d. All income from land and property in the UK is taxed under Schedule A; that includes residential investments whether they are furnished or not. Income and expenses for tax purposes are assessed as a single letting business. So effectively if you have one or one hundred properties, Her Majesty’s Revenue & Customs (HMRC) take the total figure rather than looking at individual properties. Income is assessed by tax years ending on the 5th April. Schedule A Introduction

It’s only a small word but it looms very large in the thoughts and the nightmares of many of us. It was Disraeli who said that there are only two things in life that are certain…., “death and taxes”. The good news is that you don’t have to be quite so fatalistic. Like anything in life, you can be a victim, or you can make circumstances work for you. It always helps if you have a good accountant to guide you.

I confess it is only belatedly that I’ve become acquainted with the intricacies of the taxation system. For years I managed without making a return. Not out of any deliberate plan to defraud. But just because I knew I wasn’t making any money. My mortgage payments were barely covered by the rental income and having not sold any property, there were no capital gains. So why trouble the poor overworked civil servants I thought!

Then house prices went through the roof! I sold a few properties and realised some capital gains, investing most of it back into property. It was only when talking to a tennis friend, who turned out to be an accountant that I started to think I might need to explore the matter a bit more carefully. A holiday to Australia in which I took along a copy of the Zurich Tax Handbook as a bit of ‘light reading’ convinced me that there might be a problem. I think it was the bit on ‘tax evasion’ being a criminal offence punishable by imprisonment that focused my thoughts. I resolved on my return to come clean. To my amazement, the tax system was not as penal or as complicated as I had feared. Now let’s look briefly at what the main taxes that affect a property investor are.

My Tax Liabilities

Tax liabilities for rental properties are assessed on the basis of income and capital gains. Firstly, let’s examine how liabilities derived from income are calculated. All income from land and property in the UK is taxed under Schedule A; that includes residential investments whether they are furnished or not. Income and expenses for tax purposes are assessed as a single letting business. So effectively if you have one or one hundred properties, Her Majesty’s Revenue & Customs (HMRC) take the total figure rather than looking at individual properties. Income is assessed by tax years ending on the 5th April. Schedule A

tedly that I’ve become acquainted with the intricacies of the taxation system. For years I managed without making a return. Not out of any deliberate plan to defraud. But just because I knew I wasn’t making any money. My mortgage payments were barely covered by the rental income and having not sold any property, there were no capital gains. So why trouble the poor overworked civil servants I thought!

Then house prices went through the roof! I sold a few properties and realised some capital gains, investing most of it back into property. It was only when talking to a tennis friend, who turned out to be an accountant that I started to think I might need to explore the matter a bit more carefully. A holiday to Australia in which I took along a copy of the Zurich Tax Handbook as a bit of ‘light reading’ convinced me that there might be a problem. I think it was the bit on ‘tax evasion’ being a criminal offence punishable by imprisonment that focused my thoughts. I resolved on my return to come clean. To my amazement, the tax system was not as penal or as complicated as I had feared. Now let’s look briefly at what the main taxes that affect a property investor are.

My Tax Liabilities

Tax liabilities for rental properties are assessed on the basis of income and capital gains. Firstly, let’s examine how liabilities derived from income are calculated. All income from land and property in the UK is taxed under Schedule A; that includes residential investments whether they are furnished or not. Income and expenses for tax purposes are assessed as a single letting business. So effectively if you have one or one hundred properties, Her Majesty’s Revenue & Customs (HMRC) take the total figure rather than looking at individual properties. Income is assessed by tax years ending on the 5th April. Schedule A

a few properties and realised some capital gains, investing most of it back into property. It was only when talking to a tennis friend, who turned out to be an accountant that I started to think I might need to explore the matter a bit more carefully. A holiday to Australia in which I took along a copy of the Zurich Tax Handbook as a bit of ‘light reading’ convinced me that there might be a problem. I think it was the bit on ‘tax evasion’ being a criminal offence punishable by imprisonment that focused my thoughts. I resolved on my return to come clean. To my amazement, the tax system was not as penal or as complicated as I had feared. Now let’s look briefly at what the main taxes that affect a property investor are.

My Tax Liabilities

Tax liabilities for rental properties are assessed on the basis of income and capital gains. Firstly, let’s examine how liabilities derived from income are calculated. All income from land and property in the UK is taxed under Schedule A; that includes residential investments whether they are furnished or not. Income and expenses for tax purposes are assessed as a single letting business. So effectively if you have one or one hundred properties, Her Majesty’s Revenue & Customs (HMRC) take the total figure rather than looking at individual properties. Income is assessed by tax years ending on the 5th April. Schedule A

fence punishable by imprisonment that focused my thoughts. I resolved on my return to come clean. To my amazement, the tax system was not as penal or as complicated as I had feared. Now let’s look briefly at what the main taxes that affect a property investor are.

My Tax Liabilities

Tax liabilities for rental properties are assessed on the basis of income and capital gains. Firstly, let’s examine how liabilities derived from income are calculated. All income from land and property in the UK is taxed under Schedule A; that includes residential investments whether they are furnished or not. Income and expenses for tax purposes are assessed as a single letting business. So effectively if you have one or one hundred properties, Her Majesty’s Revenue & Customs (HMRC) take the total figure rather than looking at individual properties. Income is assessed by tax years ending on the 5th April. Schedule A

d. All income from land and property in the UK is taxed under Schedule A; that includes residential investments whether they are furnished or not. Income and expenses for tax purposes are assessed as a single letting business. So effectively if you have one or one hundred properties, Her Majesty’s Revenue & Customs (HMRC) take the total figure rather than looking at individual properties. Income is assessed by tax years ending on the 5th April. Schedule A income is treated as investment income. As such any losses can only be carried forward and offset against Schedule A income and not personal income such as a salary.

Taxable profit is the income that remains after all allowable expenses have been deducted. It’s always helpful to have a quick flick through the ‘revenues’ booklet IR150 in Taxation of Rents for detailed guidance. Like everything these days a copy is available to download from their website www.hmrc.co.uk

In essence, your taxable profit is calculated by taking your annual rent and then deducting expenses. For convenience HMRC separate expenses into 5 categories. These are:

Legal & professional- Legal services for a remortgage, valuation fees, mortgage broker fees, landlord safety certificate costs, tenancy agreement costs, letting agent fees, admin cost to close a mortgage, membership fees to a professional body

Repair, maintenance & renewals-redecoration costs, appliance repair charges, plumbing, electrical repairs, etc

Rent, rates, insurance, ground rents, etc -insurance, council tax charges, grounds rent

Cost of services provided, including wages – cleaning, meals

Other expenses –Telecom charges, utility bill costs, computer software, advertising costs, computer purchase (if used exclusively for the business – could be accounted as a capital allowance (see section on capital allowances below)

What are my allowable expenses?

Repair and renewals Where a property is furnished or part furnished; rather than to claim as each renewal arises it is possible to make a single claim of 10% of rent as a ‘wear and tear’ allowance. This is accepted by the Revenue as broadly equivalent to the cost of normal renewals of furniture. Beyond the fittings, such as furniture there will be renewals and repair to the building