs I use HMR&C Self Assessment form SA801, the same which can be both viewed and downloaded from HMR&C web site.

I created my own software for recording all rental payments received, together with all outgoings/services etc. etc., the same software has a balance sheet which is a duplicate of the information requested on SA801.

[Eric Mc]

The best way to tackle this is to prepare a basic rental income and expenditure schedule yourself - either manually or using a spreadsheet like Excel. Once you have the basic figures and profit/loss situation worked out, you can slot the numbers into the correct boxes on the Land and Property pages of the Self Assessment form.

Don't forget, that once you start filling in SA forms, you will need to complete all the other sections of the form relevant to your income from all other sources (employment, self employment, interest, dividends etc etc).
For some of these areas you will need additional supplementary pages (employment, self employment, for instance).

You might find it better to investigate the possibility of filing the return on-line using the Revenue's web filing system. This will negate the need to request paper forms and supplementary pages.
To instigate this you need to request from the Revenue a PIN and authentication code. It is best to do this as early as poossible.

There are major advantages in filing on-line -

the return gets processed immediately
you receive an instant acknowledgement of its receipt from the Revenue by e-mail
the statutory filing date is the 31 January following the end of the tax year in question i.e. the 08/09 tax return does not need to be filed until 31 Janaury 2010.
Paper returns have a statutory filing daste three months earlier i.e. 31 October.

[trooperiziz]

Eric Mc said:

The best way to tackle this is to prepare a basic rental income and expenditure schedule yourself - either manually or using a spreadsheet like Excel. Once you have the basic figures and profit/loss situation worked out, you can slot the numbers into the correct boxes on the Land and Property pages of the Self Assessment form.

Don't forget, that once you start filling in SA forms, you will need to complete all the other sections of the form relevant to your income from all other sources (employment, self employment, interest, dividends etc etc).
For some of these areas you will need additional supplementary pages (employment, self employment, for instance).

You might find it better to investigate the possibility of filing the return on-line using the Revenue's web filing system. This will negate the need to request paper forms and supplementary pages.
To instigate this you need to request from the Revenue a PIN and authentication code. It is best to do this as early as poossible.

There are major advantages in filing on-line -

the return gets processed immediately
you receive an instant acknowledgement of its receipt from the Revenue by e-mail
the statutory filing date is the 31 January following the end of the tax year in question i.e. the 08/09 tax return does not need to be filed until 31 Janaury 2010.
Paper returns have a statutory filing daste three months earlier i.e. 31 October.

Ta. I had a look last night at the forms and the only thing i'm a bit wooly on is the mortgage payments I currently pay. Can I offset against the full payment including capital repayment, or just against the interest part of the loan? If it is just the interest part then how do I work that out, as doesn't my loan interest change everymonth due to paying down some capital in every payment?

Also, I'm assuming that as I only started renting out in July this year, I need to declare that next year not this year? i.e. fill in the forms after april 2009 to be submitted by October 2009, rather than cram it into an online assessment before January 2009?

[Eric Mc]

You can only offset the interest element of the mortgage repayments. Logical when you think about it as the interest charge is the "cost" of borrowing the money. The capital element is merely giving back the sum you received from the lender and is not a real "cost" as such.

You started renting the property out in July 2008. Therefore, the first self assessment tax return you will need to complete will be the one covering your income and allowance claims for the year ended 5 April 2009 i.e. tax year 2008/09. These forms will not be issued by the Revenue until after 5 April 2009. The submission deadline dates will be -

Paper Version - 31 October 2009
On-Line Version - 31 January 2010
Payment of any additional taxes arising from Self Assessment Income (if any) - 31 January 2010.

[trooperiziz]

Eric Mc said:

You can only offset the interest element of the mortgage repayments. Logical when you think about it as the interest charge is the "cost" of borrowing the money. The capital element is merely giving back the sum you received from the lender and is not a real "cost" as such.

You started renting the property out in July 2008. Therefore, the first self assessment tax return you will need to complete will be the one covering your income and allowance claims for the year ended 5 April 2009 i.e. tax year 2008/09. These forms will not be issued by the Revenue until after 5 April 2009. The submission deadline dates will be -

Paper Version - 31 October 2009
On-Line Version - 31 January 2010
Payment of any additional taxes arising from Self Assessment Income (if any) - 31 January 2010.

Thanks for the confirmation Eric.

[mondeoman]

One thing I'll throw into the mix ...

Mortgage interest and some other costs when the property is not let are not claimable against other income ie you cannot use a loss due to the house being empty against any other income than that generated from the property itself, but you can carry forward the loss to offset future profit.

[Eric Mc]

I usually mention this .

Rental losses can only be offset against rental profits - unlike trading losses from a business which can be offset against "other income".